News Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended June 28, 2015 (the filing dates statements June 30 for convenience). The supplied filing is an annual report for FY2015, not a standalone 2014 Q4 filing; it includes quarterly data, including the fourth quarter.
Business context
News Corp is a diversified media and information-services company with six reporting segments: News and Information Services, Book Publishing, Digital Real Estate Services, Cable Network Programming, Digital Education and Other. It also owns 50% of Foxtel, accounted for as an equity investment. The largest segment is News and Information Services, which generated 67% of FY2015 revenue.
Key financial metrics
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $8.633 billion | $8.574 billion |
| Segment EBITDA | $852 million | $770 million |
| Net income (loss) attributable to News Corp | $(147) million | $239 million |
| Diluted EPS | $(0.26) | $0.41 |
| Cash from operating activities | $831 million | $854 million |
| Capital expenditures | $378 million | $379 million |
| Free cash flow available to News Corp (non-GAAP) | $368 million | $365 million |
| Cash and cash equivalents at year-end | $1.951 billion | $3.145 billion |
Segment EBITDA margin was approximately 9.9% of revenue, versus 9.0% in FY2014; net loss margin was approximately 1.7%. Current assets were $3.975 billion and current liabilities $2.155 billion at year-end. Total assets were $15.093 billion. News Corp reported no borrowings under its $650 million revolving credit facility as of the filing; it was compliant with facility covenants. The filing does not present a consolidated outstanding-borrowings figure in the supplied text. Foxtel, the 50%-owned affiliate, had $1.8 billion of debt outstanding, excluding shareholder loans.
Changes versus FY2014
- Revenue increased 1%, mainly from the Harlequin and Move acquisitions, partly offset by a $422 million revenue decline in News and Information Services. Advertising revenue fell 5% company-wide, with print-market weakness and currency effects among the causes.
- Segment EBITDA increased 11%, although News and Information Services EBITDA fell 9% to $603 million. Book Publishing EBITDA rose 12% to $221 million; Digital Real Estate Services EBITDA declined 6% to $201 million, including Move-related costs; Cable Network Programming EBITDA rose 5% to $135 million.
- The company recorded $455 million of impairment and restructuring charges, versus $94 million in FY2014. The FY2015 amount included a $371 million non-cash Amplify impairment and $84 million of restructuring charges.
- Attributable results shifted from $239 million of net income to a $147 million net loss. The impairment, lower equity earnings from Foxtel and higher tax expense were key factors. FY2015 income tax expense was $134 million; the reported effective rate was unusually high at 239%, largely because the Amplify impairment was not tax-deductible.
- Operating cash flow declined $23 million. Investing cash outflow rose to $1.741 billion, primarily due to acquisitions and investments; financing cash flow was a $190 million outflow. Cash fell by $1.194 billion during the year.
Outlook, management commentary, risks and unusual items
- Amplify: Management changed its strategy and outlook, reducing expected cash flows and recording the impairment. The company stopped actively marketing Amplify Access to new customers, while continuing support for existing customers, and was reviewing strategic alternatives for Insight and Learning.
- Acquisitions and capital allocation: News Corp acquired Move for a transaction value of approximately $952 million and Harlequin for $414 million net of acquired cash. In August 2015, the board declared a first post-Separation semi-annual dividend of $0.10 per share. The company had repurchased approximately 3.0 million Class A shares for about $45 million through August 6, 2015. Future dividends and repurchases remain discretionary.
- Liquidity and commitments: Management said cash, operating cash flow and access to credit were expected to support foreseeable needs, while cautioning that future capital-market access is not assured. The $650 million revolver matures in October 2018 and can be increased, subject to conditions, to $900 million. Contractual commitments totaled $2.980 billion, including operating leases, purchase obligations and sports rights.
- Litigation and contingencies: The company accrued $125 million for filed claims and costs related to U.K. Newspaper Matters; approximately $63 million was expected to be indemnified by 21st Century Fox. Management could not predict the ultimate outcome or cost, and criminal fines or penalties may not be indemnified. The News America Marketing antitrust case received class certification in June 2015; the company sought leave to appeal. Valassis litigation and an unresolved Canadian e-book matter also remained.
- Principal business risks: Structural declines in print advertising and circulation, digital competition and monetization, foreign-currency movements, Australian exposure, sports-rights renewal costs, data privacy and cybersecurity, and the NAR relationship supporting realtor.com. The company does not ordinarily issue operating-result projections and disclaimed an obligation to update forward-looking statements.
- Unusual prior-period comparison: FY2014 included a $721 million tax benefit tied to a foreign tax refund that was payable to 21st Century Fox, substantially offsetting the benefit in the income statement. FY2015 included a $1.183 billion foreign-currency translation loss in other comprehensive income.
Most important facts for investors to verify
- Whether News and Information Services can stabilize advertising and circulation revenues and preserve margins amid continued print-market declines.
- Amplify’s strategic-review outcome, remaining obligations, and whether further impairment or restructuring charges arise.
- Move’s post-acquisition performance, integration costs, and the terms and implications of REA Group’s put option.
- Exposure and potential cash costs from U.K. Newspaper Matters, News America Marketing antitrust proceedings, and related indemnification arrangements.
- Cash conversion, cash accessibility (including funds held at REA Group), and capital allocation after acquisitions, repurchases and the new dividend.
- Foxtel’s operating trend, leverage and distributions, alongside News Corp’s foreign-exchange exposure and revolving-credit covenants.