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 nine months ended March 31, 2017 and 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 Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP).
33
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 nine months ended March 31, 2016 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 nine months
ended March 31, 2017 and 2016. 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.
|
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|
|
Liquidity and Capital Resources
This section provides an analysis of the Companys cash flows for the nine months ended
March 31, 2017 and 2016 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:
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|
|
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
Connections
SM
for Buyers and Advantage products. Move also
offers
34
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 of FOX SPORTS Australia and a number of news channels
operated by Australian News Channel Pty Ltd (SKY NEWS). FOX SPORTS Australia is 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.
|
Australian News Channel Pty Ltd, acquired in December 2016, operates the SKY NEWS network, Australias
24-hour multi-channel, multi-platform news service. SKY NEWS channels broadcast throughout Australia and New Zealand and are available on Foxtel and Sky Television. SKY NEWS owns and operates the international Australia Channel IPTV service and
also offers content across a variety of digital media platforms, including mobile, podcasts and social media websites.
|
|
|
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.
35
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 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 primarily consists of FOX SPORTS Australia and SKY NEWS. FOX SPORTS Australia offers the following seven channels in high definition: FOX SPORTS 501, FOX SPORTS 503, FOX SPORTS 505, FOX SPORTS 506, FOX LEAGUE, 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.
SKY NEWS services include the following channels: SKY NEWS LIVE, SKY NEWS BUSINESS, SKY NEWS WEATHER, SKY NEWS Multiview,
A-PAC
Australias Public
Affairs Channel, SKY NEWS New Zealand and Australia Channel for international markets. Revenue is primarily derived from monthly affiliate fees received from
pay-tv
providers based on the number of subscribers
and advertising.
36
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.
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 in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency
fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.
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.
37
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 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 6Borrowings in the accompanying 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.
38
RESULTS OF OPERATIONS
Results of OperationsFor the three and nine months ended March 31, 2017 versus the three and nine months ended March 31, 2016
The following table sets forth the Companys operating results for the three and nine months ended March 31, 2017 as compared to the three and
nine months ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended
March 31,
|
|
|
For the nine months
ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
705
|
|
|
$
|
671
|
|
|
$
|
34
|
|
|
|
5 %
|
|
|
$
|
2,123
|
|
|
$
|
2,222
|
|
|
$
|
(99
|
)
|
|
|
(4)%
|
|
Circulation and subscription
|
|
|
618
|
|
|
|
615
|
|
|
|
3
|
|
|
|
%
|
|
|
|
1,834
|
|
|
|
1,875
|
|
|
|
(41
|
)
|
|
|
(2)%
|
|
Consumer
|
|
|
359
|
|
|
|
343
|
|
|
|
16
|
|
|
|
5 %
|
|
|
|
1,183
|
|
|
|
1,164
|
|
|
|
19
|
|
|
|
2 %
|
|
Real estate
|
|
|
168
|
|
|
|
145
|
|
|
|
23
|
|
|
|
16 %
|
|
|
|
525
|
|
|
|
450
|
|
|
|
75
|
|
|
|
17 %
|
|
Other
|
|
|
128
|
|
|
|
117
|
|
|
|
11
|
|
|
|
9 %
|
|
|
|
394
|
|
|
|
355
|
|
|
|
39
|
|
|
|
11 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,978
|
|
|
|
1,891
|
|
|
|
87
|
|
|
|
5 %
|
|
|
|
6,059
|
|
|
|
6,066
|
|
|
|
(7
|
)
|
|
|
%
|
|
Operating expenses
|
|
|
(1,101
|
)
|
|
|
(1,084
|
)
|
|
|
(17
|
)
|
|
|
(2)%
|
|
|
|
(3,384
|
)
|
|
|
(3,476
|
)
|
|
|
92
|
|
|
|
3 %
|
|
Selling, general and administrative
|
|
|
(662
|
)
|
|
|
(649
|
)
|
|
|
(13
|
)
|
|
|
(2)%
|
|
|
|
(2,005
|
)
|
|
|
(1,987
|
)
|
|
|
(18
|
)
|
|
|
(1)%
|
|
NAM Group settlement charge
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
**
|
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
**
|
|
Depreciation and amortization
|
|
|
(109
|
)
|
|
|
(126
|
)
|
|
|
17
|
|
|
|
13 %
|
|
|
|
(349
|
)
|
|
|
(370
|
)
|
|
|
21
|
|
|
|
6 %
|
|
Impairment and restructuring charges
|
|
|
(33
|
)
|
|
|
(24
|
)
|
|
|
(9
|
)
|
|
|
(38)%
|
|
|
|
(409
|
)
|
|
|
(63
|
)
|
|
|
(346
|
)
|
|
|
**
|
|
Equity (losses) earnings of affiliates
|
|
|
(23
|
)
|
|
|
2
|
|
|
|
(25
|
)
|
|
|
**
|
|
|
|
(276
|
)
|
|
|
25
|
|
|
|
(301
|
)
|
|
|
**
|
|
Interest, net
|
|
|
8
|
|
|
|
11
|
|
|
|
(3
|
)
|
|
|
(27)%
|
|
|
|
30
|
|
|
|
34
|
|
|
|
(4
|
)
|
|
|
(12)%
|
|
Other, net
|
|
|
(13
|
)
|
|
|
33
|
|
|
|
(46
|
)
|
|
|
**
|
|
|
|
127
|
|
|
|
32
|
|
|
|
95
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax (expense) benefit
|
|
|
45
|
|
|
|
(226
|
)
|
|
|
271
|
|
|
|
**
|
|
|
|
(207
|
)
|
|
|
(19
|
)
|
|
|
(188
|
)
|
|
|
**
|
|
Income tax (expense) benefit
|
|
|
(45
|
)
|
|
|
98
|
|
|
|
(143
|
)
|
|
|
**
|
|
|
|
(12
|
)
|
|
|
140
|
|
|
|
(152
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
(128
|
)
|
|
|
128
|
|
|
|
**
|
|
|
|
(219
|
)
|
|
|
121
|
|
|
|
(340
|
)
|
|
|
**
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
**
|
|
|
|
|
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
(130
|
)
|
|
|
130
|
|
|
|
**
|
|
|
|
(219
|
)
|
|
|
141
|
|
|
|
(360
|
)
|
|
|
**
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(5
|
)
|
|
|
(19
|
)
|
|
|
14
|
|
|
|
74 %
|
|
|
|
(90
|
)
|
|
|
(52
|
)
|
|
|
(38
|
)
|
|
|
(73)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to News Corporation
|
|
$
|
(5
|
)
|
|
$
|
(149
|
)
|
|
$
|
144
|
|
|
|
97 %
|
|
|
$
|
(309
|
)
|
|
$
|
89
|
|
|
$
|
(398
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues increased $87 million, or 5%, and decreased $7 million for the three and nine months ended March 31,
2017, respectively, as compared to the corresponding periods of fiscal 2016.
The revenue increase for the three months ended March 31,
2017 was in large part due to an increase in revenues at the News and Information Services segment of $32 million, primarily due to higher revenues at News America Marketing of $32 million and the acquisitions of ARM and Wireless Group
which contributed $30 million and $24 million in revenues, respectively, partially offset by lower print advertising revenues and the negative impact of foreign currency fluctuations. The increase was also attributable to higher revenues
of $25 million at the Digital Real Estate Services segment due to growth at both REA Group and Move and the positive impact of foreign currency fluctuations and $16 million at the Book Publishing segment due to strong frontlist and
backlist sales. In addition, the Cable Network Programming segment contributed $15 million to the increase in revenues,
39
primarily due to the acquisition of SKY NEWS and the positive 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 $21 million for the three months ended March 31, 2017 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 nine months ended March 31,
2017 was primarily due to a decrease in revenues at the News and Information Services segment of $133 million, primarily resulting from weakness in the print advertising market across mastheads and the negative impact of foreign currency
fluctuations, partially offset by higher revenues at News America Marketing of $38 million, the acquisitions of Wireless Group and ARM which contributed $51 million and $30 million in revenues, respectively, and higher Other revenues.
The revenue decrease was also partially offset by revenue increases of $94 million at the Digital Real Estate Services segment, primarily as a result of growth at both REA Group and Move, $17 million at the Cable Network Programming
segment, primarily due to the positive impact of foreign currency fluctuations and the acquisition of SKY NEWS, and $16 million at the Book Publishing segment, primarily due to strong sales across the business. The impact of foreign currency
fluctuations of the U.S. dollar against local currencies resulted in a Revenue decrease of $110 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.
Operating Expenses
Operating expenses increased $17 million, or 2%, and decreased $92 million, or 3%, for the three and nine
months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.
The increase in Operating expenses
for the three months ended March 31, 2017 was mainly due to operating expense increases of $16 million at the Book Publishing segment, primarily related to higher sales in the period, and $12 million at the Cable Network Programming
segment, primarily resulting from the acquisition of SKY NEWS and the negative impact of foreign currency fluctuations. These increases were partially offset by a decrease at the News and Information Services segment of $13 million, primarily
as a result of lower newsprint, production, editorial and distribution costs, the impact of cost savings initiatives and the positive impact of foreign currency fluctuations, partially offset by higher costs of $30 million associated with the
acquisitions of ARM and Wireless Group. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $8 million for the three months ended March 31, 2017 as compared
to the corresponding period of fiscal 2016.
The decrease in Operating expenses for the nine months ended March 31, 2017 was mainly due
to a decrease in operating expenses at the News and Information Services segment of $114 million, primarily as a result of a $58 million positive impact from foreign currency fluctuations, lower newsprint, production, editorial and
distribution costs and the impact of cost savings initiatives, partially offset by higher costs of $46 million associated with the acquisitions of ARM and Wireless Group. The decrease was also offset by higher operating expenses of
$14 million at the Cable Network Programming segment, primarily due to the negative impact of foreign currency fluctuations and the acquisition of SKY NEWS, and $13 million at the Digital Real Estate Services segment. The impact of foreign
currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $44 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $13 million, or 2%, and
$18 million, or 1%, for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.
The increase in Selling, general and administrative expenses for the three months ended March 31, 2017 was due primarily to an increase at the News and Information Services segment of
$15 million, resulting in large part
40
from higher costs of $21 million associated with the acquisitions of ARM and Wireless Group, partially offset by an adjustment to the deferred consideration accrual related to the
acquisition of Unruly of $12 million and the positive impact of foreign currency fluctuations. The increase in Selling, general and administrative expenses was also attributable to a
one-time
corporate
charge of $11 million associated with a change in the Companys executive management in February 2017. These increases were partially offset by lower costs at the Digital Real Estate Services segment, mainly due to lower legal costs at
Move of $13 million. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $13 million for the three months ended March 31, 2017
as compared to the corresponding period of fiscal 2016.
The increase in Selling, general and administrative expenses for the nine months
ended March 31, 2017 was mainly due to an increase at the Digital Real Estate Services segment of $13 million, primarily related to higher costs at REA Group and Move associated with revenue growth, higher marketing costs and the
acquisition of iProperty, partially offset by lower legal costs at Move of $21 million. The increase was also attributable to a
one-time
corporate charge of $11 million associated with a change in
the Companys executive management in February 2017. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $64 million for the nine
months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.
NAM Group settlement
charge
During the three and nine months ended March 31, 2016, the Company recognized
one-time
costs of approximately $280 million in connection with the settlement of certain litigation
and related claims at News America Marketing (the NAM Group settlement charge). (See Note 10Commitments and Contingencies in the accompanying Consolidated Financial Statements).
Depreciation and amortization
Depreciation and amortization expense decreased $17 million, or 13% and $21 million, or 6% for the three and nine months ended March 31,
2017, respectively, as compared to the corresponding periods of fiscal 2016 due primarily to the write down of fixed assets at the Australian newspapers in the second quarter of fiscal 2017 and 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 $2 million and $7 million for the three and nine months ended March 31, 2017,
respectively, as compared to the corresponding periods of fiscal 2016.
Impairment and restructuring charges
During the
three and nine months ended March 31, 2017, the Company recorded restructuring charges of $21 million and $88 million, respectively, of which $19 million and $85 million, respectively, related to the News and Information
Services segment. The restructuring charges recorded in the three and nine months ended March 31, 2017 were for employee termination benefits.
In connection with a reorganization at Dow Jones, the Company has incurred $28 million of restructuring expense through the nine months ended March 31, 2017 which are included in the
restructuring charges discussed above. The Company expects to incur approximately $5 million to $15 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 and nine months
ended March 31, 2016, the Company recorded restructuring charges of $24 million and $63 million, respectively, of which $24 million and $56 million, respectively, related to the News and Information Services segment. The
restructuring charges recorded in the three and nine months ended March 31, 2016 were primarily for employee termination benefits.
During the second quarter of fiscal 2017, 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 second quarter. The write-down was comprised of approximately $149 million related to printing presses and
41
print related equipment, $77 million related to facilities, $66 million related to capitalized software and $18 million related to tradenames. Significant unobservable inputs
utilized in the income approach valuation method were a discount rate of 11.5% and no long-term growth.
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 and the related indefinite-lived intangible assets 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 increase in the discount rate or decrease in the projected cash flows terminal growth rate could have resulted in this reporting unit failing step one 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 March 31, 2017 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.
Equity (losses) earnings of affiliates
Equity earnings of affiliates decreased
$25 million and $301 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.
The decrease for the three months ended March 31, 2017 was primarily a result of lower net income at Foxtel due to losses of $21 million, primarily resulting from Foxtel managements
decision to cease Presto operations in January 2017, and losses of $14 million associated with the change in the fair value of Foxtels investment in Ten Network Holdings (Ten). (See Note 5Investments in the accompanying
Consolidated Financial Statements).
The decrease for the nine months ended March 31, 2017 was primarily a result of the
$227 million
non-cash
write-down of the carrying value of the Companys investment in Foxtel to fair value and lower net income at Foxtel due to losses of $47 million, primarily resulting from
Foxtel managements decision to cease Presto operations in January 2017, and losses of $36 million associated with the change in the fair value of Foxtels investment in Ten. (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. As a result, Foxtel was required to treat its investment in Ten as an equity method investment. Foxtel elected the fair value option under ASC 825, Financial Instruments, (ASC 825) and adjusts the carrying
value of the Ten investment to fair value each reporting period. Although Foxtel ceased to have significant influence in Ten during the third quarter of fiscal 2017, it will continue to adjust the carrying value of the Ten investment to fair
value each reporting period due to its election of the fair value option under ASC 825. This adjustment will be recorded as a component of Foxtels net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Foxtel
(a)
|
|
$
|
(16
|
)
|
|
$
|
4
|
|
|
$
|
(20
|
)
|
|
|
**
|
|
|
$
|
(260
|
)
|
|
$
|
26
|
|
|
$
|
(286
|
)
|
|
|
**
|
|
Other equity affiliates, net
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
**
|
|
|
|
(16
|
)
|
|
|
(1
|
)
|
|
|
(15
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity (losses) earnings of affiliates
|
|
$
|
(23
|
)
|
|
$
|
2
|
|
|
$
|
(25
|
)
|
|
|
**
|
|
|
$
|
(276
|
)
|
|
$
|
25
|
|
|
$
|
(301
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
(a)
|
During the second
quarter of fiscal 2017, 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 nine months ended March 31, 2017. (See Note 5Investments in the accompanying Consolidated Financial Statements).
|
Additionally, in accordance with ASC 350, the Company amortized $16 million and $53 million 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 nine months ended March 31, 2017, respectively, as compared to $12 million and
$37 million in the three and nine months ended March 31, 2016, 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 resulted from a corresponding decrease in amortization expense recognized by Foxtel as certain intangible assets were fully amortized in fiscal 2016. The higher amortization expense recognized by the Company was
partially offset by the impact of the $227 million non-cash write-down of the carrying value of its investment in Foxtel in the second quarter of fiscal 2017.
Interest, net
Interest, net decreased $3 million and $4 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods
of fiscal 2016, primarily due to higher interest expense associated with the REA Facility. The change in the nine months ended March 31, 2017 relative to the prior year period was also impacted by an adjustment to the deferred consideration
related to REA Groups acquisition of iProperty in the second fiscal quarter of 2017.
Other, net
The following table sets forth the components of Other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
For the nine months ended
March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Gain on sale of REA Groups European business
(a)
|
|
$
|
(13
|
)
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
|
|
Gain on iProperty transaction
(b)
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
Write-down of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
Gain on sale of other businesses
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Gain on sale of equity method investments
|
|
|
|
|
|
|
1
|
|
|
|
17
|
|
|
|
1
|
|
Other, net
|
|
|
|
|
|
|
3
|
|
|
|
13
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other, net
|
|
$
|
(13
|
)
|
|
$
|
33
|
|
|
$
|
127
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
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 in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency
fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.
|
(b)
|
The Company recorded a $29 million gain resulting from the revaluation of REA Groups previously held equity interest in iProperty. (See Note
2Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements).
|
Income
tax (expense) benefit
For the three months ended March 31, 2017, the Company recorded a tax charge of $45 million on
pre-tax
income of $45 million resulting in an effective tax rate
that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses.
43
For the nine months ended March 31, 2017, the Company recorded a tax charge of $12 million on a pre-tax loss
of $207 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 lower net tax benefit of $121 million on the non-cash write-down of assets and investments in
Australia and valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses, offset by lower taxes on the sale of REA Groups European business.
Management assesses available evidence to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax
assets. Based on managements assessment of available evidence, it has been determined that it is more likely than not that deferred tax assets in certain foreign jurisdictions may not be realized and therefore, a valuation allowance has been
established against those tax assets.
For the three months ended March 31, 2016 the Company recorded a tax benefit of $98 million
on a
pre-tax
loss of $226 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to the $29 million
non-taxable
gain resulting from the revaluation of REA Groups previously held equity interest in iProperty (See Note 2Acquisitions, Disposals and Other Transactions in the accompanying Consolidated
Financial Statements ), as well as a tax benefit of $107 million in connection with the settlement of certain litigation and related claims at News America Marketing. (See Note 10Commitments and Contingencies in the accompanying
Consolidated Financial Statements).
For the nine months ended March 31, 2016 the Company recorded a tax benefit of $140 million on
a
pre-tax
loss of $19 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. In addition to the third quarter impacts discussed above, the higher tax rate was
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 nine months ended March 31, 2017, 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 March 31, 2016, the Company recorded a loss from discontinued operations, net of tax, of $2 million reflecting the
continued operations of the Digital Education segment subsequent to the sale of Amplify Insight and Amplify Learning. For the nine months ended March 31, 2016, the Company recorded income from discontinued operations, net of tax, of
$20 million, primarily due to the impact of a $144 million tax benefit recognized upon reclassification of the Digital Education segment to discontinued operations, a tax benefit of $30 million related to the operations for the period
and lower operating losses as a result of the sale of Amplify Insight and Amplify Learning, which more than offset the
pre-tax
non-cash
impairment charge recognized in
the first quarter of fiscal 2016 of $76 million and $17 million in severance and lease termination charges recognized in the second quarter of fiscal 2016. (See Note 3Discontinued Operations in the accompanying Consolidated Financial
Statements).
Net income (loss)
Net income (loss) increased $130 million for the three months ended March 31,
2017 as compared to the corresponding period of fiscal 2016 due to the absence of the $280 million NAM Group settlement charge in the prior year and higher Segment EBITDA, partially offset by higher tax expense, lower contribution from Other,
net and lower equity earnings from Foxtel.
Net income (loss) for the nine months ended March 31, 2017 decreased $360 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 and lower equity earnings of affiliates, primarily due to the $227 million
non-cash
write-down of the carrying value of the Companys
44
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 absence
of the $280 million NAM Group settlement charge in the prior year and higher Other, net.
Net income attributable to noncontrolling
interests
Net income attributable to noncontrolling interests decreased by $14 million and increased by $38 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding
periods of fiscal 2016 primarily due to the gain, and subsequent
true-up,
on the sale of REA Groups European business.
Segment Analysis
Segment EBITDA is defined as revenues less operating expenses,
selling, general and administrative expenses and the NAM Group settlement charge. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity (losses) earnings of affiliates, interest, net, other,
net, income tax (expense) benefit 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).
45
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 Companys financial performance. The Company believes that the presentation of Total Segment EBITDA provides
useful information regarding the Companys operations and other factors that affect the Companys 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 Companys consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. The following table reconciles
Total Segment EBITDA to Income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues
|
|
$
|
1,978
|
|
|
$
|
1,891
|
|
|
$
|
87
|
|
|
|
5
|
%
|
|
$
|
6,059
|
|
|
$
|
6,066
|
|
|
$
|
(7
|
)
|
|
|
|
%
|
Operating expenses
|
|
|
(1,101
|
)
|
|
|
(1,084
|
)
|
|
|
(17
|
)
|
|
|
(2
|
)%
|
|
|
(3,384
|
)
|
|
|
(3,476
|
)
|
|
|
92
|
|
|
|
3
|
%
|
Selling, general and administrative
|
|
|
(662
|
)
|
|
|
(649
|
)
|
|
|
(13
|
)
|
|
|
(2
|
)%
|
|
|
(2,005
|
)
|
|
|
(1,987
|
)
|
|
|
(18
|
)
|
|
|
(1
|
)%
|
NAM Group settlement charge
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
*
|
*
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
|
|
215
|
|
|
|
(122
|
)
|
|
|
337
|
|
|
|
*
|
*
|
|
|
670
|
|
|
|
323
|
|
|
|
347
|
|
|
|
*
|
*
|
Depreciation and amortization
|
|
|
(109
|
)
|
|
|
(126
|
)
|
|
|
17
|
|
|
|
13
|
%
|
|
|
(349
|
)
|
|
|
(370
|
)
|
|
|
21
|
|
|
|
6
|
%
|
Impairment and restructuring charges
|
|
|
(33
|
)
|
|
|
(24
|
)
|
|
|
(9
|
)
|
|
|
(38
|
)%
|
|
|
(409
|
)
|
|
|
(63
|
)
|
|
|
(346
|
)
|
|
|
*
|
*
|
Equity (losses) earnings of affiliates
|
|
|
(23
|
)
|
|
|
2
|
|
|
|
(25
|
)
|
|
|
*
|
*
|
|
|
(276
|
)
|
|
|
25
|
|
|
|
(301
|
)
|
|
|
*
|
*
|
Interest, net
|
|
|
8
|
|
|
|
11
|
|
|
|
(3
|
)
|
|
|
(27
|
)%
|
|
|
30
|
|
|
|
34
|
|
|
|
(4
|
)
|
|
|
(12
|
)%
|
Other, net
|
|
|
(13
|
)
|
|
|
33
|
|
|
|
(46
|
)
|
|
|
*
|
*
|
|
|
127
|
|
|
|
32
|
|
|
|
95
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax (expense) benefit
|
|
|
45
|
|
|
|
(226
|
)
|
|
|
271
|
|
|
|
*
|
*
|
|
|
(207
|
)
|
|
|
(19
|
)
|
|
|
(188
|
)
|
|
|
*
|
*
|
Income tax (expense) benefit
|
|
|
(45
|
)
|
|
|
98
|
|
|
|
(143
|
)
|
|
|
*
|
*
|
|
|
(12
|
)
|
|
|
140
|
|
|
|
(152
|
)
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) income from continuing operations
|
|
$
|
|
|
|
$
|
(128
|
)
|
|
$
|
128
|
|
|
|
*
|
*
|
|
$
|
(219
|
)
|
|
$
|
121
|
|
|
$
|
(340
|
)
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
1,263
|
|
|
$
|
123
|
|
|
$
|
1,231
|
|
|
$
|
(187
|
)
|
Book Publishing
|
|
|
374
|
|
|
|
37
|
|
|
|
358
|
|
|
|
36
|
|
Digital Real Estate Services
|
|
|
219
|
|
|
|
75
|
|
|
|
194
|
|
|
|
39
|
|
Cable Network Programming
|
|
|
122
|
|
|
|
34
|
|
|
|
107
|
|
|
|
34
|
|
Other
|
|
|
|
|
|
|
(54
|
)
|
|
|
1
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,978
|
|
|
$
|
215
|
|
|
$
|
1,891
|
|
|
$
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
3,788
|
|
|
$
|
311
|
|
|
$
|
3,921
|
|
|
$
|
54
|
|
Book Publishing
|
|
|
1,229
|
|
|
|
160
|
|
|
|
1,213
|
|
|
|
135
|
|
Digital Real Estate Services
|
|
|
687
|
|
|
|
237
|
|
|
|
593
|
|
|
|
169
|
|
Cable Network Programming
|
|
|
354
|
|
|
|
99
|
|
|
|
337
|
|
|
|
101
|
|
Other
|
|
|
1
|
|
|
|
(137
|
)
|
|
|
2
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,059
|
|
|
$
|
670
|
|
|
$
|
6,066
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
(63% and 65% of the Companys consolidated revenues in the nine months
ended March 31, 2017 and 2016, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
652
|
|
|
$
|
624
|
|
|
$
|
28
|
|
|
|
4
|
%
|
|
$
|
1,958
|
|
|
$
|
2,074
|
|
|
$
|
(116
|
)
|
|
|
(6
|
)%
|
Circulation and subscription
|
|
|
503
|
|
|
|
507
|
|
|
|
(4
|
)
|
|
|
(1
|
)%
|
|
|
1,499
|
|
|
|
1,546
|
|
|
|
(47
|
)
|
|
|
(3
|
)%
|
Other
|
|
|
108
|
|
|
|
100
|
|
|
|
8
|
|
|
|
8
|
%
|
|
|
331
|
|
|
|
301
|
|
|
|
30
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,263
|
|
|
|
1,231
|
|
|
|
32
|
|
|
|
3
|
%
|
|
|
3,788
|
|
|
|
3,921
|
|
|
|
(133
|
)
|
|
|
(3
|
)%
|
Operating expenses
|
|
|
(726
|
)
|
|
|
(739
|
)
|
|
|
13
|
|
|
|
2
|
%
|
|
|
(2,219
|
)
|
|
|
(2,333
|
)
|
|
|
114
|
|
|
|
5
|
%
|
Selling, general and administrative
|
|
|
(414
|
)
|
|
|
(399
|
)
|
|
|
(15
|
)
|
|
|
(4
|
)%
|
|
|
(1,258
|
)
|
|
|
(1,254
|
)
|
|
|
(4
|
)
|
|
|
|
%
|
NAM Group settlement charge
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
*
|
*
|
|
|
|
|
|
|
(280
|
)
|
|
|
280
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
123
|
|
|
$
|
(187
|
)
|
|
$
|
310
|
|
|
|
*
|
*
|
|
$
|
311
|
|
|
$
|
54
|
|
|
$
|
257
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues at the News and
Information Services segment increased $32 million, or 3%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The revenue increase was mainly due to higher advertising revenues of
$28 million as compared to the corresponding period of fiscal 2016, primarily resulting from higher advertising revenues at News America Marketing of $29 million and the acquisitions of Wireless Group and ARM, which contributed
$21 million and $20 million of advertising revenue in the quarter, respectively, partially offset by a $42 million decline primarily related to weakness in the print advertising market across territories. Circulation and subscription
revenues for the three months ended March 31, 2017 decreased $4 million as compared to the corresponding period of fiscal 2016 as a result of an $18 million negative impact from foreign currency fluctuations, which more than offset an
increase in circulation revenues at Dow Jones and the U.K newspapers.
47
Segment EBITDA at the News and Information Services segment increased $310 million for the three months
ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was primarily due to the absence of the $280 million NAM Group settlement charge in the prior year quarter, a $15 million impact from the higher
revenues for News America Marketing discussed above and the $12 million impact of an adjustment to the deferred consideration accrual related to the acquisition of Unruly. The lower print advertising revenues discussed above were partially
offset by lower newsprint, production, editorial and distribution costs and the impact of cost savings initiatives.
Revenues at the News and
Information Services segment decreased $133 million, or 3%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The revenue decrease was mainly due to lower advertising revenues of
$116 million as compared to the corresponding period of fiscal 2016, primarily resulting from weakness in the print advertising market across territories, a $20 million negative impact from foreign currency fluctuations and lower
advertising revenues of $10 million from the
Perth Sunday Times
which was sold in November 2016. These decreases were partially offset by the acquisitions of Wireless Group and ARM, which contributed $43 million and $20 million
of advertising revenues, respectively, and $32 million of higher advertising revenues at News America Marketing. Circulation and subscription revenues for the nine months ended March 31, 2017 decreased $47 million as compared to the
corresponding period of fiscal 2016, primarily as a result of the $70 million negative impact of foreign currency fluctuations, which more than offset higher circulation and subscription revenues at Dow Jones. Other revenues for the nine months
ended March 31, 2017 increased $30 million, primarily due to higher brand partnership revenues in the U.K. of $13 million, $12 million in Australia primarily due to higher third-party printing revenues and the acquisitions of
Unruly and Wireless Group, which contributed $11 million and $8 million, respectively, to the increase. These increases were offset by the $22 million negative impact of foreign currency fluctuations.
Segment EBITDA at the News and Information Services segment increased $257 million for the nine months ended March 31, 2017 as compared to the
corresponding period of fiscal 2016. The increase was primarily due to the absence of the $280 million NAM Group settlement charge in the prior year quarter, a $20 million impact of higher revenues for News America Marketing discussed
above and the $12 million impact of an adjustment to the deferred consideration accrual related to the acquisition of Unruly. These factors were partially offset by higher investment spending at Checkout 51 of $20 million and lower
contributions from News Corp Australia, Dow Jones and News UK of $33 million, $17 million and $6 million, respectively, due to the impact of lower advertising revenues as discussed above, partially offset by lower newsprint,
production, editorial and distribution costs and the impact of cost savings initiatives.
News Corp Australia
Revenues at the Australian newspapers for the three months ended March 31, 2017 increased $21 million, or 7%, 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 $16 million, or 5%. Advertising revenues increased $8 million, primarily due to the
acquisition of ARM, which contributed $20 million, and the $9 million positive impact of foreign currency fluctuations, partially offset by the $18 million impact of weakness in the print advertising market in Australia and the
absence of $5 million of advertising revenues from the
Perth Sunday Times
,
which was sold in November 2016. Circulation and subscription revenues increased $7 million, primarily due to the acquisition of ARM, which
contributed $6 million, and the $5 million positive impact of foreign currency fluctuations, as price increases and digital subscriber growth largely offset print volume declines.
Revenues at the Australian newspapers for the nine months ended March 31, 2017 were relatively flat 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 $41 million, or 4%. Advertising revenues declined $30 million, primarily as a result of the $72 million impact of weakness in the print
advertising market and lower advertising revenues of $10 million from the
Perth Sunday Times
, which was sold in November 2016,
48
partially offset by the $24 million positive impact of foreign currency fluctuations and the acquisition of ARM, which contributed $20 million to advertising revenues. Circulation and
subscription revenues increased $13 million due to the positive impact of foreign currency fluctuations, as price increases and digital subscriber growth were offset by print volume declines. Other revenues increased $16 million, primarily
due to higher third-party printing revenues.
News UK
For the three months ended March 31, 2017 revenues at the U.K. newspapers decreased $33 million, or 12%, as compared to the corresponding period of fiscal 2016. The impact of foreign currency
fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $40 million, or 14%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Circulation and subscription
revenues decreased $16 million, primarily due to the $22 million negative impact of foreign currency fluctuations, as the $5 million impact of single-copy volume declines at
The Sun
was offset by the $7 million impact of
cover price increases. Advertising revenues decreased $15 million, primarily due to the $11 million negative impact of foreign currency fluctuations and weakness in the print advertising market.
For the nine months ended March 31, 2017, revenues at the U.K. newspapers decreased $167 million, or 18%, as compared to the corresponding
period of fiscal 2016. The impact of foreign currency fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $147 million, or 16%, for the nine months ended March 31, 2017 as compared to the
corresponding period of fiscal 2016. Advertising revenues decreased $80 million, primarily due to the $44 million negative impact of foreign currency fluctuations and weakness in the print advertising market, partially offset by
$6 million in digital advertising growth. Circulation and subscription revenues decreased $75 million due to the $79 million negative impact of foreign currency fluctuations, as the $24 million impact of single-copy volume
declines, primarily at
The Sun,
was offset by the $28 million impact of cover price increases. Other revenues decreased $12 million due to the $24 million negative impact of foreign currency fluctuations, partially offset by
higher brand partnership revenues.
Dow Jones
Revenues at Dow Jones decreased $7 million, or 2%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Advertising revenues decreased
$14 million, primarily due to weakness in the print advertising market. Circulation and subscription revenues increased $6 million, primarily as a result of a $10 million increase 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.
Revenues at Dow Jones decreased $61 million, or 5%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Advertising revenues decreased
$78 million, primarily due to weakness in the print advertising market. Circulation and subscription revenues increased $15 million, primarily due to the $25 million impact of price increases and volume growth at
The Wall Street
Journal
, as professional information business revenues were relatively flat.
News America Marketing
Revenues at News America Marketing increased $32 million, or 13%, and $38 million, or 5%, for the three and nine months ended March 31,
2017, respectively, as compared to the corresponding periods of fiscal 2016. The increase was primarily due to an increase in domestic
in-store
product revenues of $34 million and $55 million,
respectively, primarily due to higher customer spend and to a lesser extent timing which accounted for approximately $15 million of the increase in both periods, partially offset by lower revenues for domestic free-standing insert products of
$11 million and $46 million, respectively.
49
Book Publishing
(20% of the Companys consolidated revenues in the nine months ended
March 31, 2017 and 2016)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
359
|
|
|
$
|
343
|
|
|
$
|
16
|
|
|
|
5
|
%
|
|
$
|
1,183
|
|
|
$
|
1,164
|
|
|
$
|
19
|
|
|
|
2
|
%
|
Other
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
%
|
|
|
46
|
|
|
|
49
|
|
|
|
(3
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
374
|
|
|
|
358
|
|
|
|
16
|
|
|
|
4
|
%
|
|
|
1,229
|
|
|
|
1,213
|
|
|
|
16
|
|
|
|
1
|
%
|
Operating expenses
|
|
|
(267
|
)
|
|
|
(251
|
)
|
|
|
(16
|
)
|
|
|
(6
|
)%
|
|
|
(845
|
)
|
|
|
(848
|
)
|
|
|
3
|
|
|
|
|
%
|
Selling, general and administrative
|
|
|
(70
|
)
|
|
|
(71
|
)
|
|
|
1
|
|
|
|
1
|
%
|
|
|
(224
|
)
|
|
|
(230
|
)
|
|
|
6
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
37
|
|
|
$
|
36
|
|
|
$
|
1
|
|
|
|
3
|
%
|
|
$
|
160
|
|
|
$
|
135
|
|
|
$
|
25
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues at the Book Publishing segment increased $16 million, or 4%, for the three months ended March 31, 2017
as compared to the corresponding period of fiscal 2016. The increase was mainly due to strong sales in the general books category, primarily
Hidden Figures
by Margot Lee Shetterly and the continued success of
Hillbilly Elegy
by J.D.
Vance, sales of
Carve the Mark
by Veronica Roth in the Childrens category and the continued expansion of HarperCollins global footprint. These increases were partially offset by the negative impact of foreign currency
fluctuations, which resulted in a revenue decrease of $6 million, or 2%, for the three months ended March 31, 2017 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 22% of Consumer revenues during the three months ended March 31, 2017. Digital sales increased 7% as compared to the corresponding period of fiscal 2016 due
to increased audio sales compared to the prior year quarter.
Segment EBITDA at the Book Publishing segment increased $1 million, or 3%,
for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.
Revenues at the Book Publishing
segment increased $16 million, or 1%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was mainly due to strong frontlist and backlist 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 the continued expansion of
HarperCollins global footprint, partially offset by the negative impact of foreign currency fluctuations, which resulted in a revenue decrease of $26 million, or 2%, for the nine months ended March 31, 2017 as compared to the
corresponding period of fiscal 2016. Digital sales represented 19% of Consumer revenues during the nine months ended March 31, 2017. Digital sales increased 1% as compared to the corresponding period of fiscal 2016.
Segment EBITDA at the Book Publishing segment increased $25 million, or 19%, for the nine months ended March 31, 2017 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.
50
Digital Real Estate Services
(11% and 10% of the Companys consolidated revenues in the
nine months ended March 31, 2017 and 2016, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
36
|
|
|
$
|
32
|
|
|
$
|
4
|
|
|
|
13
|
%
|
|
$
|
107
|
|
|
$
|
95
|
|
|
$
|
12
|
|
|
|
13
|
%
|
Circulation and subscription
|
|
|
13
|
|
|
|
16
|
|
|
|
(3
|
)
|
|
|
(19
|
)%
|
|
|
44
|
|
|
|
47
|
|
|
|
(3
|
)
|
|
|
(6
|
)%
|
Real estate
|
|
|
168
|
|
|
|
145
|
|
|
|
23
|
|
|
|
16
|
%
|
|
|
525
|
|
|
|
450
|
|
|
|
75
|
|
|
|
17
|
%
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
*
|
*
|
|
|
11
|
|
|
|
1
|
|
|
|
10
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
219
|
|
|
|
194
|
|
|
|
25
|
|
|
|
13
|
%
|
|
|
687
|
|
|
|
593
|
|
|
|
94
|
|
|
|
16
|
%
|
Operating expenses
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)%
|
|
|
(85
|
)
|
|
|
(72
|
)
|
|
|
(13
|
)
|
|
|
(18
|
)%
|
Selling, general and administrative
|
|
|
(117
|
)
|
|
|
(130
|
)
|
|
|
13
|
|
|
|
10
|
%
|
|
|
(365
|
)
|
|
|
(352
|
)
|
|
|
(13
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
75
|
|
|
$
|
39
|
|
|
$
|
36
|
|
|
|
92
|
%
|
|
$
|
237
|
|
|
$
|
169
|
|
|
$
|
68
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
at the Digital Real Estate Services segment increased $25 million, or 13%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. At REA Group, revenues increased $11 million, or 10%,
primarily due to a $12 million increase in Australian residential depth revenue resulting from a favorable product mix and pricing increases, as well as the $6 million positive impact of foreign currency fluctuations, partially offset by
the absence of $9 million of revenues from the European business, which was sold in December 2016. Revenues at Move increased $13 million, or 15%, primarily due to a $12 million increase in Connections
SM
for Buyers product revenues and a $5 million increase in
non-listing
media revenues, partially offset by the absence of $4 million of revenues from TigerLead
®
, which was sold in November 2016.
Segment EBITDA at the
Digital Real Estate Services segment increased $36 million, or 92%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. REA Group and Move contributed $15 million and $22 million to
the increase in Segment EBITDA, respectively, primarily due to the higher revenues noted above, $13 million of lower legal costs at Move, the absence of $7 million in
one-time
transaction costs which
did not recur in the current year period associated with the acquisition of iProperty and the $3 million positive impact of foreign currency fluctuations at REA Group, partially offset by $7 million of increased costs at REA Group and Move
associated with higher revenues and $6 million related to increased marketing costs.
Revenues at the Digital Real
Estate Services segment increased $94 million, or 16%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. At REA Group, revenues increased $57 million, or 17%, primarily due to a
$30 million increase in Australian residential depth revenue and the $17 million positive impact of foreign currency fluctuations. Revenues at Move increased $27 million, or 10%, primarily due to a $23 million increase in
Connections
SM
for Buyers product revenues and an
$11 million increase in
non-listing
media revenues, partially offset by the $8 million impact of lower revenues from TigerLead
®
, which was sold in November 2016. The acquisition of DIAKRIT also contributed $10 million to the revenue increase for the nine months ended March 31, 2017.
Segment EBITDA at the Digital Real Estate Services segment increased $68 million, or 40%, for the nine months ended March 31, 2017
as compared to the corresponding period of fiscal 2016. REA Group and Move contributed $34 million and $36 million to the increase in Segment EBITDA, respectively, primarily due to the higher revenues noted above, $21 million of lower
legal costs at Move, the $10 million positive impact of foreign currency fluctuations at REA Group and the absence of $7 million in
one-time
transaction costs which did not recur in the current year
period associated with the acquisition of iProperty, partially offset by $19 million of increased costs at REA Group and Move associated with higher revenues, $17 million of increased marketing costs to drive traffic growth and brand
awareness and $14 million in higher costs related to the acquisition of iProperty.
51
Cable Network Programming
(6% and 5% of the Companys consolidated revenues in the nine
months ended March 31, 2017 and 2016, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
For the nine months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
3
|
|
|
|
21
|
%
|
|
$
|
58
|
|
|
$
|
52
|
|
|
$
|
6
|
|
|
|
12
|
%
|
Circulation and subscription
|
|
|
102
|
|
|
|
92
|
|
|
|
10
|
|
|
|
11
|
%
|
|
|
291
|
|
|
|
282
|
|
|
|
9
|
|
|
|
3
|
%
|
Other
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
*
|
*
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
122
|
|
|
|
107
|
|
|
|
15
|
|
|
|
14
|
%
|
|
|
354
|
|
|
|
337
|
|
|
|
17
|
|
|
|
5
|
%
|
Operating expenses
|
|
|
(80
|
)
|
|
|
(68
|
)
|
|
|
(12
|
)
|
|
|
(18
|
)%
|
|
|
(234
|
)
|
|
|
(220
|
)
|
|
|
(14
|
)
|
|
|
(6
|
)%
|
Selling, general and administrative
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(60
|
)%
|
|
|
(21
|
)
|
|
|
(16
|
)
|
|
|
(5
|
)
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
99
|
|
|
$
|
101
|
|
|
$
|
(2
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31, 2017, revenues at the Cable Network Programming segment increased $15 million, or 14%, and Segment EBITDA was flat compared to the corresponding period of fiscal 2016. The revenue increase was primarily due to the acquisition of
SKY NEWS, which contributed $9 million of revenue in the period, and the $5 million positive impact of foreign currency fluctuations.
For the nine months ended March 31, 2017, revenues at the Cable Network Programming segment increased $17 million, or 5%, and Segment EBITDA
decreased $2 million, or 2%, as compared to the corresponding period of fiscal 2016. The revenue increase was primarily due to the $11 million positive impact of foreign currency fluctuations and the acquisition of SKY NEWS, which
contributed $9 million of revenue in the period. The decrease in Segment EBITDA was due to the $3 million negative impact of foreign currency fluctuations.
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 March 31, 2017, the
Companys cash and cash equivalents were $1,850 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 March 31, 2017, the Companys consolidated assets included $918 million in cash and cash equivalents that was held by its foreign
subsidiaries. $224 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
52
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 nine months ended March 31, 2017. Through May 5, 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 May 5, 2017 was
approximately $429 million. All decisions regarding any future stock repurchases are at the 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. In February 2017, 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 April 19, 2017 to stockholders of record as of March 15, 2017. 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 nine months ended March 31, 2017 versus the nine months ended March 31, 2016
Net cash provided by operating activities from continuing operations for the nine months ended March 31, 2017 and 2016 was as follows (in millions):
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|
|
|
|
|
|
|
|
For the nine months ended March 31,
|
|
2017
|
|
|
2016
|
|
Net cash provided by operating activities from continuing operations
|
|
$
|
224
|
|
|
$
|
589
|
|
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Net cash provided by operating activities from continuing operations decreased by $365 million for the
nine months ended March 31, 2017 as compared to the nine months ended March 31, 2016. The decrease was primarily due to higher NAM Group settlement payments of $234 million during the nine months ended March 31, 2017, lower
dividends received of $30 million as well as higher working capital due to timing, partially offset by higher Total Segment EBITDA.
Net
cash used in investing activities from continuing operations for the nine months ended March 31, 2017 and 2016 was as follows (in millions):
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|
|
|
|
|
|
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For the nine months ended March 31,
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|
2017
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|
|
2016
|
|
Net cash used in investing activities from continuing operations
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|
$
|
(49
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)
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|
$
|
(703
|
)
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The Company had net cash used in investing activities from continuing operations of $49 million for the nine months
ended March 31, 2017 as compared to net cash used in investing activities from continuing operations of $703 million for the corresponding period of fiscal 2016. During the nine months ended March 31, 2017, the Company used
$345 million of cash for acquisitions, primarily for the acquisitions of Wireless Group and ARM. The Company also had capital expenditures of $168 million. The net cash used in investing activities from continuing operations for the nine
months ended March 31, 2017 was partially offset by the utilization of restricted cash for the Wireless Group acquisition of $315 million and proceeds from the sale of REA Groups European business of approximately $140 million.
During the nine months ended March 31, 2016, the Company used $486 million of cash for acquisitions, primarily for the acquisition
of iProperty, Unruly, DIAKRIT and Checkout 51. The Company also had capital expenditures of $180 million.
Net cash (used in) provided by
financing activities from continuing operations for the nine months ended March 31, 2017 and 2016 was as follows (in millions):
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For the nine months ended March 31,
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2017
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|
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2016
|
|
Net cash (used in) provided by financing activities from continuing operations
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|
$
|
(152
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)
|
|
$
|
204
|
|
The Company had net cash used in financing activities from continuing operations of $152 million for the nine months
ended March 31, 2017 as compared to net cash provided by financing activities from continuing operations of $204 million for the corresponding period of fiscal 2016. During the nine months ended March 31, 2017, the Company paid
dividends of $93 million, primarily to News Corporation stockholders and REA Group minority stockholders, and repaid the debt assumed in the acquisition of Wireless Group of $23 million.
During the nine months ended March 31, 2016, the Company had proceeds from borrowings under an unsecured syndicated revolving loan facility of
approximately $340 million at REA Group. The net cash provided by financing activities from continuing operations for the nine months ended March 31, 2016 was partially offset by dividend payments of $88 million, primarily to News
Corporation stockholders and REA Group minority stockholders, and repurchases of News Corporation shares for $41 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.
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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:
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For the nine months ended March 31,
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2017
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|
|
2016
|
|
|
|
(in millions)
|
|
Net cash provided by continuing operating activities
|
|
$
|
224
|
|
|
$
|
589
|
|
Less: Capital expenditures
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|
|
(168
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)
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|
(180
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
409
|
|
Less: REA Group free cash flow
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|
|
(128
|
)
|
|
|
(92
|
)
|
Plus: Cash dividends received from REA Group
|
|
|
53
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Free cash flow available to News Corporation
|
|
$
|
(19
|
)
|
|
$
|
362
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|
|
|
|
|
|
|
|
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|
Free cash flow available to News Corporation decreased $381 million in the nine months ended March 31, 2017 to
($19) million from $362 million in the corresponding period of fiscal 2016, primarily due to lower cash provided by operating activities as discussed above and higher REA Group free cash flow, partially offset by lower capital expenditures.
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 March 31, 2017, the Company was in compliance with all
of the applicable debt covenants.
55
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 March 31, 2017, 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 an
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 March 31, 2017, REA Group was paying a margin of between 0.85% and 1.05%. REA Group paid approximately $3 million and $8 million in interest for the three and nine months
ended March 31, 2017, 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 March 31, 2017, 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 March 31, 2017 have not changed significantly from the disclosures included in the 2016
Form
10-K.
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. (See Note
10Commitments and Contingencies in the accompanying 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
56
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.
57