NEWS CORP quarterly report, Q1 FY2020

Full document

News Corporation — Form 10-Q Summary

Reporting period: Three months ended September 30, 2019 (fiscal first quarter 2020), compared with the three months ended September 30, 2018. News Corp is a global media and information services company with news and information, subscription video, book publishing, and digital real estate businesses. Amounts below are in U.S. dollars.

Financial performance and liquidity

  • Revenue: $2.340 billion, down $184 million (7%). Circulation and subscription revenue was $995 million; advertising $608 million; consumer $387 million; real estate $218 million; and other $132 million.
  • Profit: Net loss was $211 million versus net income of $128 million. The loss attributable to News Corp stockholders was $227 million, or $0.39 per share, compared with income of $101 million, or $0.17 per share.
  • Key unusual charge: Impairment and restructuring charges totaled $297 million, including $273 million of non-cash impairment, primarily at News America Marketing, and $24 million of restructuring costs. The impairment included $122 million against goodwill and $113 million against indefinite-lived intangible assets.
  • Segment EBITDA: $221 million, down from $358 million. News and Information Services generated $56 million (down 49%); Subscription Video Services $81 million (down 28%); Book Publishing $49 million (down 28%); and Digital Real Estate Services $82 million (down 22%). This is a non-GAAP measure.
  • Cash flow: Operating cash flow was $27 million, versus $113 million. Capital expenditures were $117 million, producing negative free cash flow before the company’s REA adjustment of $90 million. Free cash flow available to News Corp, a company-defined non-GAAP measure, was negative $83 million versus negative $21 million.
  • Cash and debt: Cash and cash equivalents were $1.441 billion, down from $1.643 billion at June 30, 2019. Total borrowings were $1.329 billion, including $622 million current and $707 million long-term, versus $1.453 billion at June 30. The company reported covenant compliance and no borrowings under its $650 million revolving facility.
  • Liquidity and leases: Current assets were $3.799 billion and current liabilities $3.492 billion. Adoption of the new lease standard added substantial balance-sheet obligations: operating lease liabilities were $1.511 billion at quarter-end, with $1.290 billion of right-of-use assets.

Material changes versus the prior-year quarter

  • Revenue fell 7%, reflecting lower advertising, subscription and other revenue, including an unfavorable $84 million foreign-exchange impact. News and Information Services revenue declined $99 million and Subscription Video Services declined $51 million.
  • News and Information Services EBITDA fell by $53 million, partly because the prior-year quarter included a $48 million net benefit from News UK’s exit from the Sun Bets partnership. Subscription Video Services EBITDA was pressured by lower subscribers and package mix, higher sports programming costs, and accelerated entertainment programming amortization.
  • Digital Real Estate Services revenue fell 7%; REA Group faced softer Australian listing volumes and foreign-exchange pressure, while Move revenue increased with Opcity. Book Publishing revenue and EBITDA declined, primarily due to title mix and lower sales of several prior-period bestsellers.
  • Lower operating and selling, general and administrative expenses partly offset lower revenue. Net interest improved to $4 million of income from $16 million of expense, primarily reflecting hedge settlements and lower third-party interest expense.
  • Foreign-currency translation adjustments and other comprehensive items contributed to comprehensive loss attributable to News Corp stockholders of $370 million, versus comprehensive income of $26 million.

Outlook, commentary, and risks

  • Management said cash on hand, expected operating cash flow, and financing access should meet foreseeable needs, including debt repayment, but noted access to financing depends on performance, credit ratings, debt terms, and market conditions. The company does not ordinarily provide operating-results projections and gave no numerical guidance in this filing.
  • The company continued strategic reviews of News America Marketing, including a potential sale; it also said it was reviewing strategic options for Unruly. No transaction is assured. The News America Marketing review and market indicators contributed to the impairment charge.
  • Foxtel repaid approximately $290 million and borrowed approximately $199 million during the quarter. Management expected to address upcoming Foxtel maturities principally through refinancing and an additional A$200 million shareholder loan. REA Group had approximately $162 million of debt maturing in December 2019, expected to be funded through cash and refinancing.
  • Legal exposures include antitrust claims involving News America Marketing and ongoing U.K. newspaper matters. The company had accrued approximately $52 million for U.K. Newspaper Matters and recorded a related $62 million receivable from FOX; it said additional claims and ultimate costs could not be estimated. Management said outcomes of legal proceedings and tax examinations remain uncertain.
  • The filing added a risk concerning FCC media-ownership rules and separation-agreement restrictions that could limit certain U.S. acquisitions or require divestitures. The Third Circuit’s decision on broadcast ownership rules was subject to further review.
  • The adoption of lease accounting on July 1, 2019 recognized operating lease assets and liabilities. Management reported no material impact from other newly adopted accounting standards and no material change in assessed market-risk sensitivity.

Important facts for investors to verify

  • Progress and potential financial consequences of the News America Marketing and Unruly strategic reviews, and whether further impairments or restructuring charges arise.
  • Foxtel and REA Group refinancing plans, upcoming maturities, and the terms and funding of the planned Foxtel shareholder loan.
  • Whether operating cash flow and liquidity improve, given the quarter’s $27 million operating cash flow and negative $83 million free cash flow available to News Corp.
  • Developments in News America Marketing antitrust litigation, U.K. Newspaper Matters, and the recoverability of the related FOX indemnification receivable.
  • Subscriber trends and costs at Foxtel; print advertising and circulation trends; REA Group listing volumes; and the sustainability of digital subscriber growth.