NEWS CORP quarterly report, Q2 FY2016

News Corporation — Form 10-Q Summary

Reporting period: Fiscal second quarter and first six months ended December 31, 2015; comparative periods ended December 31, 2014. Amounts are in U.S. dollars, millions except per-share data. The company operates in news and information services, book publishing, digital real estate, Australian cable programming and corporate activities.

Financial performance

Metric	Three months 2015	Three months 2014	Six months 2015	Six months 2014
Revenue	$2,161	$2,258	$4,175	$4,366
Segment EBITDA (non-GAAP)	$280	$352	$445	$546
Income from continuing operations	$106	$182	$249	$291
Net income attributable to News Corp stockholders	$63	$143	$238	$208
Basic and diluted earnings per share	$0.11	$0.24	$0.41	$0.36

Quarterly revenue fell 4%; advertising declined 6%, circulation and subscription 4%, and consumer revenue 4%. For the six-month period, revenue also fell 4%.
Segment EBITDA declined 20% for the quarter and 18% for the six months. Continuing-operations income declined 42% and 14%, respectively.
Quarterly net income attributable to stockholders fell 56%. Six-month attributable net income rose 14%, but included significant tax benefits related to the Digital Education disposal.
Six-month operating cash flow from continuing operations was $346, down from $544. Capital expenditures were $120; free cash flow available to News Corporation, a non-GAAP measure, was $178 versus $360.
Cash and cash equivalents were $1,883 at December 31, compared with $1,951 at June 30, 2015. Current assets were $3,795 and current liabilities $2,096.
The company reported an undrawn $650 revolving credit facility, extended to October 2020; it was in compliance with covenants. The filing does not provide a clear consolidated total-debt figure in the supplied text.

Changes and segment trends

News and Information Services revenue fell 8% in the quarter and 10% for six months; segment EBITDA fell 27% and 25%. Management cited print-advertising weakness and adverse foreign exchange, partly offset by lower newsprint, production and distribution costs and cost savings.
Book Publishing revenue fell 5% in the quarter and 2% for six months; EBITDA fell 26% and 25%. Lower e-book sales and the weaker contribution from the Divergent series were partly offset by print titles, including Go Set a Watchman.
Digital Real Estate Services revenue increased 35% in the quarter and 50% for six months, primarily reflecting Move, acquired in November 2014. EBITDA rose 28% and 14%, respectively.
Cable Network Programming revenue fell 5% in the quarter and 8% for six months; EBITDA fell 28% and 22%. Higher sports programming costs, including Rugby World Cup costs, and foreign exchange weighed on results.
Foreign currency translation was a material headwind across several businesses. Foxtel’s six-month revenue declined 16%, and its operating income and net income also decreased.

Outlook, unusual items and risks

Management said it does not ordinarily provide projections of future operating results. No specific earnings or revenue guidance is provided in the filing.
The company approved a plan to dispose of its Digital Education business and classified it as discontinued operations. Six-month discontinued results included a $76 non-cash impairment charge and a $144 tax benefit; the segment recorded a $22 after-tax gain for the six months, versus a $40 loss in the prior year. Amplify Insight and Amplify Learning were sold in September 2015.
A separate approximately $106 tax benefit came from releasing valuation allowances on certain U.S. tax assets. These benefits materially affected six-month reported results.
During the period, News Corp acquired Unruly for about $90 cash, with up to a further $86 of contingent consideration, and Checkout 51 for about $13 cash, with up to a further $28 contingent. REA Group’s proposed acquisition of the remaining iProperty shares, expected to close in February 2016, carried approximately A$480 (about US$340) of cash consideration, primarily debt-funded.
The company entered into sports media-rights agreements for approximately $775 over 2018–2022 with the National Rugby League and approximately $850 over 2017–2022 with the Australian Football League.
UK Newspaper Matters: criminal investigations of the company were concluded, but civil claims remain. The company accrued approximately $111 for filed claims and incurred costs; approximately $60 was expected to be indemnified by 21st Century Fox. The company said further exposure could not be estimated and some fines or penalties may not be indemnified.
Other significant legal matters include a News America Marketing antitrust class action, with trial scheduled for February 29, 2016, and unresolved proceedings concerning HarperCollins’ Canadian e-book settlement. The filing states outcomes cannot be predicted with certainty.
Key disclosed risks include continued print-advertising and circulation pressure, foreign-exchange exposure, competition and changing media consumption, sports-rights costs, litigation, impairment risk, cyber and data-security incidents, and limits on access to capital markets. The company does not hedge currency translation risk.

Most important facts for investors to verify

Whether advertising and circulation declines—particularly in News and Information Services—continue, and whether cost reductions can offset revenue pressure.
How much of the six-month earnings improvement depends on tax benefits and discontinued-operation accounting rather than recurring operations.
Cash generation and liquidity trends, including the sharp year-over-year decline in operating cash flow and non-GAAP free cash flow.
Integration and performance of Move, Unruly and Checkout 51, and the funding and completion of REA Group’s proposed iProperty transaction.
Exposure and developments in News America Marketing and other litigation, and the scope and collectability of 21st Century Fox indemnification.
Future sports-rights spending, foreign-exchange effects, and any additional restructuring or impairment charges.