Business Context and Reporting Period
Company: News Corporation (News Corp)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 2013
Key Event: On June 28, 2013, News Corp completed its separation from 21st Century Fox. The company is now an independent, publicly traded entity focused on news and information services, cable network programming in Australia, digital real estate services, book publishing, and digital education.
Key Financial Metrics
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Total Revenues | $8,891 million | $8,654 million |
| Net Income (Attributable to News Corp) | $506 million | $(2,075) million |
| Segment EBITDA | $688 million | $782 million |
| Cash and Cash Equivalents | $2,381 million | $1,133 million |
| Total Assets | $15,643 million | $13,090 million |
| Free Cash Flow Available | $72 million | $408 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company reported a net income of $506 million in 2013, a significant improvement from a net loss of $2.1 billion in 2012. This reversal was primarily driven by a $1.3 billion non-taxable gain on the consolidation of Consolidated Media Holdings (CMH) and a $321 million gain on the sale of the investment in SKY Network Television Ltd.
- Revenue Growth: Total revenues increased 3% to $8.89 billion. Growth was fueled by the consolidation of FOX SPORTS Australia and the acquisition of Thomas Nelson, offset by declines in Australian newspaper advertising revenues due to a weaker local economy.
- Impairment Charges: The company recorded $1.4 billion in non-cash impairment charges (primarily goodwill and intangible assets) in 2013, a decrease from $2.6 billion in 2012. These charges were driven by adverse trends in the Australian and U.S. newspaper markets.
- Segment Performance:
- News and Information Services: Revenues declined 5% and Segment EBITDA fell 15% due to lower advertising revenues in Australia and at Dow Jones.
- Book Publishing: Revenues increased 15% and Segment EBITDA rose 65%, driven by the Thomas Nelson acquisition and lower litigation settlement costs.
- Digital Real Estate Services: Revenues grew 21% and Segment EBITDA increased 30%.
Guidance, Outlook, Risks, and Contingencies
- Guidance: The company does not ordinarily make projections of future operating results and disclaims any obligation to update forward-looking statements.
- U.K. Newspaper Matters: The company faces ongoing investigations and civil litigation regarding voicemail interception and illegal data access at former publication The News of the World and The Sun. As of June 30, 2013, the company accrued $66 million for estimated liabilities. 21st Century Fox has agreed to indemnify News Corp for payments made after the separation date related to these matters, though criminal fines may not be covered.
- Amplify (Digital Education): The company's digital education business recorded a cumulative loss of approximately $265 million through June 2013. Losses are expected to increase in fiscal 2014 due to continued product development.
- Regulatory Risks: The company faces potential new regulatory burdens in the U.K. press sector and Australian media ownership laws. Changes in educational funding could also impact the Amplify segment.
- Capital Structure: Following the separation, the company has no credit rating and must access capital markets independently. It has authorized a $500 million stock repurchase program but has not yet repurchased shares.
Investor Verification Checklist
- Indemnification Scope: Verify the specific terms of the indemnification agreement with 21st Century Fox regarding the U.K. Newspaper Matters, particularly exclusions for criminal fines and employee-related costs.
- Amplify Burn Rate: Monitor the cash burn rate and path to profitability for the Amplify digital education segment, which is currently unprofitable.
- Asset Impairment Sensitivity: Assess the sensitivity of the remaining goodwill and intangible assets (particularly newspaper mastheads) to further declines in advertising revenue or economic conditions in Australia and the U.K.
- Capital Market Access: Evaluate the company's ability to secure financing on acceptable terms as a newly independent entity without a credit rating.
- Regulatory Timeline: Track the implementation timeline and specific requirements of the new U.K. press regulatory regime and its potential impact on compliance costs.