News Corporation — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2013; results are also provided for the six months ended that date. Amounts are in millions of U.S. dollars except per-share data. News Corp completed its separation from 21st Century Fox on June 28, 2013. Current-period results are consolidated stand-alone results; prior-year results are carve-out combined results and include allocated corporate costs, so comparisons are not fully like-for-like.
Financial performance
| Metric | Three months 2013 | Three months 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $2,238 | $2,321 | $4,310 | $4,454 |
| Segment EBITDA | $327 | $300 | $468 | $389 |
| Net income | $166 | $1,411 | $204 | $1,328 |
| Net income attributable to News Corp stockholders | $151 | $1,399 | $178 | $1,307 |
| Basic and diluted EPS | $0.26 | $2.42 | $0.31 | $2.26 |
- Revenue declined 4% for the quarter and 3% for the six-month period. Advertising fell 7% and 8%, respectively; circulation and subscription rose 1% and 6%.
- Segment EBITDA, a non-GAAP measure, increased 9% for the quarter and 20% for six months. Approximate EBITDA margins were 14.6% and 10.9%, versus 12.9% and 8.7%, respectively.
- Net income fell sharply versus 2012, primarily because the prior-year periods included a $1.258 billion non-taxable gain on the CMH transaction. The current-period foreign tax refund benefit was offset in Other, net by the amount payable to 21st Century Fox; it had no net effect on reported income.
- Operating cash flow was $407, versus $5; capital expenditures were $147, versus $141. Investing cash outflow was $75, compared with $2,272, largely reflecting the prior-year CMH and Thomas Nelson acquisitions. Financing cash inflow was $204, versus $1,861.
- Cash and equivalents were $2,908 at December 31, up from $2,381 at June 30, 2013. Current assets were $5,112 and current liabilities $2,292. Total assets were $15,983; total equity was $12,871.
- The filing reports no borrowings under the $650 million revolving facility as of the filing date. The company was compliant with its covenants at December 31. The filing does not provide a total debt balance in the supplied text.
Material changes and segment results
- News and Information Services: Revenue fell 9% for the quarter and 10% for six months; EBITDA declined 13% and 7%. Weak Australian newspaper advertising, currency effects, Dow Jones Local Media Group’s disposal and lower Dow Jones institutional revenues weighed on results. Cost savings and lower production costs partly mitigated declines.
- Cable Network Programming: Revenue was $110 for the quarter and $242 for six months; EBITDA was $53 and $82. Year-over-year growth mainly reflects consolidation of FOX SPORTS Australia after the November 2012 CMH acquisition.
- Digital Real Estate Services: Revenue increased 18% for the quarter and 15% for six months; EBITDA increased 20% and 22%, primarily due to greater Australian listing-depth product penetration.
- Book Publishing: Quarterly revenue rose 4% and EBITDA 33%; six-month revenue edged down 1%, while EBITDA rose 22%. Successful title sales and operating efficiencies helped; other revenue was lower following the sale of Women of Faith live events and exit from third-party distribution.
- Other: Six-month EBITDA loss narrowed to $212 from $220. Lower U.K. Newspaper Matters costs were partly offset by increased Amplify development spending and higher corporate costs.
- The company sold Dow Jones Local Media Group in September 2013 and acquired Storyful in December for approximately $25 million, including $19 million in cash. It also recorded $51 million of restructuring charges for the six months and a $12 million impairment on a U.S. printing plant.
Outlook, risks and unusual items
- Management said current cash, operating cash generation and capital-market access are expected to meet foreseeable liquidity needs, while cautioning that financing access and terms depend on performance, credit standing, market liquidity and economic conditions. The company ordinarily does not issue operating projections.
- The company expects approximately $10 million of restructuring charges for the remainder of fiscal 2014. New newsprint and ink agreements are expected to improve EBITDA by approximately $30 million over the remainder of fiscal 2014 and fiscal 2015 combined.
- A new 30-year London lease carries average rent of approximately $35 million annually. Relocations are expected to generate incremental dual-rent and facility costs of approximately $30–$35 million in the second half of fiscal 2014 and a similar amount in the first half of fiscal 2015, most of which is expected to be non-cash.
- Amplify is an early-stage business with cumulative pre-tax losses of approximately $372 million through December 31, 2013; management expects its losses to be higher in fiscal 2014 than in fiscal 2013 due to continuing product development.
- U.K. Newspaper Matters remain subject to investigations and litigation. News Corp accrued approximately $95 million for filed claims and incurred costs, of which approximately $65 million is expected to be indemnified by 21st Century Fox. Potential additional exposure, including criminal fines or penalties not covered by indemnification, could not be estimated.
- Other risks include newspaper advertising and circulation declines, digital competition, Australian economic and currency exposure, sports-rights renewal costs, newsprint prices, and uncertainty over Amplify’s profitability. Foreign-currency translation reduced Australian newspaper revenues; the company does not hedge translation exposure.
Investor verification priorities
- Confirm the recurring operating trend separately from the prior-year $1.258 billion CMH gain and the current-period tax refund/payable offset.
- Assess the sustainability of EBITDA improvement against continued revenue and advertising declines in News and Information Services.
- Verify cash-flow drivers, cash accessibility (including cash held at REA Group and foreign subsidiaries), and the company’s post-separation capital needs.
- Track U.K. Newspaper Matters claims, the scope and collectability of 21st Century Fox indemnification, and any unindemnified penalties.
- Monitor Amplify losses, restructuring and relocation costs, and execution of the expected newsprint and ink savings.