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, including expected impacts from the recent novel
coronavirus
("COVID-19")
pandemic and related public health measures, 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, including those related to
COVID-19.
More information regarding these risks and uncertainties (many of which may be
amplified by
COVID-19)
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 Corporation's Annual Report on Form
10-K
for the fiscal year ended
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.
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, subscription video services inAustralia , book publishing and digital real estate services. Certain reclassifications have been 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 andDigital Real Estate Services segments as these initiatives directly benefit these segments. For the three and nine months endedMarch 31, 2019 , these reclassifications increased Selling, general and administrative by$8 million and$23 million , respectively, for the News and Information Services segment and by$1 million in both periods for theDigital 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 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.
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Table of Contents
• Results of Operations
-
This section provides an analysis of the Company's results of operations
for the three and nine months ended
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.
• Liquidity and Capital Resources
-
This section provides an analysis of the Company's cash flows for the nine
months ended March 31, 2020 and 2019, as well as a discussion of the
Company's financial arrangements and outstanding commitments, both firm
and contingent, that existed as of March 31, 2020 .
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 U.S. This segment also includes Wireless Group , operator of
talkSPORT, the leading sports radio network in the
social media content agency. The segment included News America Marketing
until the completion of the sale of the business on May 5, 2020 .
• 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.
39
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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
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 11-Commitments and Contingencies to
the Consolidated Financial Statements). 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 COVID-19 Impact COVID-19 is believed to have been first identified inChina in late 2019 and has spread globally. The rapid spread has resulted in authorities implementing numerous measures to try to contain the virus, including quarantines, "stay-at-home" orders, event cancellations, travel restrictions, school shutdowns and orders for many businesses to curtail or cease normal operations. The impact of COVID-19 and measures to prevent its spread have created significant volatility, uncertainty and economic disruption and are affecting the Company's businesses in a number of ways. While the impacts of COVID-19 were not material to the Company's results of operations for the three and nine months endedMarch 31, 2020 as they began to materialize toward the end of the third quarter, the Company expects a more significant impact in the fourth quarter of fiscal 2020, particularly as containment measures in a number of its operating geographies have been extended into May or beyond. As of the date of this filing, the Company has observed the following effects on its businesses: News and Information Services : Advertising and single-copy sales revenues in the segment have been and are expected to continue to be adversely affected as a result of widespread business closures, social distancing measures and economic uncertainty resulting from COVID-19. However, the Company has seen increases in digital paid subscribers, including at theWall Street Journal , TheTimes , The Sunday Times and The Australian , as well as digital audience gains at online versions of its news properties. Subscription Video Services : The cancellation or postponement of sports events for which the Company has broadcast rights has resulted in fewer subscribers to its sports services, including Kayo, and is expected to adversely impact customer churn, which, in turn, have adversely affected and are expected to continue to adversely affect subscription revenue from broadcast and Kayo subscribers and, together with adverse economic conditions, have negatively impacted and are expected to continue to adversely impact advertising revenue. Profitability in future periods may also be adversely impacted even if postponed events are ultimately held, as the Company will resume recognizing programming amortization expense for those events but may not generate sufficient incremental subscription and advertising revenues to compensate for current losses, particularly if a large number of sports events are held during the same period. In addition, closures of pubs and clubs and lower occupancy at hotels throughoutAustralia have adversely impacted and are expected to continue to adversely impact commercial subscription revenues.Book Publishing : Sales have been and are expected to continue to be adversely affected by shipping restrictions and delays imposed by online retailers, as well as closures of brick-and-mortar retail stores. However, in recent weeks the Company has seen an increase in sales of digital formats of its titles, which remain readily available from online retailers.Digital Real Estate Services : The real estate markets in bothAustralia and theU.S. have been and continue to be negatively impacted as a result of social distancing measures, business closures and economic uncertainty resulting from COVID-19. Weakness in new listing volumes, lower transaction volume and other adverse effects, as well as measures the Company has taken to support its customers, including re-list and re-upgrade offers for new listings and price concessions, have adversely affected and are expected to continue to adversely affect revenues. The Company has taken various steps to offset the impact of COVID-19, including by reducing variable costs and implementing cost-savings initiatives across its businesses such as significant reductions in discretionary spending, non-essential capital expenditures and headcount and transitioning certain newspaper operations to digital-only. 40 -------------------------------------------------------------------------------- Table of Contents The Company is also currently in separate discussions with each of the various sports leagues regarding the scheduling of sports events and potential cost concessions based on the terms of the applicable contract. The continued postponement of sports events for which the Company has broadcast rights will cause a deferral of the recognition of the associated programming amortization expense for the period in which no live games are being played. The ultimate impact of the
COVID-19
pandemic, including the extent of adverse impacts on the Company's business, results of operations and financial condition, will depend on, among other things, the severity, duration and spread of the pandemic, the impact of governmental actions and business and consumer behavior in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, the resulting global economic conditions and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted. The evolving and uncertain nature of this situation makes it challenging for management to estimate the future performance of the Company's businesses, including the supply and demand for the Company's products and services, its cash flows, its advertising revenues and the impact on rights payments, which are subject to negotiation. For additional information regarding risks related to the COVID-19 pandemic, please see " The recent novel coronavirus (COVID-19) pandemic and other similar epidemics, pandemics or widespread health crises could have a material adverse effect on the Company's business, results of operations, cash flows and financial position. " in Part II, Item 1A. of this Form
10-Q.
Sale of News America Marketing OnMarch 31, 2020 , the Company entered into a definitive agreement for the sale of its News America Marketing business, a reporting unit within its News and Information Services segment (the "Transaction"), which was completed onMay 5, 2020 . The aggregate purchase price for the Transaction consists of (a) up to approximately$235 million , comprised of (i)$50 million in cash at closing, subject to working capital and other adjustments, less cash reinvested to acquire a 5% equity interest in the business at closing, and (ii) additional deferred cash payments payable on or before the fifth anniversary of closing in an aggregate amount of between$125 million and approximately$185 million , depending on the timing of such payments, and (b) a warrant to purchase up to an additional 10% equity interest in the business, which is exercisable on or prior to the seventh anniversary of closing. In the Transaction, the Company retained certain liabilities relating to News America Marketing, including those arising from its ongoing legal proceedings withValassis Communications, Inc. and Insignia Systems, Inc. See Note 11-Commitments and Contingencies in the accompanying Consolidated Financial Statements. See Note 3-Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements for additional information. Sale of Unruly InJanuary 2020 , the Company sold Unruly to Tremor International Ltd ("Tremor") for approximately 7% of Tremor's outstanding shares. The Company agreed not to sell the Tremor shares for a period of 18 months after closing. At closing, the Company and Tremor entered into a three year commercial arrangement which granted Tremor the exclusive right to sell outstream video advertising on all of the Company's digital properties in exchange for a total minimum revenue guarantee forNews Corp of £30 million. See Note 3-Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements for additional information. 41 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Results of Operations-For the three and nine months endedMarch 31, 2020 versus the three and nine months endedMarch 31, 2019 The following table sets forth the Company's operating results for the three and nine months endedMarch 31, 2020 as compared to the three and nine months endedMarch 31, 2019 . For the three months ended March 31, For the nine months ended March 31, 2020 2019 Change % Change 2020 2019 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Circulation and subscription$ 966 $ 1,025 $ (59 ) (6 )%$ 2,951 $ 3,088 $ (137 ) (4 )% Advertising 576 670 (94 ) (14 )% 1,861 2,052 (191 ) (9 )% Consumer 396 403 (7 ) (2 )% 1,204 1,281 (77 ) (6 )% Real estate 209 218 (9 ) (4 )% 669 693 (24 ) (3 )% Other 119 141 (22 ) (16 )% 400 494 (94 ) (19 )% Total Revenues 2,266 2,457 (191 ) (8 )% 7,085 7,608 (523 ) (7 )% Operating expenses (1,281 ) (1,400 ) 119 9 % (3,968 ) (4,224 ) 256 6 % Selling, general and administrative (743 ) (810 ) 67 8 % (2,299 ) (2,409 ) 110 5 % Depreciation and amortization (160 ) (168 ) 8 5 % (484 ) (494 ) 10 2 % Impairment and restructuring charges (1,125 ) (34 )
(1,091 ) ** (1,451 ) (71 ) (1,380 ) ** Equity losses of affiliates
(7 ) (4 ) (3 ) (75 )% (12 ) (13 ) 1 8 %
Interest expense, net (9 ) (14 ) 5 36 % (13 ) (45 ) 32 71 %
Other, net 13 3 10 ** 19 30 (11 ) (37 )%
(Loss) income before income tax
benefit (expense) (1,046 ) 30 (1,076 ) ** (1,123 ) 382 (1,505 ) ** Income tax benefit (expense)
10 (7 ) 17 ** (21 ) (112 ) 91 81 %
Net (loss) income (1,036 ) 23 (1,059 ) ** (1,144 ) 270 (1,414 ) **
Less: Net loss (income)
attributable to noncontrolling
interests 306 (13 ) 319 ** 272 (64 ) 336 **
Net (loss) income attributable to
** not meaningful Revenues - Revenues decreased$191 million , or 8%, and$523 million , or 7%, for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. The Revenue decrease for the three months endedMarch 31, 2020 was driven by lower revenues at the News and Information Services segment of$94 million , primarily due to weakness in the print advertising market, lower revenues at News America Marketing and the$25 million negative impact of foreign currency fluctuations. Revenues at the Subscription Video Services segment declined$77 million , mainly due to lower subscription revenues resulting from fewer broadcast subscribers and the$38 million negative impact of foreign currency fluctuations. Revenues at theDigital Real Estate Services andBook Publishing segments decreased$11 million and$9 million , respectively. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Revenue decrease of$78 million , or 3%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. 42 -------------------------------------------------------------------------------- Table of Contents The Revenue decrease for the nine months endedMarch 31, 2020 was driven by lower revenues at the News and Information Services segment of$209 million , primarily due to weakness in the print advertising market, the$75 million negative impact of foreign currency fluctuations, lower revenues at News America Marketing of$67 million and the absence of the$48 million benefit related to NewsUK's exit from the partnership forSun Bets in the first quarter of fiscal 2019, partially offset by price increases and digital subscriber growth across key mastheads. Revenues at the Subscription Video Services segment declined by$189 million , primarily due to the$97 million negative impact of foreign currency fluctuations and lower subscription revenues resulting from fewer broadcast subscribers and changes in the subscriber package mix, partially offset by$49 million of higher revenues from Kayo and Foxtel Now. Revenues at theBook Publishing and Digital Real Estate Service segments decreased$76 million and$49 million , respectively. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Revenue decrease of$212 million , or 3%, for the nine months endedMarch 31, 2020 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$119 million , or 9%, and$256 million , or 6%, for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. The decrease in Operating expenses for the three months endedMarch 31, 2020 was mainly due to lower operating expenses at the Subscription Video Services segment of$62 million , primarily resulting from the$24 million positive impact of foreign currency fluctuations and lower sports and entertainment programming costs. The decrease in Operating expenses was also due to lower expenses at the News and Information Services segment of$49 million , primarily due to cost savings initiatives, lower costs associated with lower revenues at News America Marketing, the$14 million positive impact of foreign currency fluctuations and lower newsprint, production and distribution costs. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in an Operating expense decrease of$40 million , or 3%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. The decrease in Operating expenses for the nine months endedMarch 31, 2020 was mainly due to lower operating expenses at the News and Information Services segment of$130 million , primarily due to cost savings initiatives, the$39 million positive impact of foreign currency fluctuations, lower costs associated with lower revenues at News America Marketing, lower newsprint, production and distribution costs and the$22 million impact 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$112 million , primarily due to the$63 million positive impact of foreign currency fluctuations and lower transmission and entertainment programming costs. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in an Operating expense decrease of$109 million , or 3%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Selling, general and administrative -Selling, general and administrative decreased$67 million , or 8%, and$110 million , or 5%, for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. The decrease in Selling, general and administrative for the three months endedMarch 31, 2020 was primarily due to lower expenses at the News and Information Services segment of$55 million , driven by cost savings initiatives, the absence of costs resulting from the sale of Unruly in the third quarter of fiscal 2020 and the$11 million positive impact of foreign currency fluctuations. The decrease was also due to lower expenses at theDigital Real Estate Services andBook Publishing segments of$10 million and$3 million , respectively, offset by higher expenses of$15 million at the Subscription Video Services segment. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Selling, general and administrative decrease of$24 million , or 3%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. 43 -------------------------------------------------------------------------------- Table of Contents The decrease in Selling, general and administrative for the nine months endedMarch 31, 2020 was primarily due to lower expenses of$66 million at the News and Information Services segment, driven by the$33 million positive impact of foreign currency fluctuations, cost savings initiatives, the absence of costs associated with the sale of certain local radio stations in theUK in fiscal 2019 and the absence of costs resulting from the sale of Unruly in the third quarter of fiscal 2020, partially offset by increased compensation expense atDow Jones . The decrease was also due to lower expenses of$32 million at theDigital Real Estate Services segment, driven by lower marketing costs and cost savings initiatives. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Selling, general and administrative decrease of$66 million , or 3%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Depreciation and amortization - Depreciation and amortization expense decreased$8 million , or 5%, and$10 million , or 2%, for the three and nine months endedMarch 31, 2020 , 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$7 million and$19 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. Impairment and restructuring charges -During the three months endedMarch 31, 2020 , the Company recognized non-cash impairment charges of$1,106 million , primarily related to a$931 million write-down of goodwill and indefinite-lived intangible assets at itsFoxtel reporting unit and$175 million related to the reclassification of its News America Marketing reporting unit to assets held for sale. During the nine months endedMarch 31, 2020 , the Company recognized non-cash impairment charges of$1,398 million , primarily related to a$931 million write-down of goodwill and indefinite-lived intangible assets at itsFoxtel reporting unit,$175 million related to the reclassification of its News America Marketing reporting unit to assets held for sale, as well as$292 million of write-downs recognized in previous quarters. During the three and nine months endedMarch 31, 2020 , the Company recorded restructuring charges of$19 million and$53 million , respectively. During the three and nine months endedMarch 31, 2019 , the Company recorded restructuring charges of$25 million and$62 million , respectively. See Note 4-Impairment and Restructuring Charges in the accompanying Consolidated Financial Statements. Equity losses of affiliates - Equity losses of affiliates increased by$3 million and improved by$1 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. See Note 5-Investments in the accompanying Consolidated Financial Statements. Interest expense, net - Interest expense, net improved by$5 million and$32 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. Interest expense, net improved for the three months endedMarch 31, 2020 primarily due to lower third party interest expense resulting from repayments of maturing debt facilities. Interest expense, net improved for the nine months endedMarch 31, 2020 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 increased by$10 million and decreased by$11 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019. See Note 14-Additional Financial Information in the accompanying Consolidated Financial Statements. Income tax benefit (expense) - For the three months endedMarch 31, 2020 , the Company recorded an income tax benefit of$10 million on a pre-tax loss of$1,046 million , resulting in an effective tax rate that was lower than theU.S. statutory tax rate. The tax rate was impacted by the non-cash impairment ofFoxtel's goodwill and indefinite-lived intangible assets, which have no tax benefit, 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. 44 -------------------------------------------------------------------------------- Table of Contents For the nine months endedMarch 31, 2020 , the Company recorded an income tax expense of$21 million on a pre-tax loss of$1,123 million , resulting in an effective tax rate that was lower than theU.S. statutory tax rate. The tax rate was impacted by the non-cash impairment ofFoxtel's goodwill and indefinite-lived intangible assets, which have no tax benefit, a lower tax benefit recorded on the impairment of News America Marketing's goodwill in prior quarters, 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 endedMarch 31, 2019 , the Company recorded income tax expense of$7 million on pre-tax income of$30 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. For the nine months endedMarch 31, 2019 , the Company recorded income tax expense of$112 million on pre-tax income of$382 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. The adverse economic effects of the current COVID-19 pandemic have caused the Company to reassess the need for valuation allowances against deferred tax assets. As a result of this analysis, the Company determined no additional valuation allowances were needed against deferred tax assets and the Company will continue to monitor the impacts of COVID-19 on the Company's ability to realize its deferred tax assets. In response to the COVID-19 pandemic, many governments have enacted or are in the process of enacting measures to provide aid and economic stimulus to companies. These measures may include deferring the due dates of tax payments, favorable changes in estimated payment calculations, or other changes to their income and non-income-based tax laws (the "COVID-19 measures"). OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in theU.S. in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning afterDecember 31, 2017 . For the three and nine months endedMarch 31, 2020 , there were no material impacts to the Company's income tax provision as it relates to COVID-19 measures. The Company continues to monitor developments in relation to COVID-19 measures and their applicability to its business in the jurisdictions where it operates. Net (loss) income - Net (loss) income declined by$1,059 million and$1,414 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019, primarily driven by the increase in non-cash impairment and restructuring charges discussed above. Net loss (income) attributable to noncontrolling interests -Net loss (income) attributable to noncontrolling interests declined by$319 million and$336 million for the three and nine months endedMarch 31, 2020 , respectively, as compared to the corresponding periods of fiscal 2019, primarily due to the impact of the non-cash impairment charges recognized at the Company'sFoxtel reporting unit. 45 -------------------------------------------------------------------------------- Table of Contents 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). 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 (loss) income to Total Segment EBITDA for the three and nine months endedMarch 31, 2020 and 2019: For the three months For the nine months ended March 31, ended March 31, 2020 2019 2020 2019 (in millions) Net (loss) income$ (1,036 ) $ 23 $ (1,144 ) $ 270 Add: Income tax (benefit) expense (10 ) 7 21 112 Other, net (13 ) (3 ) (19 ) (30 ) Interest expense, net 9 14 13 45 Equity losses of affiliates 7 4 12 13 Impairment and restructuring charges 1,125 34 1,451 71 Depreciation and amortization 160 168 484 494 Total Segment EBITDA $ 242$ 247 $ 818 $ 975 46
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The following tables set forth the Company's Revenues and Segment EBITDA by
segment for the three and nine months ended
For the three months ended March 31,
2020 2019
Segment Segment
(in millions) Revenues EBITDA Revenues EBITDA
News and Information Services
$ 65 Subscription Video Services 462 68 539
98
Book Publishing 412 55 421
53
Digital Real Estate Services 261 74 272 73 Other 1 (30 ) 1 (42 ) Total$ 2,266 $ 242 $ 2,457 $ 247 For the nine months ended March 31, 2020 2019 Segment Segment (in millions) Revenues EBITDA Revenues EBITDA
News and Information Services
$ 286 Subscription Video Services 1,477 219 1,666
295
Book Publishing 1,259 167 1,335
209
Digital Real Estate Services 827 274 876 299 Other 2 (115 ) 2 (114 ) Total$ 7,085 $ 818 $ 7,608 $ 975 News and Information Services (50% and 49% of the Company's consolidated revenues in the nine months endedMarch 31, 2020 and 2019, respectively) For the three months ended March 31, For the nine months ended March 31, 2020 2019 Change % Change 2020 2019 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Circulation and subscription$ 543 $ 538 $ 5 1 %$ 1,618 $ 1,593 $ 25 2 % Advertising 511 593 (82 ) (14 )% 1,640 1,801 (161 ) (9 )% Other 76 93 (17 ) (18 )% 262 335 (73 ) (22 )% Total Revenues 1,130 1,224 (94 ) (8 )% 3,520 3,729 (209 ) (6 )% Operating expenses (651 ) (700 ) 49 7 % (1,992 ) (2,122 ) 130 6 % Selling, general and administrative (404 ) (459 ) 55 12 % (1,255 ) (1,321 ) 66 5 % Segment EBITDA$ 75 $ 65 $ 10 15 %$ 273 $ 286 $ (13 ) (5 )% Revenues at the News and Information Services segment decreased$94 million , or 8%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. The revenue decrease was primarily due to lower Advertising revenues of$82 million mainly due to weakness in the print advertising market, primarily inAustralia , lower revenues at News America Marketing of$39 million and the$12 million negative impact of foreign currency fluctuations, partially offset by increased digital advertising revenue, mainly atDow Jones and in theU.K. Advertising revenues also included an estimated$14 million negative impact resulting from the COVID-19 pandemic. Other revenues for the three months endedMarch 31, 2020 decreased by$17 million , primarily driven by the sale of Unruly inJanuary 2020 . Circulation and subscription revenues for the three months endedMarch 31, 2020 increased$5 million as compared to the corresponding period of fiscal 2019 primarily due to digital subscriber growth across key mastheads, led by The Wall Street Journal, price increases, mainly inAustralia , higher professional information business revenues atDow Jones led by Risk & Compliance and higher content licensing revenue. These increases were partially offset by print volume declines and the$10 million negative impact of foreign currency fluctuations. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$25 million , or 2%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. 47 -------------------------------------------------------------------------------- Table of Contents Segment EBITDA at the News and Information Services segment increased$10 million , or 15%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. The increase was mainly due to higher contribution fromDow Jones of$9 million and lower losses at theNew York Post of$6 million , primarily due to higher revenues, and the absence of losses of$6 million recognized in the prior year from Unruly, which was sold inJanuary 2020 , partially offset by lower contribution from News America Marketing of$10 million due to lower revenues. Segment EBITDA also included an estimated$11 million negative impact resulting from the COVID-19 pandemic. Revenues at the News and Information Services segment decreased$209 million , or 6%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. The revenue decrease was primarily due to lower Advertising revenues of$161 million driven by weakness in the print advertising market, primarily inAustralia , lower revenues at News America Marketing of$67 million and the$34 million negative impact of foreign currency fluctuations, partially offset by digital advertising growth across key mastheads. Other revenues for the nine months endedMarch 31, 2020 decreased$73 million as compared to the corresponding period of fiscal 2019 primarily due to the absence of the$48 million benefit related to NewsUK's exit from the partnership for Sun Bets in the first quarter of fiscal 2019 and$11 million of lower revenues due to the sale of Unruly in theJanuary 2020 . Circulation and subscription revenues increased$25 million as compared to the corresponding period of fiscal 2019 primarily due to price increases, digital subscriber growth across key mastheads, led by The Wall Street Journal, higher professional information business revenues atDow Jones led by Risk & Compliance and higher content licensing revenue. These increases were partially offset by print volume declines and the$31 million negative impact of foreign currency fluctuations. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$75 million , or 2%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Segment EBITDA at the News and Information Services segment decreased$13 million , or 5%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. The decrease was mainly due to lower contributions from News America Marketing and News Corp Australia of$31 million and$16 million , respectively, primarily due to lower revenues. The decrease was partially offset by higher contribution fromDow Jones of$23 million , lower losses at the New York Post of$15 million , primarily due to higher revenues, and higher contribution from NewsUK of$10 million primarily due to cost savings initiatives, lower newsprint, production and distribution costs and the$22 million impact 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 forSun Bets in the first quarter of fiscal 2019.Dow Jones Revenues were$399 million for the three months endedMarch 31, 2020 , an increase of$18 million , or 5%, as compared to revenues of$381 million in the corresponding period of fiscal 2019. Circulation and subscription revenues increased$18 million , primarily due to the$10 million impact from digital subscriber growth and price increases, primarily at The Wall Street Journal ,$5 million of higher professional information business revenues led by Risk & Compliance and$5 million of higher content licensing revenue. Advertising revenues decreased$2 million , primarily driven by a$10 million decline in print advertising due to market weakness across conference and traditional sales, partially offset by an$8 million increase in digital advertising revenue. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$1 million for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Revenues were$1,216 million for the nine months endedMarch 31, 2020 , an increase of$56 million , or 5%, as compared to revenues of$1,160 million in the corresponding period of fiscal 2019. Circulation and subscription revenues increased$55 million , primarily due to the$27 million impact from digital subscriber growth and price increases, primarily atThe Wall Street Journal ,$21 million of higher professional information business revenues led by Risk & Compliance and$8 million of higher content licensing revenue. Advertising revenues decreased$6 million , primarily driven by a decline of$15 million in print advertising, partially offset by a$9 million increase in digital advertising revenue. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$4 million for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. 48 -------------------------------------------------------------------------------- Table of Contents News Corp Australia Revenues were$243 million for the three months endedMarch 31, 2020 , a decrease of$41 million , or 14%, compared to revenues of$284 million in the corresponding period of fiscal 2019. Advertising revenues decreased$31 million , primarily due to the$21 million decrease in print advertising and the$10 million negative impact of foreign currency fluctuations. Circulation and subscription revenues decreased$6 million due to the$7 million negative impact of foreign currency fluctuations, as cover price increases and digital subscriber growth more than offset print volume declines. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$19 million , or 6%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Revenues were$801 million for the nine months endedMarch 31, 2020 , a decrease of$101 million , or 11%, compared to revenues of$902 million in the corresponding period of fiscal 2019. Advertising revenues decreased$73 million , primarily due to the$66 million decrease in print advertising and the$27 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$19 million primarily due to the$18 million negative impact of foreign currency fluctuations, as print volume declines were mostly offset by cover price increases and digital subscriber growth. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$51 million , or 5%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. News UK Revenues were$231 million for the three months endedMarch 31, 2020 , a decrease of$23 million , or 9%, as compared to revenues of$254 million in the corresponding period of fiscal 2019. Circulation and subscription revenues decreased$9 million , mainly due to single-copy volume declines, primarily atThe Sun , partially offset by digital subscriber growth. Advertising revenues decreased$7 million , primarily due to weakness in the print advertising market, partially offset by digital advertising growth . The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$4 million , or 2%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. Revenues were$713 million for the nine months endedMarch 31, 2020 , a decrease of$81 million , or 10%, as compared to revenues of$794 million in the corresponding period of fiscal 2019. Other revenues decreased$60 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$18 million , primarily due to the$9 million negative impact of foreign currency fluctuations and lower revenues from single-copy volume declines, primarily at The Sun , partially offset by cover price increases across mastheads and digital subscriber growth. Advertising revenues decreased$3 million , primarily due to the$5 million negative impact of foreign currency fluctuations and weakness in the print advertising market, partially offset by digital advertising growth, mainly at The Sun . The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$17 million , or 2%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. News America Marketing Revenues at News America Marketing were$199 million for the three months endedMarch 31, 2020 , a decrease of$39 million , or 16%, as compared to revenues of$238 million in the corresponding period of fiscal 2019. The decrease was primarily related to$17 million of lower home delivered revenues, which include free-standing insert products, due to lower volume and rates, and$16 million of lower in-store revenues, mainly due to lower client spending. Revenues at News America Marketing were$590 million for the nine months endedMarch 31, 2020 , a decrease of$67 million , or 10%, as compared to revenues of$657 million in the corresponding period of fiscal 2019. The decrease was primarily related to$49 million of lower home delivered revenues, which include free-standing insert products, due to lower volume and rates, and$13 million of lower in-store revenues, mainly due to lower client spending. 49 -------------------------------------------------------------------------------- Table of Contents Subscription Video Services (21% and 22% of the Company's consolidated revenues in the nine months endedMarch 31, 2020 and 2019, respectively) For the three months ended March 31, For the nine months ended March 31, 2020 2019 Change % Change 2020 2019 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Circulation and subscription$ 414 $ 474 $ (60 ) (13 )%$ 1,304 $ 1,455 $ (151 ) (10 )% Advertising 40 50 (10 ) (20 )% 144 162 (18 ) (11 )% Other 8 15 (7 ) (47 )% 29 49 (20 ) (41 )% Total Revenues 462 539 (77 ) (14 )% 1,477 1,666 (189 ) (11 )% Operating expenses (312 ) (374 ) 62 17 % (997 ) (1,109 ) 112 10 % Selling, general and administrative (82 ) (67 ) (15 ) (22 )% (261 ) (262 ) 1 - Segment EBITDA$ 68 $ 98 $ (30 ) (31 )%$ 219 $ 295 $ (76 ) (26 )% For the three months endedMarch 31, 2020 , revenues at the Subscription Video Services segment decreased$77 million , or 14%, as compared to the corresponding period of fiscal 2019. The revenue decrease for the three months endedMarch 31, 2020 was primarily due to lower subscription revenues resulting from fewer broadcast subscribers and the negative impact of foreign currency fluctuations, partially offset by$12 million of higher revenues from Kayo. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$38 million , or 7%, for the three months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. For the three months endedMarch 31, 2020 , Segment EBITDA decreased$30 million , or 31%, as compared to the corresponding period of fiscal 2019. The Segment EBITDA decrease for the three months endedMarch 31, 2020 was primarily due to the lower revenues discussed above, increased overhead costs and the$6 million negative impact of foreign currency fluctuations, partially offset by$9 million of lower sports programming and production costs resulting from the deferral of sports events due to COVID-19 and lower entertainment programming costs due to lower license fees. For the nine months endedMarch 31, 2020 , revenues at the Subscription Video Services segment decreased$189 million , or 11%, as compared to the corresponding period of fiscal 2019. The revenue decrease for the nine months endedMarch 31, 2020 was primarily due to the negative impact of foreign currency fluctuations and lower subscription revenues resulting from fewer broadcast subscribers and changes in the subscriber package mix, partially offset by$49 million of higher revenues from Kayo and Foxtel Now. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue decrease of$97 million , or 5%, for the nine months endedMarch 31, 2020 as compared to the corresponding period of fiscal 2019. For the nine months endedMarch 31, 2020 , Segment EBITDA decreased$76 million , or 26%, as compared to the corresponding period of fiscal 2019. The Segment EBITDA decrease for the nine months endedMarch 31, 2020 was primarily due to the lower revenues discussed above and the$16 million negative impact of foreign currency fluctuations, partially offset by lower marketing costs, transmission costs, and entertainment programming costs due to lower license fees. 50 -------------------------------------------------------------------------------- Table of Contents The following tables provide information regarding certain performance indicators forFoxtel , the primary reporting unit within the Subscription Video Services segment, as of and for the three and nine months ended,March 31, 2020 and 2019 (see "Part I. Business" in the Company's 2019 Form 10-K for further detail regarding these performance indicators): As of March 31, 2020 2019 (in 000's) Broadcast Subscribers Residential (a) 1,942 2,141 Commercial (b) 266 259 OTT Subscribers (Total (Paid)) Foxtel Now (c) 338 (317 paid ) 357 (348 paid ) Kayo (d) 444 (408 paid ) 199 (148 paid ) Total Paid Subscribers 2,933 2,896 For the three months ended For the nine months ended March 31, March 31, 2020 2019 2020 2019 Broadcast ARPU (e)A$79 (US$52 )A$79 (US$57 )A$78 (US$53 )A$78 (US$56 ) Broadcast Subscriber Churn (f) 17.5% 17.7% 16.0% 15.4%
(a) Subscribing households throughout
(b) Commercial subscribers throughout
Commercial subscribers are calculated as residential equivalent business
units and are derived by dividing total recurring revenue from these
subscribers by an estimated average Broadcast ARPU which is held constant
through the year.
(c) Total and Paid Foxtel Now subscribers as of
Foxtel Now subscribers excludes customers receiving service for no charge
under certain new subscriber promotions.
(d) Total and Paid Kayo subscribers as of
subscribers excludes customers receiving service for no charge under certain
new subscriber promotions.
(e) Average monthly broadcast residential subscription revenue per user
(excluding Optus ) (Broadcast ARPU) for the three and nine months ended
March 31, 2020 and 2019.
(f) Broadcast residential subscriber churn rate (excluding
Subscriber Churn) for the three and nine months ended
2019. Broadcast subscriber churn represents the number of cable and satellite
residential subscribers whose service is disconnected, expressed as a
percentage of the average total number of cable and satellite residential
subscribers, presented on an annual basis.
51-------------------------------------------------------------------------------- Table of ContentsBook Publishing (17% and 18% of the Company's consolidated revenues in the nine months endedMarch 31, 2020 and 2019, respectively) For the three months ended March 31, For the nine months ended March 31, 2020 2019 Change % Change 2020 2019 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Consumer$ 396 $ 403 $ (7 ) (2 )%$ 1,204 $ 1,281 $ (77 ) (6 )% Other 16 18 (2 ) (11 )% 55 54 1 2 % Total Revenues 412 421 (9 ) (2 )% 1,259 1,335 (76 ) (6 )% Operating expenses (276 ) (284 ) 8 3 % (852 ) (881 ) 29 3 % Selling, general and administrative (81 ) (84 ) 3 4 % (240 ) (245 ) 5 2 % Segment EBITDA$ 55 $ 53 $ 2 4 %$ 167 $ 209 $ (42 ) (20 )% For the three months endedMarch 31, 2020 , revenues at theBook Publishing segment decreased$9 million , or 2%, as compared to the corresponding period of fiscal 2019. The decrease for the three months endedMarch 31, 2020 was primarily due to lower sales ofRachel Hollis titles, as well as the$3 million negative impact of foreign currency fluctuations. The decrease was partially offset by strong sales of Open Book by Jessica Simpson, Find Your Path byCarrie Underwood and Profiles in Corruption byPeter Schweizer . Digital sales represented approximately 23% of Consumer revenues during the three months endedMarch 31, 2020 . Digital sales increased approximately 3% as compared to the corresponding period of fiscal 2019, primarily due to growth in downloadable audio books. For the three months endedMarch 31, 2020 , Segment EBITDA at theBook Publishing segment increased$2 million , or 4%, as compared to the corresponding period of fiscal 2019. The increase was primarily driven by lower expenses due to the mix of titles. For the nine months endedMarch 31, 2020 , revenues at theBook Publishing segment decreased$76 million , or 6%, as compared to the corresponding period of fiscal 2019. The decrease for the nine months endedMarch 31, 2020 was primarily due to lower sales ofRachel Hollis titles, Homebody: A Guide to Creating Spaces You Never Want to Leave byJoanna Gaines , The Subtle Art Of Not Giving A F*ck by Mark Manson and The Hate U Give byAngie Thomas , as well as the$10 million negative impact of foreign currency fluctuations. Digital sales represented approximately 21% of Consumer revenues during the nine months endedMarch 31, 2020 . Digital sales increased approximately 1% as compared to the corresponding period of fiscal 2019, primarily due to growth in downloadable audio books. For the nine months endedMarch 31, 2020 , Segment EBITDA at theBook Publishing segment decreased$42 million , or 20%, as compared to the corresponding period of fiscal 2019. The decrease was primarily due to the lower revenues discussed above and the mix of titles. 52 -------------------------------------------------------------------------------- Table of ContentsDigital Real Estate Services (12% and 11% of the Company's consolidated revenues in the nine months endedMarch 31, 2020 and 2019) For the three months ended March 31, For the nine months ended March 31, 2020 2019 Change % Change 2020 2019 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues: Circulation and subscription$ 9 $ 12 $ (3 ) (25 )%$ 28 $ 39 $ (11 ) (28 )% Advertising 25 27 (2 ) (7 )% 77 89 (12 ) (13 )% Real estate 209 218 (9 ) (4 )% 669 693 (24 ) (3 )% Other 18 15 3 20 % 53 55 (2 ) (4 )% Total Revenues 261 272 (11 ) (4 )% 827 876 (49 ) (6 )% Operating expenses (44 ) (46 ) 2 4 % (131 ) (123 ) (8 ) (7 )% Selling, general and administrative (143 ) (153 ) 10 7 % (422 ) (454 ) 32 7 % Segment EBITDA$ 74 $ 73 $ 1 1 %$ 274 $ 299 $ (25 ) (8 )% For the three months endedMarch 31, 2020 , revenues at theDigital Real Estate Services segment decreased$11 million , or 4%, as compared to the corresponding period of fiscal 2019. The Company estimates that COVID-19 negatively impacted revenues by approximately$8 million as a result of social distancing measures, business closures and economic uncertainty, as well as customer relief measures. At REA Group, revenues decreased$8 million , or 5%, to$143 million for the three months endedMarch 31, 2020 from$151 million in the corresponding period of fiscal 2019. The lower revenues were primarily due to the$12 million negative impact of foreign currency fluctuations partially offset by higher financial services revenue. Revenues at Move decreased$3 million , or 2%, to$118 million for the three months endedMarch 31, 2020 from$121 million in the corresponding period of fiscal 2019 primarily due to the estimated$6 million negative impact of COVID-19, primarily as a result of discounts offered to customers in response to the pandemic, as well as lower software and services revenues. Real estate revenues were flat as growth in revenues generated from the referral model were offset by lower lead generation product revenues resulting from the transition of leads to the referral model and the discounts provided to customers. For the three months endedMarch 31, 2020 , Segment EBITDA at theDigital Real Estate Services segment increased$1 million , or 1%, as compared to the corresponding period of fiscal 2019. The increase in Segment EBITDA was primarily driven by REA Group, as the increase in financial services revenues discussed above and lower costs more than offset the$7 million negative impact of foreign currency fluctuations. The Company estimates that COVID-19 negatively impacted Segment EBITDA by approximately$5 million , primarily due to the lower revenues discussed above. For the nine months endedMarch 31, 2020 , revenues at theDigital Real Estate Services segment decreased$49 million , or 6%, as compared to the corresponding period of fiscal 2019. At REA Group, revenues decreased$48 million , or 9%, to$465 million for the nine months endedMarch 31, 2020 from$513 million in the corresponding period of fiscal 2019. The lower revenues were primarily due to the$30 million negative impact of foreign currency fluctuations, a decrease in Australian residential depth revenue driven by declines in listing volumes and lower developer revenue. Revenues at Move increased$1 million to$362 million for the nine months endedMarch 31, 2020 from$361 million in the corresponding period of fiscal 2019 primarily due to a$14 million increase in real estate revenues, mostly offset by a decline in software and services revenues and the impact of the COVID-19 related discounts described above. For the nine months endedMarch 31, 2020 , Segment EBITDA at theDigital Real Estate Services segment decreased$25 million , or 8%, as compared to the corresponding period of fiscal 2019. The decrease in Segment EBITDA was primarily driven by the$17 million negative impact of foreign currency fluctuations, lower revenues at REA Group as discussed above and the$10 million impact associated with the acquisition of and continued investment in Opcity, partially offset by lower costs at Move. 53 -------------------------------------------------------------------------------- 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 ofMarch 31, 2020 , the Company's cash and cash equivalents were$1.39 billion . The Company will continue to review its liquidity needs in light of the business and economic impacts resulting from COVID-19; however, it currently expects these elements of liquidity will enable it to meet its liquidity needs in the foreseeable future, including repayment of indebtedness. Additionally, the Company has taken various steps to offset the impact of COVID-19, including reducing variable costs and implementing cost savings initiatives across its businesses as discussed above. 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. Moreover, the COVID-19 pandemic and the measures to prevent its spread, which have caused significant volatility, uncertainty and economic disruption, could make financing more difficult and/or expensive. 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 ofMarch 31, 2020 , the Company's consolidated assets included$561 million in cash and cash equivalents that were held by its foreign subsidiaries. Of this amount,$46 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 nine months endedMarch 31, 2020 and 2019. ThroughApril 30, 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 ofApril 30, 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. 54 -------------------------------------------------------------------------------- Table of Contents The Company did not purchase any of its Class B Common Stock during the nine months endedMarch 31, 2020 and 2019. Dividends InFebruary 2020 , 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 onApril 15, 2020 to stockholders of record as ofMarch 11, 2020 . 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 nine months endedMarch 31, 2020 versus the nine months endedMarch 31, 2019 Net cash provided by operating activities for the nine months endedMarch 31, 2020 and 2019 was as follows (in millions):
For the nine months ended
Net cash provided by operating activities decreased by$199 million for the nine months endedMarch 31, 2020 as compared to the nine months endedMarch 31, 2019 . The decrease was primarily due to lower Total Segment EBITDA and lower cash distributions received from affiliates of$23 million . Net cash used in investing activities for the nine months endedMarch 31, 2020 and 2019 was as follows (in millions):
For the nine months ended
During the nine months endedMarch 31, 2020 , the Company used$335 million of cash for capital expenditures, of which$171 million related toFoxtel . Total capital expenditures for fiscal 2020 are expected to be approximately$435 million , which includes an anticipated 35% to 40% reduction in capital expenditures atFoxtel . During the nine months endedMarch 31, 2019 , the Company used$417 million of cash for capital expenditures of which$223 million related toFoxtel , and$187 million of cash for acquisitions, primarily for the acquisition of Opcity. Net cash used in financing activities for the nine months endedMarch 31, 2020 and 2019 was as follows (in millions):
For the nine months ended
Net cash used in financing activities decreased by$160 million for the nine months endedMarch 31, 2020 , as compared to the nine months endedMarch 31, 2019 . During the nine months endedMarch 31, 2020 , the Company repaid$1,161 million of borrowings related toFoxtel and REA Group, which includes repayments made as part of the debt refinancings completed in the second quarter of fiscal 2020, and made dividend payments of$100 million toNews Corporation stockholders and REA Group minority stockholders. The net cash used in financing activities for the nine months endedMarch 31, 2020 was partially offset by new borrowings related toFoxtel and REA Group of$925 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 6-Borrowings in the accompanying Consolidated Financial Statements. During the nine months endedMarch 31, 2019 , the Company repaid borrowings of$801 million , mainly forFoxtel and at REA Group and redeemed the Company's redeemable preferred stock for$20 million . The net cash used in financing activities for the nine months endedMarch 31, 2019 was partially offset by borrowings related toFoxtel of$450 million . 55 -------------------------------------------------------------------------------- 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 nine months ended March 31, 2020 2019 (in millions) Net cash provided by operating activities $ 462 $ 661 Less: Capital expenditures (335 ) (417 ) 127 244 Less: REA Group free cash flow (129 ) (164 ) Plus: Cash dividends received from REA Group 65 69 Free cash flow available to News Corporation $ 63 $ 149 Free cash flow available toNews Corporation decreased by$86 million in the nine months endedMarch 31, 2020 to$63 million from$149 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. 56 -------------------------------------------------------------------------------- Table of Contents Borrowings As ofMarch 31, 2020 , the Company had total borrowings of$1.1 billion . The Company's borrowings as of such date consist of (i)$1.0 billion of outstanding debt incurred by certain subsidiaries ofNXE Australia Pty Limited ("Foxtel" and together with such subsidiaries, the "Foxtel Debt Group ") and (ii)$148 million of outstanding debt incurred by REA Group and certain of its subsidiaries (REA Group and its subsidiaries, the "REA Debt Group "). BothFoxtel and REA Group are consolidated but non wholly-owned subsidiaries ofNews Corp , and their indebtedness is only guaranteed by members of theFoxtel Debt Group andREA Debt Group , respectively, and is non-recourse to News Corp. Foxtel Group Borrowings 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. During the nine months endedMarch 31, 2020 , 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 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 nine months endedMarch 31, 2020 , theFoxtel Debt Group had borrowings of approximately$809 million , including the full drawdown of amounts available under the 2019 Credit Facility and the 2019 Term Loan Facility. As ofMarch 31, 2020 , theFoxtel Debt Group has undrawn commitments ofA$2 million under the 2017 Working Capital Facility, for which it pays a commitment fee of 45% of the applicable margin. 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 . As ofMarch 31, 2020 , theFoxtel Debt Group has not borrowed any funds under the Telstra Facility. REA Group Borrowings 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 ofMarch 31, 2020 , REA Group had drawn down the fullA$170 million available under the 2019 REA Group Credit Facility. InApril 2020 , REA Group entered into a newA$148.5 million working capital facility and anA$20 million overdraft facility. Refer to Note 6-Borrowings for further discussion. 57 -------------------------------------------------------------------------------- Table of Contents News Corp Revolving 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 ofMarch 31, 2020 , the Company has not borrowed any funds under the 2019 News Corp Credit Facility. All of the Company's borrowings contain customary representations, covenants, and events of default. The Company was in compliance with all such covenants atMarch 31, 2020 . See Note 6-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. 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 Company's commitments as ofMarch 31, 2020 have not changed significantly from the disclosures included in the 2019 Form
10-K
and the Company's Form 10-Q for the quarter endedDecember 31, 2019 . Contingencies The Company routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed in Note 11 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 11 - 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. 58
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