NEWS CORPORATION 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 Company's 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 inNews Corporation's Annual Report on Form 10-K for the fiscal year endedJune 30, 2019 as filed with theSecurities and Exchange Commission (the "SEC") onAugust 13, 2019 (the "2019 Form 10-K"), and Part II, Item 1A of this Form 10-Q, and as may be updated in 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 theSEC . This section should be read together with the unaudited consolidated financial statements ofNews Corporation and related notes set forth elsewhere herein and the audited consolidated financial statements ofNews Corporation and related notes set forth in the 2019 Form 10-K. INTRODUCTIONNews 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, subscription video services inAustralia , book publishing and digital real estate services. Certain reclassifications were made to the prior period consolidated financial statements to conform to the current year presentation. Specifically, the Company reclassified the costs associated with certain initiatives previously included within the Other segment to the News and Information Services segment as these initiatives directly benefit this segment. For the three and six months endedDecember 31, 2018 , these reclassifications increased Selling, general and administrative by$8 million and$15 million , respectively, for the News and Information 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 inthe United States of America ("GAAP"). Management's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company's financial condition, changes in financial condition and results of operations. This discussion is organized as follows:
• Overview of the Company's Businesses
-
This section provides a general description of the Company's businesses,
as well as developments that occurred to date during fiscal 2020 that the
Company believes are important in understanding its results of operations
and financial condition or to disclose known trends.
• Results of Operations
-This section provides an analysis of the Company's results of operations
for the three and six months ended December 31, 2019 and 2018. This
analysis is presented on both a consolidated basis and a segment basis.
Supplemental revenue information is also included for reporting units
within certain segments and is presented on a gross basis, before
eliminations in consolidation. In addition, a brief description is
provided of significant transactions and events that impact the
comparability of the results being analyzed.
36--------------------------------------------------------------------------------
Table of Contents
• Liquidity and Capital Resources
-
This section provides an analysis of the Company's cash flows for the six
months ended December 31, 2019 and 2018, as well as a discussion of the
Company's financial arrangements and outstanding commitments, both firm
and contingent, that existed as of December 31, 2019 .
OVERVIEW OF THE COMPANY'S BUSINESSES
• News and Information Services
-The News and Information Services segment includes the Company's global
print, digital and broadcast radio media platforms. These product
offerings include the global print and digital versions of
The Wall Street Journal
and Barron's Group, which includes
Barron'sand MarketWatch, the Company's suite of professional information products,
including Factiva, Dow Jones Risk & Compliance and Dow Jones Newswires,
and its live journalism events. The Company also owns, among other
publications,
The Australian
,
The Daily Telegraph
,
Herald Sun
,
The Courier Mail
and
The Advertiser
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
provider of
in-store
marketing products and services, home-delivered shopper media and digital
marketing solutions, including Checkout 51's mobile app, as well as
the U.K. , and Storyful , a social media content agency.
• Subscription Video Services-The Company's Subscription Video Services segment provides video sports,
entertainment and news services to
pay-TV
subscribers and other commercial licensees, primarily via cable, satellite
and internet distribution, and consists of (i) the Company's 65% interest
in
and (ii)
pay-TV
provider in
entertainment, movies, documentaries, music, children's programming and
news.
with broadcast rights to live sporting events including: National Rugby
League , Australian Football League , Cricket Australia , the domestic
football league, the Australian Rugby Union and various motorsports
programming. Foxtel also operates Foxtel Now, an
over-the-top,
or OTT, service, and Kayo, a sports-only OTT service.
ANC operates the SKY NEWS network, Australia's
24-hour
multi-channel, multi-platform news service. ANC channels are distributed
throughout Australia and New Zealand and available on Foxtel and Sky Network
Television NZ. ANC also owns and operates the international Australia Channel
IPTV service and offers content across a variety of digital media platforms,
including mobile, podcasts and social media websites.
•
-
consumer book publisher in the world, with operations in 17 countries and
particular strengths in general fiction, nonfiction, children's and
religious publishing. HarperCollins owns more than 120 branded publishing
imprints, including Harper,
Books,
Nelson, and publishes works by well-known authors such as
and Joanna Gaines , Rick Warren , Sarah Young and Agatha Christie and
popular titles such as
The Hobbit, Goodnight Moon, To Kill a Mockingbird, Jesus Calling
and
Hillbilly Elegy
.
• Digital Real Estate Services
-
interest in REA Group and 80% interest in Move. The remaining 20% interest
in Move is held by REA Group. REA Group is a market-leading digital media
business specializing in property and is listed on the ASX (ASX: REA). REA
Group advertises property and property-related services on its websites
and mobile apps across
residential, commercial and share property websites, realestate.com.au,
realcommercial.com.au, Flatmates.com.au and spacely.com.au, and property
portals in
the financial sector and financial services through an
end-to-end
digital property search and financing experience and a mortgage broking
offering.
37-------------------------------------------------------------------------------- Table of Contents Move is a leading provider of online real estate services in theU.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 Plus and Advantage SM Pro products as well as its Opcity performance and subscription-based services. Move also offers a number of professional software and services products, including Top Producer ® and ListHub TM . • Other
-The Other segment consists primarily of general corporate overhead
expenses, the corporate
Newspaper Matters (as defined in Note 10-Commitments and Contingencies to
the Consolidated Financial Statement). The Company's
identifies new products and services across its businesses to increase
revenues and profitability and targets and assesses potential
acquisitions, investments and dispositions.
Other Business Developments
The Company previously announced that it was reviewing strategic options for
News America Marketing, including a potential sale, and is engaged in
negotiations to sell the business. However, there is no assurance regarding the
timing or completion of any transaction.
In January 2020 , the Company sold Unruly to Tremor International Ltd ("Tremor")
for approximately 7% of Tremor's outstanding shares. The transaction is subject
to certain cash adjustments, and the Company agreed not to sell the Tremor
shares for a period of 18 months after closing. At closing, the Company and
Tremor entered into a three year commercial arrangement which granted Tremor the
exclusive right to sell outstream video advertising on all of the Company's
digital properties in exchange for a total minimum revenue guarantee for News
Corp of £30 million.
38
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS
Results of Operations-For the three and six months ended December 31, 2019
versus the three and six months ended December 31, 2018
The following table sets forth the Company's operating results for the three and
six months ended December 31, 2019 as compared to the three and six months ended
December 31, 2018 .
For the three months ended December 31, For the six months ended December 31,
2019 2018 Change % Change 2019 2018 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues:
Circulation and subscription $ 990 $ 1,029 $ (39 ) (4 )% $ 1,985 $ 2,063 $ (78 ) (4 )%
Advertising 677 718 (41 ) (6 )% 1,285 1,382 (97 ) (7 )%
Consumer 421 478 (57 ) (12 )% 808 878 (70 ) (8 )%
Real estate 242 248 (6 ) (2 )% 460 475 (15 ) (3 )%
Other 149 154 (5 ) (3 )% 281 353 (72 ) (20 )%
Total Revenues 2,479 2,627 (148 ) (6 )% 4,819 5,151 (332 ) (6 )%
Operating expenses (1,350 ) (1,484 ) 134 9 % (2,687 ) (2,824 ) 137 5 %
Selling, general and
administrative (774 ) (773 ) (1 ) - (1,556 ) (1,599 ) 43 3 %
Depreciation and amortization (162 ) (163 ) 1 1 % (324 ) (326 ) 2 1 %
Impairment and restructuring
charges (29 ) (19 ) (10 ) (53 )% (326 ) (37 ) (289 ) **
Equity losses of affiliates (3 ) (6 ) 3 50 % (5 ) (9 ) 4 44 % Interest expense, net (8 ) (15 ) 7 47 % (4 ) (31 ) 27 87 % Other, net 2 7 (5 ) (71 )% 6 27 (21 ) (78 )% Income (loss) before income tax expense 155 174 (19 ) (11 )% (77 ) 352 (429 ) ** Income tax expense (52 ) (55 ) 3 5 % (31 ) (105 ) 74 70 % Net income (loss) 103 119 (16 ) (13 )% (108 ) 247 (355 ) ** Less: Net income attributable to noncontrolling interests (18 ) (24 ) 6 25 % (34 ) (51 ) 17
33 %
Net income (loss) attributable
to
** not meaningful Revenues - Revenues decreased$148 million , or 6%, and$332 million , or 6%, for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. The Revenue decrease for the three months endedDecember 31, 2019 was due in part to lower revenues at the Subscription Video Services segment of$61 million , mainly due to lower subscription revenues resulting from lower broadcast subscribers and changes in the subscriber package mix and the$25 million negative impact of foreign currency fluctuations. The decrease was also due to lower revenues at theBook Publishing segment of$54 million primarily due to lower sales of Homebody: A Guide to Creating Spaces You Never Want to Leave byJoanna Gaines , Girl, Wash Your Face byRachel Hollis as well as lower sales of other backlist titles. Additionally, revenues at theDigital Real Estate Services and News and Information Services segments decreased$17 million and$16 million , respectively. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Revenue decrease of$50 million for the three months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. 39 -------------------------------------------------------------------------------- Table of Contents The Revenue decrease for the six months endedDecember 31, 2019 was due in part to lower revenues at the News and Information Services segment of$115 million , primarily due to weakness in the print advertising market, the$50 million negative impact of foreign currency fluctuations, the absence of the$48 million benefit related to NewsUK's exit from the partnership forSun Bets in the first quarter of fiscal 2019 and lower revenues at News America Marketing of$28 million , partially offset by price increases and digital subscriber growth across key mastheads. The decrease was also due to lower revenues at the Subscription Video Services segment of$112 million , primarily due to the$59 million negative impact of foreign currency fluctuations and lower subscription revenues, resulting from lower broadcast subscribers and changes in the subscriber package mix, partially offset by$38 million of higher revenues from Kayo and Foxtel Now. Additionally, revenues at theBook Publishing and Digital Real Estate Service segments decreased$67 million and$38 million , respectively. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Revenue decrease of$134 million for the six months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. The Company calculates the impact of foreign currency fluctuations for businesses reporting in currencies other than theU.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. Operating expenses - Operating expenses decreased$134 million , or 9%, and$137 million , or 5%, for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. The decrease in Operating expenses for the three months endedDecember 31, 2019 was mainly due to lower operating expenses at the Subscription Video Services segment of$70 million , primarily resulting from lower entertainment programming costs, the$17 million positive impact of foreign currency fluctuations and lower transmission costs. The decrease in Operating expenses was also due to lower expenses at the News and Information Services segment of$42 million , primarily due to cost savings initiatives, lower newsprint, production and distribution costs, the$22 million impact from the one-time benefit from the settlement of certain warranty-related claims pertaining to previously incurred and ongoing repairs and maintenance costs for NewsUK's printing business and the$7 million positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in an Operating expense decrease of$25 million for the three months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. The decrease in Operating expenses for the six months endedDecember 31, 2019 was mainly due to lower operating expenses at the News and Information Services segment of$81 million , primarily due to cost savings initiatives, lower newsprint, production and distribution costs, the$25 million positive impact of foreign currency fluctuations and the$22 million impact from the one-time benefit from the settlement of certain warranty-related claims pertaining to previously incurred and ongoing repairs and maintenance costs for NewsUK's printing business. The decrease was also due to lower operating expenses at the Subscription Video Services segment of$50 million , primarily due to the$39 million positive impact of foreign currency fluctuations, partially offset by higher operating expenses at theDigital Real Estate Services segment of$10 million , mainly due to the acquisition of and continued investment in Opcity. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in an Operating expense decrease of$69 million for the six months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. Selling, general and administrative -Selling, general and administrative increased$1 million for the three months endedDecember 31, 2019 and decreased$43 million , or 3%, for the six months endedDecember 31, 2019 , as compared to the corresponding periods of fiscal 2019. The increase in Selling, general and administrative for the three months endedDecember 31, 2019 was primarily due to higher expenses of$23 million at the Subscription Video Services segment, largely offset by lower expenses at theDigital Real Estate Services , News andInformation Services and Book Publishing segments of$14 million ,$4 million and$4 million , respectively. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Selling, general and administrative decrease of$15 million for the three months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. 40 -------------------------------------------------------------------------------- Table of Contents The decrease in Selling, general and administrative for the six months endedDecember 31, 2019 was primarily due to lower expenses of$22 million at theDigital Real Estate Services segment, primarily due to lower marketing costs, and lower expenses at the Subscription Video Services segment of$16 million , primarily due to lower overhead costs and the$10 million positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Selling, general and administrative decrease of$42 million for the six months endedDecember 31, 2019 as compared to the corresponding period of fiscal 2019. Depreciation and amortization - Depreciation and amortization expense decreased$1 million , or 1%, and$2 million , or 1%, for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a depreciation and amortization expense decrease of$5 million and$12 million for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. Impairment and restructuring charges - During the three and six months endedDecember 31, 2019 , the Company recorded restructuring charges of$10 million and$34 million , respectively. During the three and six months endedDecember 31, 2018 , the Company recorded restructuring charges of$19 million and$37 million , respectively. During the three months endedDecember 31, 2019 , the Company recognized a non-cash impairment charge of$19 million related to a reporting unit in the News and Information Services segment. During the six months endedDecember 31, 2019 , the Company recognized non-cash impairment charges of$292 million primarily related to the impairment of goodwill and indefinite-lived intangible assets at the News America Marketing reporting unit. See Note 3-Impairment and Restructuring Charges in the accompanying Consolidated Financial Statements. Equity losses of affiliates - Equity losses of affiliates improved by$3 million and$4 million for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. See Note 4-Investments in the accompanying Consolidated Financial Statements. Interest expense, net - Interest expense, net improved by$7 million and$27 million for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. Interest expense, net improved for the three months endedDecember 31, 2019 primarily due to lower third party interest expense resulting from repayments of maturing debt facilities. Interest expense, net improved for the six months endedDecember 31, 2019 primarily due to the settlement of cash flow hedges related to debt maturities occurring in the first quarter of fiscal 2020 and lower third party interest expense due to repayments of maturing debt facilities. Other, net - Other, net decreased by$5 million and$21 million for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. See Note 13-Additional Financial Information in the accompanying Consolidated Financial Statements. Income tax expense - For the three months endedDecember 31, 2019 , the Company recorded income tax expense of$52 million on pre-tax income of$155 million resulting in an effective tax rate that was higher than theU.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 and the impact of foreign operations which are subject to higher tax rates. For the six months endedDecember 31, 2019 , the Company recorded an income tax expense of$31 million on a pre-tax loss of$77 million resulting in an effective tax rate that was lower than theU.S. statutory tax rate. The tax rate was impacted by the lower tax benefit recorded on the impairment of News America Marketing's goodwill and indefinite-lived intangible assets, by valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses and by the impact of foreign operations which are subject to higher tax rates. For the three months endedDecember 31, 2018 , the Company recorded income tax expense of$55 million on pre-tax income of$174 million resulting in an effective tax rate that was higher than theU.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 and the impact from foreign operations which are subject to higher tax rates. 41 -------------------------------------------------------------------------------- Table of Contents For the six months endedDecember 31, 2018 , the Company recorded income tax expense of$105 million on pre-tax income of$352 million resulting in an effective tax rate that was higher than theU.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 and the impact from foreign operations which are subject to higher tax rates. 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 management's assessment of available evidence, it has been determined that it is more likely than not that certain deferred tax assets inU.S. Federal, State and foreign jurisdictions may not be realized and therefore, a valuation allowance has been established against those tax assets. Net income (loss) - Net income (loss) deteriorated by$16 million and$355 million for the three and six months endedDecember 31, 2019 , respectively, as compared to the corresponding periods of fiscal 2019. The change in Net income during the three months endedDecember 31, 2019 was primarily due to lower Total Segment EBITDA. The change in Net income (loss) during the six months endedDecember 31, 2019 was primarily due to
non-cash
impairment charges of$292 million primarily related to the impairment of goodwill and indefinite-lived intangible assets at News America Marketing and lower Total Segment EBITDA, partially offset by lower interest and tax expense. Net income attributable to noncontrolling interests -Net income attributable to noncontrolling interests decreased by$6 million and$17 million for the three and six months endedDecember 31, 2019 , as compared to the corresponding periods of fiscal 2019. The decrease in Net income attributable to noncontrolling interests for the three and six months endedDecember 31, 2019 was primarily due to lower results at REA Group andFoxtel . Segment Analysis Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity losses of affiliates, interest (expense) income, net, other, net and income tax (expense) benefit. 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 Company's chief operating decision maker to evaluate the performance of and allocate resources within the Company's businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the Company's business segments and its enterprise value against historical data and competitors' data, although historical results may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences). 42 -------------------------------------------------------------------------------- Table of Contents Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company's financial performance. The Company believes that the presentation of Total Segment EBITDA provides useful information regarding the Company's operations and other factors that affect the Company's reported results. Specifically, the Company believes that by excluding certain one-time or non-cash items such as impairment and restructuring charges and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures and changes in tax positions or regimes, the Company provides users of its consolidated financial statements with insight into both its core operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its core business. As a result, users of the Company's consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. The following table reconciles Net income (loss) to Total Segment EBITDA for the three and six months endedDecember 31, 2019 and 2018: For the three months For the six months ended ended December 31, December 31, 2019 2018 2019 2018 (in millions, except %) Net income (loss)$ 103 $ 119 $ (108 ) $ 247 Add: Income tax expense 52 55 31 105 Other, net (2 ) (7 ) (6 ) (27 ) Interest expense, net 8 15 4 31 Equity losses of affiliates 3 6 5 9 Impairment and restructuring charges 29 19 326 37 Depreciation and amortization 162 163 324 326 Total Segment EBITDA$ 355 $ 370 $ 576$ 728
The following tables set forth the Company's Revenues and Segment EBITDA for the
three and six months ended
For the three months ended December 31,
2019 2018
Segment Segment
(in millions) Revenues EBITDA Revenues EBITDA
News and Information Services $ 1,241 $ 142 $ 1,257 $ 112
Subscription Video Services 501 70 562 84
Book Publishing 442 63 496 88
Digital Real Estate Services 294 118 311 121
Other 1 (38 ) 1 (35 )
Total $ 2,479 $ 355 $ 2,627 $ 370
43--------------------------------------------------------------------------------
Table of Contents
For the six months ended December 31,
2019 2018
Segment Segment
(in millions) Revenues EBITDA Revenues EBITDA
News and Information Services
$ 221 Subscription Video Services 1,015 151 1,127
197
Book Publishing 847 112 914
156
Digital Real Estate Services 566 200 604 226 Other 1 (85 ) 1 (72 ) Total$ 4,819 $ 576 $ 5,151 $ 728
News and Information Services
(50% and 48% of the Company's consolidated revenues in the six months ended
For the three months ended December 31, For the six months ended December 31,
2019 2018 Change % Change 2019 2018 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues:
Circulation and subscription $ 541 $ 526 $ 15 3 % $ 1,075 $ 1,055 $ 20 2 %
Advertising 599 632 (33 ) (5 )% 1,129 1,208 (79 ) (7 )%
Other 101 99 2 2 % 186 242 (56 ) (23 )%
Total Revenues 1,241 1,257 (16 ) (1 )% 2,390 2,505 (115 ) (5 )%
Operating expenses (671 ) (713 ) 42 6 % (1,341 ) (1,422 ) 81 6 %
Selling, general and administrative (428 ) (432 ) 4 1 % (851 ) (862 ) 11 1 %
Segment EBITDA $ 142 $ 112 $ 30 27 % $ 198 $ 221 $ (23 ) (10 )%
Revenues at the News and Information Services segment decreased $16 million , or
1%, for the three months ended December 31, 2019 as compared to the
corresponding period of fiscal 2019. The revenue decrease was primarily due to
lower Advertising revenues of $33 million mainly due to weakness in the print
advertising market, primarily in Australia , lower revenues at News America
Marketing of $7 million and the $7 million negative impact of foreign currency
fluctuations. Circulation and subscription revenues for the three months
ended December 31, 2019 increased $15 million as compared to the corresponding
period of fiscal 2019 primarily due to price increases, mainly in Australia and
the U.K. , digital subscriber growth across key mastheads, led by
The
Wall Street Journal,
and higher professional information business revenues at Dow Jones led by Risk &
Compliance. These increases were partially offset by print volume declines in
Australia and in the U.K. , primarily at
The Sun
, and the $6 million negative impact of foreign currency fluctuations. The
impact of foreign currency fluctuations of the U.S. dollar against local
currencies resulted in a revenue decrease of $15 million for the three months
ended December 31, 2019 as compared to the corresponding period of fiscal 2019.
Segment EBITDA at the News and Information Services
segment increased $30 million , or 27%, for the three months ended December 31,
2019 as compared to the corresponding period of fiscal 2019. The increase was
mainly due to higher contribution from News UK of $44 million primarily due to
cost savings initiatives, lower newsprint, production and distribution costs and
the $22 million impact from the
one-time
benefit from the settlement of certain warranty-related claims pertaining to
previously incurred and ongoing repairs and maintenance costs. The increase was
also due to higher contribution from Dow Jones of $4 million and lower losses at
the
New York Post
of $4 million due to higher revenues, partially offset by lower contribution
from
News Corp Australia of $8 million and from News America Marketing of $8 million
due to lower revenues.
Revenues at the News and Information Services segment decreased $115 million , or
5%, for the six months ended December 31, 2019 as compared to the corresponding
period of fiscal 2019. The revenue decrease was primarily due to lower
Advertising revenues of $79 million mainly due to weakness in the print
advertising market, primarily in Australia ,
lower revenues at News America Marketing of $28 million and the $22 million
negative
44
--------------------------------------------------------------------------------
Table of Contents
impact of foreign currency fluctuations, partially offset by digital advertising
growth, mainly in the U.K and Australia . Other revenues for the six months
ended December 31, 2019 decreased $56 million as compared to the corresponding
period of fiscal 2019 primarily due to the absence of the $48 million benefit
related to News UK's exit from the partnership for
Sun Bets
in the first quarter of fiscal 2019. Circulation and subscription revenues
increased $20 million as compared to the corresponding period of fiscal 2019
primarily due to price increases, mainly in Australia and the U.K. , digital
subscriber growth across key mastheads, led by
The
Wall Street Journal,
and higher professional information business revenues at Dow Jones led by Risk &
Compliance. These increases were partially offset by print volume declines in
Australia and in the U.K. , primarily at
The Sun ,
and the $21 million negative impact of foreign currency fluctuations. The impact
of foreign currency fluctuations of the U.S. dollar against local currencies
resulted in a revenue decrease of $50 million for the six months ended December
31, 2019 as compared to the corresponding period of fiscal 2019.
Segment EBITDA at the News and Information Services
segment decreased $23 million , or 10%, for the six months ended December 31,
2019 as compared to the corresponding period of fiscal 2019. The decrease was
mainly due to lower contribution from News America Marketing and News Corp
Australia of $21 million and $18 million , respectively, primarily due to lower
revenues. The decrease was partially offset by higher contribution from Dow
Jones of $14 million , primarily due to higher revenues, and higher contribution
from News UK of $8 million primarily due to cost savings initiatives, lower
newsprint, production and distribution costs and the $22 million impact from the
one-time
benefit from the settlement of certain warranty-related claims pertaining to
previously incurred and ongoing repairs and maintenance costs, partially offset
by the absence of the $48 million benefit related to the exit from the
partnership for
Sun Bets
in the first quarter of fiscal 2019.
Dow Jones
Revenues were $433 million for the three months ended December 31, 2019 , an
increase of $16 million , or 4%, as compared to revenues of $417 million in the
corresponding period of fiscal 2019. Circulation and subscription revenues
increased $19 million , primarily due to the $8 million impact from digital
subscriber growth and digital subscription price increases at
The Wall Street Journal
, $8 million of higher professional information business revenues led by Risk &
Compliance and higher content licensing revenue. Advertising revenues decreased
$6 million , primarily due to weakness in the print advertising market and lower
digital advertising revenue. The impact of foreign currency fluctuations of the
U.S. dollar against local currencies resulted in a revenue decrease of
$1 million for the three months ended December 31, 2019 , as compared to the
corresponding period of fiscal 2019.
Revenues were $817 million for the six months ended December 31, 2019 , an
increase of $38 million , or 5%, as compared to revenues of $779 million in the
corresponding period of fiscal 2019. Circulation and subscription revenues
increased $37 million , primarily due to the $17 million impact from digital
subscriber growth and digital subscription price increases at
The Wall Street Journal
, as well as $16 million of higher professional information business revenues
led by Risk & Compliance
.
Advertising revenues decreased $4 million , primarily due to weakness in the
print advertising market. The impact of foreign currency fluctuations of the
U.S. dollar against local currencies resulted in a revenue decrease of
$3 million for the six months ended December 31, 2019 , as compared to the
corresponding period of fiscal 2019.
News Corp Australia
Revenues were $282 million for the three months ended December 31, 2019 , a
decrease of $27 million , or 9%, compared to revenues of $309 million in the
corresponding period of fiscal 2019. The impact of foreign currency fluctuations
of the U.S. dollar against local currencies resulted in a revenue decrease of
$14 million , or 5%, for the three months ended December 31, 2019 as compared to
the corresponding period of fiscal 2019. Advertising revenues decreased
$19 million , primarily due to the $22 million impact of weakness in the print
advertising market and the $7 million negative impact of foreign currency
fluctuations, partially offset by a $5 million increase due to digital
advertising growth and a $4 million increase due to the acquisition of an
integrated content marketing agency. Circulation and subscription revenues
decreased $5 million primarily due to the $5 million negative impact of foreign
currency fluctuations, as print volume declines were offset by cover price
increases and digital subscriber growth.
Revenues were $558 million for the six months ended December 31, 2019 , a
decrease of $60 million , or 10%, compared to revenues of $618 million in the
corresponding period of fiscal 2019. The impact of foreign currency fluctuations
of the U.S. dollar against local currencies resulted in a revenue decrease of
$32 million , or 5%, for the six months ended
December 31, 2019 as compared to the corresponding period of fiscal 2019.
Advertising
45
--------------------------------------------------------------------------------
Table of Contents
revenues decreased $42 million , primarily due to the $45 million impact of
weakness in the print advertising market and the $17 million negative impact of
foreign currency fluctuations, partially offset by a $12 million increase due to
the acquisition of an integrated content marketing agency and a $10 million
increase due to digital advertising growth. Circulation and subscription
revenues decreased $13 million primarily due to the $11 million negative impact
of foreign currency fluctuations, as print volume declines were largely offset
by cover price increases and digital subscriber growth.
News UK
Revenues were $259 million for the three months ended December 31, 2019 , an
increase of $5 million , or 2%, as compared to revenues of $254 million in the
corresponding period of fiscal 2019. Advertising revenues increased $4 million ,
primarily due to digital advertising growth, mainly at
The Sun
, partially offset by weakness in the print advertising market
.
Circulation and subscription revenues decreased $2 million , mainly due to
single-copy volume declines, primarily at
The Sun ,
partially offset by cover price increases across mastheads and digital
subscriber growth.
Revenues were $482 million for the six months ended December 31, 2019 , a
decrease of $58 million , or 11%, as compared to revenues of $540 million in the
corresponding period of fiscal 2019. Other revenues decreased $53 million ,
mainly due to the absence of the $48 million benefit related to the exit from
the partnership for
Sun Bets
in the first quarter of fiscal 2019. Circulation and subscription revenues
decreased $9 million , primarily due to the $7 million negative impact of foreign
currency fluctuations, as cover price increases across mastheads and digital
subscriber growth mostly offset single-copy volume declines, primarily at
The Sun
. Advertising revenues increased $4 million , primarily due to digital
advertising growth, mainly at
The Sun
, partially offset by the $4 million negative impact of foreign currency
fluctuations and weakness in the print advertising market. The impact of foreign
currency fluctuations of the U.S. dollar against local currencies resulted in a
revenue decrease of $13 million , or 3%, for the six months ended December 31,
2019 as compared to the corresponding period of fiscal 2019.
News America Marketing
Revenues at News America Marketing were $191 million for the three months ended
December 31, 2019 , a decrease of $7 million , or 4%, as compared to revenues of
$198 million in the corresponding period of fiscal 2019. The decrease was
primarily related to $12 million of lower home delivered revenues, which include
free-standing insert products, mainly due to lower volume.
Revenues at News America Marketing were $391 million for the six months ended
December 31, 2019 , a decrease of $28 million , or 7%, as compared to revenues of
$419 million in the corresponding period of fiscal 2019. The decrease was
primarily related to $32 million of lower home delivered revenues, which include
free-standing insert products, mainly due to lower volume and rates.
Subscription Video Services
(21% and 22% of the Company's consolidated revenues in the six months ended
December 31, 2019 and 2018, respectively)
For the three months ended December 31, For the six months ended December 31,
2019 2018 Change % Change 2019 2018 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues:
Circulation and subscription $ 439 $ 490 $ (51 ) (10 )% $ 890 $ 981 $ (91 ) (9 )%
Advertising 53 55 (2 ) (4 )% 104 112 (8 ) (7 )%
Other 9 17 (8 ) (47 )% 21 34 (13 ) (38 )%
Total Revenues 501 562 (61 ) (11 )% 1,015 1,127 (112 ) (10 )%
Operating expenses (341 ) (411 ) 70 17 % (685 ) (735 ) 50 7 %
Selling, general and administrative (90 ) (67 ) (23 ) (34 )% (179 ) (195 ) 16 8 %
Segment EBITDA $ 70 $ 84 $ (14 ) (17 )% $ 151 $ 197 $ (46 ) (23 )%
46-------------------------------------------------------------------------------- Table of Contents For the three months endedDecember 31, 2019 , revenues at the Subscription Video Services segment decreased$61 million , or 11%, as compared to the corresponding period of fiscal 2019. The revenue decrease for the three months endedDecember 31, 2019 was primarily due to lower subscription revenues resulting from lower broadcast subscribers and changes in the subscriber package mix and the$25 million negative impact of foreign currency fluctuations, partially offset by$18 million of higher revenues from Kayo and Foxtel Now. For the three months endedDecember 31, 2019 , Segment EBITDA decreased$14 million , or 17%, as compared to the corresponding period of fiscal 2019. The Segment EBITDA decrease for the three months endedDecember 31, 2019 was primarily due to the lower revenues discussed above, partially offset by lower entertainment programming and transmission costs. For the six months endedDecember 31, 2019 , revenues at the Subscription Video Services segment decreased$112 million , or 10%, as compared to the corresponding period of fiscal 2019. The revenue decrease for the six months endedDecember 31, 2019 was primarily due to the$59 million negative impact of foreign currency fluctuations and lower subscription revenues resulting from lower broadcast subscribers and changes in the subscriber package mix, partially offset by$38 million of higher revenues from Kayo and Foxtel Now. For the six months endedDecember 31, 2019 , Segment EBITDA decreased$46 million , or 23%, as compared to the corresponding period of fiscal 2019. The Segment EBITDA decrease for the six months endedDecember 31, 2019 was primarily due to the lower revenues discussed above, partially offset by lower overhead and transmission costs and the positive impact of foreign currency fluctuations on expenses.Book Publishing (17% and 18% of the Company's consolidated revenues in the six months endedDecember 31, 2019 and 2018, respectively) For the three months ended December 31, For the six months ended December 31, 2019 2018 Change % Change 2019 2018 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Consumer$ 421 $ 478 $ (57 ) (12 )%$ 808 $ 878 $ (70 ) (8 )% Other 21 18 3 17 % 39 36 3 8 % Total Revenues 442 496 (54 ) (11 )% 847 914 (67 ) (7 )% Operating expenses (297 ) (322 ) 25 8 % (576 ) (597 ) 21 4 % Selling, general and administrative (82 ) (86 ) 4 5 % (159 ) (161 ) 2 1 % Segment EBITDA$ 63 $ 88 $ (25 ) (28 )%$ 112 $ 156 $ (44 ) (28 )% For the three months endedDecember 31, 2019 , revenues at theBook Publishing segment decreased$54 million , or 11%, as compared to the corresponding period of fiscal 2019. The decrease for the three months endedDecember 31, 2019 was primarily due to lower sales of Homebody: A Guide to Creating Spaces You Never Want to Leave byJoanna Gaines , Girl, Wash Your Face by Rachel Hollis, The Hate U Give by Angie Thomas and The Subtle Art Of Not Giving A F*ck byMark Manson , as well as the$2 million negative impact of foreign currency fluctuations. The decrease was partially offset by strong sales of The Pioneer Woman Cooks: The New Frontier byRee Drummond andThe Beast Of Buckingham Palace byDavid Walliams . Digital sales represented approximately 19% of Consumer revenues during the three months endedDecember 31, 2019 . Digital sales increased approximately 5% as compared to the corresponding period of fiscal 2019, primarily due to growth in downloadable audio books. For the three months endedDecember 31, 2019 , Segment EBITDA at theBook Publishing segment decreased$25 million , or 28%, as compared to the corresponding period of fiscal 2019. The decrease was primarily due to the lower revenues discussed above and the mix of titles. For the six months endedDecember 31, 2019 , revenues at theBook Publishing segment decreased$67 million , or 7%, as compared to the corresponding period of fiscal 2019. The decrease for the six months endedDecember 31, 2019 was primarily due to lower sales of Homebody: A Guide to Creating Spaces You Never Want to Leave byJoanna Gaines , Girl, Wash Your Face by Rachel Hollis, The Hate U Give by Angie Thomas and The Subtle Art Of Not Giving A F*ck byMark Manson , as well as the$7 million negative impact of foreign currency fluctuations. The decrease was partially 47 -------------------------------------------------------------------------------- Table of Contents offset by strong sales of The Pioneer Woman Cooks: The New Frontier byRee Drummond . Digital sales represented approximately 21% of Consumer revenues during the six months endedDecember 31, 2019 . Digital sales decreased approximately 1% as compared to the corresponding period of fiscal 2019, primarily due to the lower revenues discussed above. For the six months endedDecember 31, 2019 , Segment EBITDA at theBook Publishing segment decreased$44 million , or 28%, as compared to the corresponding period of fiscal 2019. The decrease was primarily due to the lower revenues discussed above and the mix of titles.Digital Real Estate Services (12% of the Company's consolidated revenues in the six months endedDecember 31, 2019 and 2018) For the three months ended December 31, For the six months ended December 31, 2019 2018 Change % Change 2019 2018 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Circulation and subscription$ 9 $ 13 $ (4 ) (31 )%$ 19 $ 27 $ (8 ) (30 )% Advertising 25 31 (6 ) (19 )% 52 62 (10 ) (16 )% Real estate 242 248 (6 ) (2 )% 460 475 (15 ) (3 )% Other 18 19 (1 ) (5 )% 35 40 (5 ) (13 )% Total Revenues 294 311 (17 ) (5 )% 566 604 (38 ) (6 )% Operating expenses (42 ) (42 ) - - (87 ) (77 ) (10 ) (13 )% Selling, general and administrative (134 ) (148 ) 14 9 % (279 ) (301 ) 22 7 % Segment EBITDA$ 118 $ 121 $ (3 ) (2 )%$ 200 $ 226 $ (26 ) (12 )% For the three months endedDecember 31, 2019 , revenues at theDigital Real Estate Services segment decreased$17 million , or 5%, as compared to the corresponding period of fiscal 2019. At REA Group, revenues decreased$16 million , or 8%, to$173 million for the three months endedDecember 31, 2019 from$189 million in the corresponding period of fiscal 2019. The lower revenues were primarily due to the$8 million negative impact of foreign currency fluctuations, a decrease in Australian residential depth revenue driven by declines in listing volumes and lower developer revenue, partially offset by higher yield and improved product mix in the residential business. Revenues at Move decreased$1 million , or 1%, to$121 million for the three months endedDecember 31, 2019 from$122 million in the corresponding period of fiscal 2019 primarily due to lower revenues from software and services, partially offset by higher real estate revenues. For the three months endedDecember 31, 2019 , Segment EBITDA at theDigital Real Estate Services segment decreased$3 million , or 2%, as compared to the corresponding period of fiscal 2019. The decrease in Segment EBITDA was primarily due to the$5 million negative impact of foreign currency fluctuations, as the lower revenues at REA Group discussed above were more than offset by lower costs at Move. For the six months endedDecember 31, 2019 , revenues at theDigital Real Estate Services segment decreased$38 million , or 6%, as compared to the corresponding period of fiscal 2019. At REA Group, revenues decreased$40 million , or 11%, to$322 million for the six months endedDecember 31, 2019 from$362 million in the corresponding period of fiscal 2019. The lower revenues were primarily due to a decrease in Australian residential depth revenue driven by declines in listing volumes, the$18 million negative impact of foreign currency fluctuations and lower developer revenue. Revenues at Move increased$4 million , or 2%, to$244 million for the six months endedDecember 31, 2019 from$240 million in the corresponding period of fiscal 2019 primarily due to higher real estate revenues, partially offset by lower revenues from software and services. For the six months endedDecember 31, 2019 , Segment EBITDA at theDigital Real Estate Services segment decreased$26 million , or 12%, as compared to the corresponding period of fiscal 2019. The decrease in Segment EBITDA was primarily the result of the lower revenues at REA Group discussed above, the$16 million impact associated with the acquisition of and continued investment in Opcity and the$10 million negative impact of foreign currency fluctuations, partially offset by lower costs at Move. 48 -------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES Current Financial Condition The Company's principal source of liquidity is internally generated funds and cash and cash equivalents on hand. As ofDecember 31, 2019 , the Company's cash and cash equivalents were$1.27 billion . The Company expects these elements of liquidity will enable it to meet its liquidity needs in the foreseeable future, including repayment of indebtedness. The Company also has available borrowing capacity under the 2019 News Corp Credit Facility (as defined below) and certain other facilities, as described below, and expects to have access to the worldwide credit and capital markets, subject to market conditions, in order to issue additional 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 credit and 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 performance of the Company and/or its operating subsidiaries, as applicable, (ii) the Company's credit rating or absence of a credit rating and/or the credit rating of its operating subsidiaries, as applicable, (iii) the provisions of any relevant debt instruments, credit agreements, indentures and similar or associated documents, (iv) the liquidity of the overall credit and capital markets and (v) the current state of the economy. There can be no assurances that the Company will continue to have access to the credit and capital markets on acceptable terms. See Part II, "Item 1A. Risk Factors" for further discussion. As ofDecember 31, 2019 , the Company's consolidated assets included$552 million in cash and cash equivalents that were held by its foreign subsidiaries. Of this amount,$63 million 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 Group's cash balance. The Company earns income outside theU.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 theU.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 Company's liquidity position include the following: operational expenditures including employee costs and paper purchases; capital expenditures; income tax payments; investments in associated entities; acquisitions; and the repayment of debt and related interest. 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 Company's securities or the assumption of indebtedness. Issuer Purchases ofEquity Securities InMay 2013 , the Company's 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. No stock repurchases were made during the six months endedDecember 31, 2019 and 2018. ThroughJanuary 31, 2020 , the Company cumulatively 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 ofJanuary 31, 2020 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 committee's decisions regarding future stock repurchases will be evaluated from time to time in light of many factors, including the Company's 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. The Company did not purchase any of its Class B Common Stock during the six months endedDecember 31, 2019 and 2018. 49 -------------------------------------------------------------------------------- Table of Contents Dividends InAugust 2019 , 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 onOctober 16, 2019 to stockholders of record at the close of business onSeptember 11, 2019 . InAugust 2018 , 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 onOctober 17, 2018 to stockholders of record at the close of business onSeptember 12, 2018 . 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 Company's 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 Cash-For the six months endedDecember 31, 2019 versus the six months endedDecember 31, 2018 Net cash provided by operating activities for the six months endedDecember 31, 2019 and 2018 was as follows (in millions):
For the six months ended
Net cash provided by operating activities decreased by$166 million for the six months endedDecember 31, 2019 as compared to the six months endedDecember 31, 2018 . The decrease was primarily due to lower Total Segment EBITDA and lower cash distributions received from affiliates of$22 million . Net cash used in investing activities for the six months endedDecember 31, 2019 and 2018 was as follows (in millions):
For the six months ended
During the six months endedDecember 31, 2019 , the Company used$237 million of cash for capital expenditures, of which$129 million related toFoxtel . During the six months endedDecember 31, 2018 , the Company used$264 million of cash for capital expenditures, of which$139 million related toFoxtel , and$185 million of cash for acquisitions, primarily for the acquisition of Opcity. Net cash used in financing activities for the six months endedDecember 31, 2019 and 2018 was as follows (in millions):
For the six months ended
Net cash used in financing activities decreased by$5 million for the six months endedDecember 31, 2019 , as compared to the six months endedDecember 31, 2018 . During the six months endedDecember 31, 2019 , the Company repaid$1.2 billion of borrowings related toFoxtel and REA Group, which includes repayments made as part of the debt refinancings completed in the second quarter of fiscal 2019, and made dividend payments of$81 million toNews Corporation stockholders and REA Group minority stockholders. The net cash used in financing activities for the six months endedDecember 31, 2019 was partially offset by new borrowings related toFoxtel and REA Group of$917 million , which includes drawdowns under the new facilities entered into as part of the debt refinancings referenced above, and the net settlement of hedges of$57 million . See Note 5-Borrowings in the accompanying Consolidated Financial Statements. During the six months endedDecember 31, 2018 , the Company repaid borrowings of$470 million , mainly forFoxtel and at REA Group, made dividend payments of$81 million toNews Corporation stockholders and REA Group minority stockholders and redeemed the Company's redeemable preferred stock for$20 million . The net cash used in financing activities for the six months endedDecember 31, 2018 was partially offset by borrowings related toFoxtel of$263 million . 50 -------------------------------------------------------------------------------- Table of Contents Reconciliation of Free Cash Flow Available toNews Corporation Free cash flow available toNews Corporation is a non-GAAP financial measure defined as net cash provided by operating activities, less capital expenditures ("free cash flow"), less REA Group free cash flow, plus cash dividends received from REA Group. Free cash flow available toNews Corporation should be considered in addition to, not as a substitute for, cash flows from operations and other measures of financial performance reported in accordance with GAAP. Free cash flow available toNews Corporation may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of free cash flow. The Company considers free cash flow available toNews Corporation to provide useful information to management and investors about the amount of cash that is available to be used to strengthen the Company's balance sheet and for strategic opportunities including, among others, investing in the Company's business, strategic acquisitions, dividend payouts and repurchasing stock. The Company believes excluding REA Group's free cash flow and including dividends received from REA Group provides users of its consolidated financial statements with a measure of the amount of cash flow that is readily available to the Company, as REA Group is a separately listed public company inAustralia and must declare a dividend in order for the Company to have access to its share of REA Group's cash balance. The Company believes free cash flow available toNews Corporation provides a more conservative view of the Company's free cash flow because this presentation includes only that amount of cash the Company actually receives from REA Group, which has generally been lower than the Company's unadjusted free cash flow. A limitation of free cash flow available toNews 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 toNews 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 operating activities to free cash flow available toNews Corporation : For the six months ended December 31, 2019 2018 (in millions) Net cash provided by operating activities $ 192 $ 358 Less: Capital expenditures (237 ) (264 ) (45 ) 94 Less: REA Group free cash flow (86 ) (105 ) Plus: Cash dividends received from REA Group 35 37 Free cash flow available to News Corporation $ (96 ) $ 26 Free cash flow available toNews Corporation decreased by$122 million in the six months endedDecember 31, 2019 to($96) million from$26 million in the corresponding period of fiscal 2019, primarily due to lower cash provided by operating activities as discussed above, partially offset by lower capital expenditures. Free cash flow available toNews Corporation has typically been higher in the second half of the fiscal year. Borrowings As ofDecember 31, 2019 , the Company had total borrowings of$1.2 billion . The Company's borrowings as of such date reflect$1.0 billion of outstanding debt incurred by certain subsidiaries ofNXE Australia Pty Limited ("Foxtel" and together with such subsidiaries, the "Foxtel Debt Group "). InNovember 2019 , theFoxtel Debt Group completed a debt refinancing in which it repaid its then existing credit facilities with the proceeds from a newA$610 million revolving credit facility maturing inNovember 2022 (the "2019 Credit Facility"), a newA$250 million term loan facility maturing inNovember 2024 (the "2019 Term Loan Facility") and the newA$200 million shareholder loan referenced below. In addition, theFoxtel Debt Group amended its 2017 Working Capital Facility which, among other things, extended the remaining term to three years, decreased the capacity under the facility fromA$100 million toA$40 million and increased the applicable margin.The Foxtel Debt Group indebtedness also includesU.S. private placement senior unsecured notes with maturities ranging from fiscal 2023 to 2025. The debt is guaranteed by certain members of theFoxtel Debt Group . During the six months endedDecember 31, 2019 , theFoxtel Debt Group had repayments of approximately$997 million , including the repayment of$150 million aggregate principal amount of senior unsecured notes maturing inJuly 2019 ,$75 million aggregate principal amount of 51 -------------------------------------------------------------------------------- Table of Contents senior unsecured notes maturing inSeptember 2019 and, in connection with the refinancing discussed above, the repayment of its outstanding borrowings under itsA$200 million credit facility maturing inJanuary 2020 , itsA$400 million credit facility maturing inJuly 2020 , itsA$400 million credit facility maturing inSeptember 2021 and its 2017 Working Capital Facility. During the six months endedDecember 31, 2019 , theFoxtel Debt Group had borrowings of approximately$800 million , including the full drawdown of amounts available under the 2019 Credit Facility and the 2019 Term Loan Facility. As ofDecember 31, 2019 , theFoxtel Debt Group had$11 million of undrawn commitments under the 2017 Working Capital Facility. The Company previously provided theFoxtel Debt Group withA$500 million of shareholder loans in fiscal 2019 and anA$200 million revolving credit facility for working capital purposes during the first quarter of fiscal 2020. During the second quarter of fiscal 2020, the Company provided theFoxtel Debt Group with an additionalA$200 million shareholder loan. The shareholder loans bear interest at a variable rate of the Australian BBSY plus an applicable margin ranging from 6.30% to 7.75% and mature inDecember 2027 . The shareholder revolving credit facility bears interest at a variable rate of the Australian BBSY plus an applicable margin ranging from 2.00% to 3.75%, depending on theFoxtel Debt Group's net leverage ratio, and matures inJuly 2024 . Additionally, inFebruary 2020 , theFoxtel Debt Group entered into anA$170 million subordinated shareholder loan facility agreement with Telstra which can be used to finance cable transmission costs due to Telstra. The shareholder loan bears interest at a variable rate of the Australian BBSY plus an applicable margin of 7.75% and matures inDecember 2027 . The Company's borrowings as ofDecember 31, 2019 also reflect the indebtedness of REA Group. REA Group has outstanding borrowings of$168 million . During the second quarter of fiscal 2020, REA Group completed a debt refinancing in which it repaid the finalA$240 million tranche of itsA$480 million revolving loan facility with the proceeds of a newA$170 million unsecured syndicated revolving loan facility maturing inDecember 2021 (the "2019 REA Group Credit Facility") and cash on hand. As ofDecember 31, 2019 , REA Group had drawn down the fullA$170 million available under the 2019 REA Group Credit Facility. InDecember 2019 , the Company terminated its existing unsecured$650 million revolving credit facility, and entered into a new credit agreement (the "2019 Credit Agreement") which provides for an unsecured$750 million revolving credit facility (the "2019 News Corp Credit Facility") that can be used for general corporate purposes. The 2019 News Corp Credit Facility has a sublimit of$100 million available for issuances of letters of credit. Under the 2019 Credit Agreement, the Company may request increases in the amount of the facility up to a maximum amount of$1 billion . The lenders' commitments to make the 2019 News Corp Credit Facility available terminate onDecember 12, 2024 , and the Company may request that the commitments be extended under certain circumstances for up to two additional one-year periods. As ofDecember 31, 2019 , the Company has not borrowed any funds under the 2019 News Corp Credit Facility. The Company's borrowings contain customary representations, covenants, and events of default. The Company was in compliance with all such covenants atDecember 31, 2019 . See Note 5-Borrowings in the accompanying Consolidated Financial Statements for further details regarding the Company's outstanding debt, including certain information about interest rates and maturities related to such debt arrangements. 52 -------------------------------------------------------------------------------- Table of Contents Commitments The Company has commitments under certain firm contractual arrangements ("firm commitments") to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. As a result of the refinancing transactions that occurred during the three months endedDecember 31, 2019 , the Company has presented its commitments associated with its borrowings and the related interest payments in the table below. See Note 5 -Borrowings in the accompanying Consolidated Financial Statements. The Company's remaining commitments as ofDecember 31, 2019 have not changed significantly from the disclosures included in the 2019 Form 10-K. As of December 31, 2019 Payments Due by Period More than Less than 1 1-3 3-5 5 Total year years years years (in millions) Borrowings$ 1,199 $ -$ 875 $ 324 $ - Interest payments on borrowings (a)$ 170 $ 50$ 89 $ 31 $ -
(a) Reflects the Company's expected future interest payments based on borrowings
outstanding and interest rates applicable at
outstanding amounts and rates are subject to change in future periods. See
Note 5 -Borrowings in the accompanying Consolidated Financial Statements.
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 10 - Commitments and Contingencies in the
accompanying Consolidated Financial Statements.
The Company's 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 Company's tax returns, and therefore
the outcome of tax reviews and examinations can be unpredictable. The Company
believes it has appropriately accrued for the expected outcome of uncertain tax
matters and believes such liabilities represent a reasonable provision for taxes
ultimately expected to be paid. However, these liabilities may need to be
adjusted as new information becomes known and as tax examinations continue to
progress, or as settlements or litigations occur.
53--------------------------------------------------------------------------------
Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in the Company's 2019 Form 10-K.
© Edgar Online, source
