10-Q 1 d370203d10q.htm 10-Q 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission file number 001-35769

 

 

 

 

LOGO

NEWS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   46-2950970

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1211 Avenue of the Americas, New York, New York   10036
(Address of principal executive offices)   (Zip Code)

(212) 416-3400

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 5, 2017, 382,181,338 shares of Class A Common Stock and 199,630,240 shares of Class B Common Stock were outstanding.


Table of Contents

NEWS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

              Page  

Part I. Financial Information

  
  Item 1.   

Financial Statements

  
    

Consolidated Statements of Operations for the three and nine months ended March  31, 2017 and 2016 (unaudited)

     1  
    

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March  31, 2017 and 2016 (unaudited)

     2  
    

Consolidated Balance Sheets as of March 31, 2017 (unaudited) and June 30, 2016 (audited)

     3  
    

Consolidated Statements of Cash Flows for the nine months ended March  31, 2017 and 2016 (unaudited)

     4  
    

Notes to the Unaudited Consolidated Financial Statements

     5  
  Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     33  
  Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     58  
  Item 4.   

Controls and Procedures

     59  

Part II. Other Information

  
  Item 1.   

Legal Proceedings

     60  
  Item 1A.   

Risk Factors

     60  
  Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     60  
  Item 3.   

Defaults Upon Senior Securities

     61  
  Item 4.   

Mine Safety Disclosures

     61  
  Item 5.   

Other Information

     61  
  Item 6.   

Exhibits

     62  
 

Signature 

     63  


Table of Contents

NEWS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; millions, except per share amounts)

 

            For the three  months
ended

March 31,
    For the nine  months
ended

March 31,
 
     Notes            2017                 2016           2017     2016  

Revenues:

           

Advertising

      $ 705     $ 671     $ 2,123     $ 2,222  

Circulation and subscription

        618       615       1,834       1,875  

Consumer

        359       343       1,183       1,164  

Real estate

        168       145       525       450  

Other

        128       117       394       355  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

        1,978       1,891       6,059       6,066  

Operating expenses

        (1,101     (1,084     (3,384     (3,476

Selling, general and administrative

        (662     (649     (2,005     (1,987

NAM Group settlement charge

     10        —         (280     —         (280

Depreciation and amortization

        (109     (126     (349     (370

Impairment and restructuring charges

     4        (33     (24     (409     (63

Equity (losses) earnings of affiliates

     5        (23     2       (276     25  

Interest, net

        8       11       30       34  

Other, net

     14        (13     33       127       32  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax (expense) benefit

        45       (226     (207     (19

Income tax (expense) benefit

     12        (45     98       (12     140  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

        —         (128     (219     121  

(Loss) income from discontinued operations, net of tax

     3        —         (2     —         20  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

        —         (130     (219     141  

Less: Net income attributable to noncontrolling interests

        (5     (19     (90     (52
     

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to News Corporation stockholders

      $ (5   $ (149   $ (309   $ 89  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted (loss) earnings per share:

           

(Loss) income from continuing operations available to News Corporation stockholders per share

      $ (0.01   $ (0.26   $ (0.53   $ 0.12  

(Loss) income from discontinued operations available to News Corporation stockholders per share

        —         —         —         0.03  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to News Corporation stockholders per share

      $ (0.01   $ (0.26   $ (0.53   $ 0.15  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per share of common stock

      $ 0.10     $ 0.10     $ 0.20     $ 0.20  
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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Table of Contents

NEWS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; millions)

 

    For the three  months
ended

March 31,
    For the nine  months
ended

March 31,
 
        2017             2016             2017             2016      

Net income (loss)

  $   —       $ (130   $ (219   $ 141  

Other comprehensive income (loss):

       

Foreign currency translation adjustments

    269       66       (22     (290

Unrealized holding (losses) gains on securities, net(a)

    (3     14       (22     (2

Benefit plan adjustments, net(b)

    (2     16       29             41  

Share of other comprehensive (loss) income from equity affiliates, net(c)

    (7     (15           4       (13
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    257       81       (11     (264
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

    257       (49     (230     (123

Less: Net income attributable to noncontrolling interests

    (5     (19     (90     (52

Less: Other comprehensive loss (income) attributable to noncontrolling interests

    (14     (3     (7     1  
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to News Corporation stockholders

  $ 238     $ (71   $ (327   $ (174
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Net of income tax expense of nil and $7 million for the three months ended March 31, 2017 and 2016, respectively, and income tax benefit of $8 million and nil for the nine months ended March 31, 2017 and 2016, respectively.

(b) 

Net of income tax benefit (expense) of $1 million and ($4 million) for the three months ended March 31, 2017 and 2016, respectively, and income tax expense of $7 million and $10 million for the nine months ended March 31, 2017 and 2016, respectively.

(c) 

Net of income tax benefit of $3 million and $7 million for the three months ended March 31, 2017 and 2016, respectively, and income tax (expense) benefit of ($2 million) and $6 million for the nine months ended March 31, 2017 and 2016, respectively.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Millions, except share and per share amounts)

 

     Notes      As of
March 31, 2017
    As of
June 30, 2016
 
            (unaudited)     (audited)  

Assets:

       

Current assets:

       

Cash and cash equivalents

      $ 1,850     $ 1,832  

Restricted cash

        —         315  

Receivables, net

     14        1,326       1,229  

Other current assets

     14        586       513  
     

 

 

   

 

 

 

Total current assets

        3,762       3,889  
     

 

 

   

 

 

 

Non-current assets:

       

Investments

     5        2,010       2,270  

Property, plant and equipment, net

        1,961       2,405  

Intangible assets, net

        2,316       2,207  

Goodwill

        3,859       3,714  

Deferred income tax assets

        536       602  

Other non-current assets

     14        442       396  
     

 

 

   

 

 

 

Total assets

      $ 14,886     $ 15,483  
     

 

 

   

 

 

 

Liabilities and Equity:

       

Current liabilities:

       

Accounts payable

      $ 229     $ 217  

Accrued expenses

        1,214       1,371  

Deferred revenue

        435       388  

Other current liabilities

     14        583       466  
     

 

 

   

 

 

 

Total current liabilities

        2,461       2,442  
     

 

 

   

 

 

 

Non-current liabilities:

       

Borrowings

     6        273       369  

Retirement benefit obligations

     11        305       350  

Deferred income tax liabilities

        82       171  

Other non-current liabilities

        328       349  

Commitments and contingencies

     10       

Redeemable preferred stock

        20       20  

Class A common stock(a)

        4       4  

Class B common stock(b)

        2       2  

Additional paid-in capital

        12,397       12,434  

Retained earnings

        (219     150  

Accumulated other comprehensive loss

        (1,045     (1,026
     

 

 

   

 

 

 

Total News Corporation stockholders’ equity

        11,139       11,564  

Noncontrolling interests

        278       218  
     

 

 

   

 

 

 

Total equity

     7        11,417       11,782  
     

 

 

   

 

 

 

Total liabilities and equity

      $ 14,886     $ 15,483  
     

 

 

   

 

 

 

 

(a) 

Class A common stock, $0.01 par value per share (“Class A Common Stock”), 1,500,000,000 shares authorized, 382,092,060 and 380,490,770 shares issued and outstanding, net of 27,368,413 treasury shares at par, at March 31, 2017 and June 30, 2016, respectively.

(b) 

Class B common stock, $0.01 par value per share (“Class B Common Stock”), 750,000,000 shares authorized, 199,630,240 shares issued and outstanding, net of 78,430,424 treasury shares at par, at March 31, 2017 and June 30, 2016, respectively.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; millions)

 

            For the nine  months
ended March 31,
 
     Notes          2017             2016      

Operating activities:

       

Net (loss) income

      $ (219   $ 141  

Less: Income from discontinued operations, net of tax

        —         20  
     

 

 

   

 

 

 

(Loss) income from continuing operations

        (219     121  

Adjustments to reconcile (loss) income from continuing operations to cash provided by operating activities:

       

Depreciation and amortization

        349       370  

Equity losses (earnings) of affiliates

     5        276       (25

Cash distributions received from affiliates

        1       31  

Impairment charges

     4        321       —    

Other, net

     14        (127     (32

Deferred income taxes and taxes payable

     12        (76     (217

Change in operating assets and liabilities, net of acquisitions:

       

Receivables and other assets

        (126     (12

Inventories, net

        (8     (37

Accounts payable and other liabilities

        89       132  

NAM Group settlement

        (256     258  
     

 

 

   

 

 

 

Net cash provided by operating activities from continuing operations

        224       589  

Net cash used in operating activities from discontinued operations

        (5     (66
     

 

 

   

 

 

 

Net cash provided by operating activities

        219       523  
     

 

 

   

 

 

 

Investing activities:

       

Capital expenditures

        (168     (180

Changes in restricted cash for Wireless Group acquisition

        315       —    

Acquisitions, net of cash acquired

        (345     (486

Investments in equity affiliates and other

        (93     (62

Proceeds from dispositions

        232       4  

Other, net

        10       21  
     

 

 

   

 

 

 

Net cash used in investing activities from continuing operations

        (49     (703

Net cash provided by investing activities from discontinued operations

        —         15  
     

 

 

   

 

 

 

Net cash used in investing activities

        (49     (688
     

 

 

   

 

 

 

Financing activities:

       

Borrowings

        —         342  

Repayment of borrowings acquired in Wireless Group acquisition

        (23     —    

Repurchase of shares

        —         (41

Dividends paid

        (93     (88

Other, net

        (36     (9
     

 

 

   

 

 

 

Net cash (used in) provided by financing activities from continuing operations

        (152     204  

Net cash used in financing activities from discontinued operations

        —         —    
     

 

 

   

 

 

 

Net cash (used in) provided by financing activities

        (152     204  
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        18       39  

Cash and cash equivalents, beginning of period

        1,832       1,951  

Exchange movement on opening cash balance

        —         (18
     

 

 

   

 

 

 

Cash and cash equivalents, end of period

      $ 1,850     $ 1,972  
     

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

News Corporation (together with its subsidiaries, “News Corporation,” “News Corp,” the “Company,” “we,” or “us”) is a global diversified media and information services company comprised of businesses across a range of media, including: news and information services, book publishing, digital real estate services, cable network programming in Australia and pay-TV distribution in Australia.

During the first quarter of fiscal 2016, management approved a plan to dispose of the Company’s digital education business. As a result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the notes to the Consolidated Financial Statements relates to the Company’s continuing operations. (See Note 3—Discontinued Operations).

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company, which are referred to herein as the “Consolidated Financial Statements,” have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these Consolidated Financial Statements. Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2017. The preparation of the Company’s Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Consolidated Financial Statements and accompanying disclosures. Actual results could differ from those estimates.

Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method. Investments in which the Company is not able to exercise significant influence over the investee are designated as available-for-sale if readily determinable fair values are available. If an investment’s fair value is not readily determinable, the Company accounts for its investment under the cost method.

The consolidated statements of operations are referred to herein as the “Statements of Operations.” The consolidated balance sheets are referred to herein as the “Balance Sheets.” The consolidated statements of cash flows are referred to herein as the “Statements of Cash Flows.”

The accompanying Consolidated Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 as filed with the Securities and Exchange Commission (“SEC”) on August 12, 2016 (the “2016 Form 10-K”).

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation. Specifically, the Company reclassified its listing revenues generated primarily from agents, brokers and developers from advertising revenue to real estate revenue for all periods presented to better reflect the Company’s revenue mix and how management reviews the performance of the Digital Real Estate Services segment. In the third quarter of fiscal 2017, the Company also revised the Statements of Cash Flows to present cash flow activities from discontinued operations within each of the operating, investing and financing activities categories.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s fiscal year ends on the Sunday closest to June 30. Fiscal 2017 and fiscal 2016 include 52 and 53 weeks, respectively. All references to the three months ended March 31, 2017 and 2016 relate to the three months ended April 2, 2017 and March 27, 2016, respectively. For convenience purposes, the Company continues to date its consolidated financial statements as of March 31.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 removes inconsistencies and differences in existing revenue requirements between GAAP and International Financial Reporting Standards (“IFRS”) and requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Once effective, ASU 2014-09 can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initial adoption recognized at the date of initial application. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”). The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in ASU 2016-10 clarify aspects relating to the identification of performance obligations and improve the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Update 2016-12—Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 address certain issues identified on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date for all ASUs noted above is annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact these ASUs will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. As of March 31, 2017, the Company has $100 million in available-for-sale securities with net unrealized gains of $2 million. The cumulative net unrealized gains (losses) contained within Accumulated other comprehensive loss will be reclassified through Retained earnings as of July 1, 2018. Changes in the fair value of available-for-sale securities will be recorded in the Company’s Statement of Operations beginning July 1, 2018.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in ASU 2016-02 address certain aspects in lease accounting, with the most significant impact for lessees. The amendments in ASU 2016-02 require lessees to recognize all leases on the balance sheet by recording a right-of-use asset and a lease liability, and lessor accounting has been updated to align with the new requirements for lessees. The new standard also provides changes to the existing sale-leaseback guidance. ASU 2016-02 is effective for the Company for annual and interim reporting periods beginning July 1, 2019. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The amendments in ASU

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2016-09 address several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company for annual and interim reporting periods beginning July 1, 2017. The Company does not expect the adoption of ASU 2016-09 to have a significant impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company does not expect the adoption of ASU 2016-15 to have a significant impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). The amendments in ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 eliminate the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2016-16 will have on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control” (“ASU 2016-17”). The amendments in ASU 2016-17 require that if a reporting entity satisfies the first condition of a primary beneficiary in a variable interest entity (“VIE”), a reporting entity should include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity, when assessing whether it satisfies the second characteristic of a primary beneficiary If, after performing that assessment, a reporting entity that is the single decision maker of a VIE concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary. If the single decision maker and its related parties that are under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary. ASU 2016-17 is effective for the Company for annual and interim reporting periods beginning July 1, 2017. The Company is currently evaluating the impact ASU 2016-17 will have on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-18”). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents

 

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when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2016-18 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 provide a screen to determine when a set of assets and activities is not a business. Under the screen, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2017-01 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in ASU 2017-04 eliminate Step 2 from the goodwill impairment test and instead require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. As permitted by ASU 2017-04, the Company early-adopted this standard and applied it prospectively to reduce the complexity and costs of evaluating goodwill for impairment.

In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). The amendments in ASU 2017-07 require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. ASU 2017-07 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2017-07 will have on its consolidated financial statements.

NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS

Fiscal 2017

Wireless Group plc

In September 2016, the Company completed its acquisition of Wireless Group plc (“Wireless Group”) for a purchase price of 315 pence per share in cash, or approximately £220 million (approximately $285 million) in the aggregate, plus $23 million of assumed debt which was repaid subsequent to closing. Wireless Group operates talkSPORT, the leading sports radio network in the U.K., and a portfolio of radio stations in the U.K. and Ireland. The acquisition broadens the Company’s range of services in the U.K., Ireland and internationally, and the Company expects to closely align Wireless Group’s operations with those of The Sun and The Times. The Company utilized the restricted cash which was specifically set aside at June 30, 2016 for purposes of funding the acquisition and therefore the Company had no restricted cash as of March 31, 2017.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The total transaction value for the Wireless Group acquisition is set forth below (in millions):

 

Cash paid for Wireless Group equity

   $ 285  

Plus: Assumed debt

     23  
  

 

 

 

Total transaction value

   $ 308  
  

 

 

 

Under the acquisition method of accounting, the total consideration is allocated to net tangible and intangible assets based upon the fair value as of the date of completion of the acquisition. The excess of the total consideration over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The allocation is as follows (in millions):

 

Assets acquired:

  

Intangible assets

   $ 213  

Goodwill

     118  

Net liabilities

     (46
  

 

 

 

Total net assets acquired

   $ 285  
  

 

 

 

The acquired intangible assets primarily relate to broadcast licenses, which have a fair value of approximately $178 million, tradenames, which have a fair value of approximately $27 million, and customer relationships with a fair value of approximately $8 million. The broadcast licenses and tradenames have indefinite lives and the customer relationships will be amortized over a weighted-average useful life of approximately 6 years. The values assigned to the acquired assets and liabilities are based on preliminary estimates of fair value available as of the date of this filing and may be adjusted upon completion of final valuations of certain assets and liabilities. Any changes in these fair values could potentially result in an adjustment to the goodwill recorded for this transaction. Wireless Group’s results are included within the News and Information Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

Australian Regional Media

In December 2016, the Company acquired Australian Regional Media (“ARM”) from APN News and Media Limited (“APN”) for approximately $30 million. ARM operates a portfolio of regional print assets and websites and extends the reach of the Australian newspaper business to new customers in new geographic regions. ARM is a subsidiary of News Corp Australia, and its results are included within the News and Information Services segment.

REA Group European Business

In December 2016, REA Group Limited (“REA Group”), in which the Company holds a 61.6% interest, sold its European business for approximately $140 million (approximately €133 million) in cash, which resulted in a pre-tax gain of $120 million in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.

 

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Fiscal 2016

Checkout 51 Mobile Apps ULC

In July 2015, the Company acquired Checkout 51 Mobile Apps ULC (“Checkout 51”) for approximately $13 million in cash at closing and approximately $10 million in deferred cash consideration which was paid during fiscal 2016. Checkout 51 is a data-driven digital incentives company that provides News America Marketing with a leading receipt recognition mobile app which enables packaged goods companies and brands to reach consumers with highly personalized marketing campaigns. Checkout 51’s results are included within the News and Information Services segment.

Unruly Holdings Limited

On September 30, 2015, the Company acquired Unruly Holdings Limited (“Unruly”) for approximately £60 million (approximately $90 million) in cash and up to £56 million (approximately $86 million) in future cash consideration related to payments primarily contingent upon the achievement of certain performance objectives. As a result of the acquisition, the Company recognized a liability of approximately $40 million related to the contingent consideration. The fair value of the contingent consideration was estimated by applying a probability-weighted income approach. In accordance with Accounting Standards Codification (“ASC”) 350, “Intangibles—Goodwill and Other” (“ASC 350”), $43 million of the purchase price has been allocated to acquired technology with a weighted-average useful life of 7 years, $21 million has been allocated to customer relationships and tradenames with a weighted-average useful life of 6 years and $68 million has been allocated to goodwill. Unruly is a leading global video distribution platform that is focused on delivering branded video advertising across websites and mobile devices. Unruly’s results of operations are included within the News and Information Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

DIAKRIT International Limited

In February 2016, the Company acquired a 92% interest in DIAKRIT International Limited (“DIAKRIT”) for approximately $40 million in cash. The Company also has the option to purchase, and the minority shareholders have the option to sell to the Company, the remaining 8% in two tranches over the next six years at fair value. DIAKRIT is a digital visualization solutions company that helps homeowners see the potential in their future living environment with digital visualization solutions that enable them to plan, furnish and decorate their dream home, while also helping agents and developers generate more buyer inquiries and accelerate their property sale processes. DIAKRIT’s results are included within the Digital Real Estate Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

iProperty Group Limited

In February 2016, REA Group increased its investment in iProperty Group Limited (“iProperty”) from 22.7% to approximately 86.9% for A$482 million in cash (approximately $340 million). The remaining 13.1% not currently owned will become mandatorily redeemable during fiscal 2018. As a result, the Company recognized a liability of approximately $76 million, which reflected the present value of the amount expected to be paid for the remaining interest based on the formula specified in the acquisition agreement. The acquisition was funded primarily with the proceeds from borrowings under an unsecured syndicated revolving loan facility (the “REA Facility”). (See Note 6—Borrowings). The acquisition of iProperty extends REA Group’s market leading business in Australia to attractive markets throughout Southeast Asia. iProperty is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

In accordance with ASC 805 “Business Combinations,” REA Group recognized a gain of $29 million resulting from the revaluation of its previously held equity interest in iProperty in Other, net in the Statement of Operations for the fiscal year ended June 30, 2016. The total fair value of iProperty at the acquisition date is set forth below (in millions):

 

Cash paid for iProperty equity

   $ 340  

Deferred consideration

     76  
  

 

 

 

Total consideration

     416  
  

 

 

 

Fair value of previously held iProperty investment

     120  
  

 

 

 

Total fair value

   $ 536  
  

 

 

 

Under the acquisition method of accounting, the total consideration is allocated to net tangible and intangible assets based upon the fair value as of the date of completion of the acquisition. The excess of the total consideration over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The allocation is as follows (in millions):

 

Assets acquired:

  

Goodwill

   $ 498  

Intangible assets

     72  

Net liabilities

     (34
  

 

 

 

Total net assets acquired

   $ 536  
  

 

 

 

The acquired intangible assets primarily relate to tradenames which have an indefinite life.

Flatmates.com.au Pty Ltd

In May 2016, REA Group acquired Flatmates.com.au Pty Ltd (“Flatmates”) for $19 million in cash at closing and up to $15 million in future cash consideration related to payments contingent upon the achievement of certain performance objectives. Flatmates operates the Flatmates.com.au website, which is a market leading share accommodation site in Australia. The acquisition enhances REA Group’s Australian product offering by extending its reach into the quickly growing share accommodation business. Flatmates is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment.

NOTE 3. DISCONTINUED OPERATIONS

During the first quarter of fiscal 2016, management approved a plan to dispose of the Company’s digital education business. As a result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented in accordance with ASC 205-20, “Discontinued Operations.”

In the first quarter of fiscal 2016, the Company recognized a pre-tax non-cash impairment charge of $76 million reflecting a write down of the digital education business to its fair value less costs to sell. In addition, the Company recognized a tax benefit of $144 million upon reclassification of the Digital Education segment to discontinued operations. These amounts are included in Loss before income tax benefit and Income tax benefit, respectively, in the table below for the nine months ended March 31, 2016.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

On September 30, 2015, the Company sold the Amplify Insight and Amplify Learning businesses. Included within Loss before income tax benefit for the nine months ended March 31, 2016 was approximately $17 million in severance and lease termination costs which were incurred in conjunction with the sale.

The following table summarizes the results of operations from the discontinued segment:

 

     For the three months
ended March 31,
    For the nine months
ended March 31,
 
         2017              2016             2017              2016      
     (in millions)  

Revenues

   $ —        $ —       $ —        $ 27  

Loss before income tax benefit

       —          (3     —          (154

Income tax benefit

     —                1         —          174  
  

 

 

    

 

 

   

 

 

    

 

 

 

(Loss) income from discontinued operations, net of tax

   $ —        $ (2   $ —        $ 20  
  

 

 

    

 

 

   

 

 

    

 

 

 

Liabilities held for sale related to discontinued operations as of March 31, 2017 and June 30, 2016 are included in Other current liabilities in the Balance Sheets as follows:

 

     As of
March 31,
2017
    As of
June 30,
2016
 
      
     (in millions)  

Current assets

   $ —       $ 1  

Non-current assets

       —         —    
  

 

 

   

 

 

 

Total assets

   $ —       $ 1  
  

 

 

   

 

 

 

Current liabilities

     3       7  

Non-current liabilities

     —         —    
  

 

 

   

 

 

 

Total liabilities

   $ 3     $ 7  
  

 

 

   

 

 

 

Net liabilities held for sale

   $ (3   $ (6
  

 

 

   

 

 

 

NOTE 4. IMPAIRMENT AND RESTRUCTURING CHARGES

Fiscal 2017

During the three and nine months ended March 31, 2017, the Company recorded restructuring charges of $21 million and $88 million, respectively, of which $19 million and $85 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in fiscal 2017 were for employee termination benefits.

In connection with a reorganization at Dow Jones, the Company has incurred $28 million of restructuring expense through the nine months ended March 31, 2017 which are included in the restructuring charges discussed above. The Company expects to incur approximately $5 million to $15 million in restructuring charges during the remainder of fiscal 2017. The reorganization is expected to reduce the Company’s costs by approximately $100 million on an annualized basis by the end of fiscal 2018.

During the second quarter of fiscal 2017, the Company recognized a non-cash impairment charge of approximately $310 million primarily related to the write-down of fixed assets at the Australian newspapers. The

 

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write-down was a result of the impact of adverse trends on the future expected performance of the Australian newspapers, where revenue declines from continued weakness in the print advertising market accelerated during the second quarter. The write-down was comprised of approximately $149 million related to printing presses and print related equipment, $77 million related to facilities, $66 million related to capitalized software and $18 million related to tradenames. Significant unobservable inputs utilized in the income approach valuation method were a discount rate of 11.5% and no long-term growth.

The Company continually evaluates whether current factors or indicators require the performance of an interim impairment assessment of goodwill, long-lived assets and investments. The valuation of goodwill and long-lived assets requires assumptions and estimates of many factors, including revenue and market growth, operating cash flows, market multiples and discount rates. In the quarter ended December 31, 2016, the Company revised its future outlook for a reporting unit within the News and Information Services segment due to the acceleration of declines in the global print advertising markets during the first half of fiscal 2017. As a result, the Company determined that this reporting unit has goodwill and indefinite-lived intangible assets that are considered to be at risk for future impairment because the fair value of the reporting unit exceeded its carrying value by less than 5% as of December 31, 2016. Significant unobservable inputs utilized in the income approach valuation method for this reporting unit and the related indefinite-lived intangible assets were discount rates (ranging from 9.0%-10.0%), long-term growth rates (ranging from 1.6%-3.0%) and royalty rates (ranging from 1.5%-2.5%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Any increase in the discount rate or decrease in the projected cash flows terminal growth rate could have resulted in this reporting unit failing step one of the goodwill impairment analysis. Including those reporting units disclosed in the 2016 Form 10-K, the News and Information Services and Cable Network Programming segments have reporting units with goodwill and indefinite-lived intangible assets of approximately $2.4 billion at March 31, 2017 that are at risk for future impairment, of which $1.9 billion related to the News and Information Services segment and $0.5 billion related to the Cable Network Programming segment.

Fiscal 2016

During the three and nine months ended March 31, 2016, the Company recorded restructuring charges of $24 million and $63 million, respectively, of which $24 million and $56 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in fiscal 2016 were primarily for employee termination benefits.

Changes in restructuring program liabilities were as follows:

 

      For the three months ended March 31,  
     2017     2016  
     One time
employee
termination
benefits
    Facility
related
costs
     Other
costs
     Total     One time
employee
termination
benefits
    Facility
related
costs
     Other
costs
     Total  
     (in millions)  

Balance, beginning of period

   $ 41     $ 5      $ 6      $ 52     $ 27     $ 6      $ 6      $ 39  

Additions

     21       —          —          21       24       —          —          24  

Payments

     (33     —          —          (33     (17     —          —          (17
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 29     $ 5      $ 6      $ 40     $ 34     $ 6      $ 6      $ 46  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

      For the nine months ended March 31,  
     2017     2016  
     One time
employee
termination
benefits
    Facility
related
costs
     Other
costs
     Total     One time
employee
termination
benefits
    Facility
related
costs
     Other
costs
     Total  
     (in millions)  

Balance, beginning of period

   $ 33     $ 5      $ 6      $ 44     $ 47     $ 5      $ 6      $ 58  

Additions

     88       —          —          88       62       1        —          63  

Payments

     (91     —          —          (91     (71     —          —          (71

Other

     (1     —          —          (1     (4     —          —          (4
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 29     $ 5      $ 6      $ 40     $ 34     $ 6      $ 6      $ 46  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

As of March 31, 2017, restructuring liabilities of approximately $31 million were included in the Balance Sheet in Other current liabilities and $9 million were included in Other non-current liabilities.

NOTE 5. INVESTMENTS

The Company’s investments were comprised of the following:

 

     Ownership
Percentage as
of March 31,
2017
    As of
March 31,
2017
     As of
June 30,
2016
 
           (in millions)  

Equity method investments:

       

Foxtel(a)

     50   $ 1,205      $ 1,437  

Other equity method investments(b)

     various       146        101  

Loan receivable from Foxtel(c)

     N/A       344        338  

Available-for-sale securities(d)

     various       100        189  

Cost method investments(e)

     various       215        205  
    

 

 

    

 

 

 

Total Investments

     $ 2,010      $ 2,270  
    

 

 

    

 

 

 

 

(a)

During the second quarter of fiscal 2017, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. As a result of Foxtel’s performance in the first half of fiscal 2017 and the competitive operating environment in the Australian pay-TV market, the Company revised its future outlook for the business, which resulted in a reduction in expected future cash flows. Based on the revised projections, the Company determined that the fair value of its investment in Foxtel declined below its $1.4 billion carrying value, which includes the gain recognized in connection with the acquisition of Consolidated Media Holdings Ltd. (“CMH”). Significant unobservable inputs utilized in the income approach valuation method were a discount rate of 9.0% and a long-term growth rate of 2.5%. Significant unobservable inputs utilized in the market approach valuation methods were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Any significant shortfall of the expected future cash flows of Foxtel could result in additional write downs for which non-cash charges would be required.

In November 2012, the Company acquired CMH, a media investment company that operates in Australia. CMH owned a 25% interest in Foxtel through its 50% interest in FOX SPORTS Australia. The CMH acquisition was accounted for in accordance with ASC 805 “Business Combinations” which requires an acquirer to remeasure its previously held equity interest in an acquiree at its acquisition date fair value and

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

recognize the resulting gain or loss in earnings. The carrying amount of the Company’s previously held equity interest in FOX SPORTS Australia, through which the Company held its indirect 25% interest in Foxtel, was revalued to fair value as of the acquisition date, resulting in a step-up and non-cash gain of approximately $1.3 billion for the fiscal year ended June 30, 2013, of which $0.9 billion related to Foxtel.

 

(b)

In January 2017, REA Group acquired an approximately 15% interest in Elara Technologies Pte. Ltd., a leading online real estate services provider in India (“Elara”), for $50 million. Elara operates PropTiger.com, Makaan.com and the recently acquired Housing.com, and the investment further strengthens REA Group’s presence in Asia. Following the completion of the investment and certain related transactions, including Elara’s acquisition of Housing.com, News Corporation’s pre-existing interest in Elara decreased to approximately 23%.

(c)

In May 2012, Foxtel purchased Austar United Communications Ltd. The transaction was funded by Foxtel bank debt and pro rata capital contributions made by Foxtel shareholders in the form of subordinated shareholder notes based on their respective ownership interests. The Company’s share of the subordinated shareholder notes was approximately A$451 million ($344 million and $338 million as of March 31, 2017 and June 30, 2016, respectively). The subordinated shareholder notes can be repaid beginning in July 2022 provided that Foxtel’s senior debt has been repaid. The subordinated shareholder notes have a maturity date of July 15, 2027, with interest payable on June 30 each year and at maturity. On June 22, 2016, Foxtel and Foxtel’s shareholders agreed to modify the terms of the loan receivable to reduce the interest rate from 12% to 10.5%, to more closely align with current market rates. Upon maturity, the principal advanced will be repayable.

(d)

Available-for-sale securities primarily include the Company’s investment in APN. During fiscal 2016, the Company participated in an entitlement offer to maintain its 14.99% interest in APN for $20 million. During the second quarter of fiscal 2017, the Company participated in an entitlement offer for $21 million and its interest was diluted from 14.99% to 13.23%. APN operates a portfolio of Australian radio and outdoor media assets.

(e)

Cost method investments primarily include the Company’s investment in SEEKAsia Limited and certain investments in China.

The Company measures the fair market values of available-for-sale investments as Level 1 financial instruments under ASC 820, “Fair Value Measurement,” as such investments have quoted prices in active markets. The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:

 

     As of
March 31,
2017
    As of
June 30,
2016
 
     (in millions)  

Cost basis of available-for-sale investments

   $ 98     $ 155  

Accumulated gross unrealized gain

     3       34  

Accumulated gross unrealized loss

     (1     —    
  

 

 

   

 

 

 

Fair value of available-for-sale investments

   $ 100     $ 189  
  

 

 

   

 

 

 

Net deferred tax (asset) liability

   $   —       $ 13  
  

 

 

   

 

 

 

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Equity (Losses) Earnings of Affiliates

The Company’s (losses) earnings of its equity affiliates was as follows:

 

     For the three months ended
March 31,
    For the nine months ended
March 31,
 
            2017                   2016                2017             2016      
     (in millions)     (in millions)  

Foxtel(a)

   $ (16   $ 4     $ (260   $ 26  

Other equity affiliates, net

     (7     (2     (16     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity (losses) earnings of affiliates

   $ (23   $ 2     $ (276   $ 25  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

During the second quarter of fiscal 2017, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. The write-down is reflected in Equity (losses) earnings of affiliates in the Statements of Operations for the nine months ended March 31, 2017. Refer to the discussion above for further details.

Additionally, in accordance with ASC 350, the Company amortized $16 million and $53 million related to excess cost over the Company’s proportionate share of its investment’s underlying net assets allocated to finite-lived intangible assets during the three and nine months ended March 31, 2017, respectively, and $12 million and $37 million in the corresponding periods of fiscal 2016. Such amortization is reflected in Equity (losses) earnings of affiliates in the Statements of Operations. The increase in amortization expense recognized by the Company in the current year period resulted from a corresponding decrease in amortization expense recognized by Foxtel as certain intangible assets were fully amortized in fiscal 2016. The higher amortization expense recognized by the Company was partially offset by the impact of the $227 million non-cash write-down of the carrying value of its investment in Foxtel in the second quarter of fiscal 2017.

Summarized financial information for Foxtel, presented in accordance with U.S. GAAP, was as follows:

 

     For the nine months ended
March 31,
 
         2017              2016      
     (in millions)  

Revenues

   $ 1,811      $ 1,763  

Operating income(a)

     263        269  

Net income

     40        126  

 

(a)

Includes Depreciation and amortization of $155 million and $170 million for the nine months ended March 31, 2017 and 2016, respectively. Operating income before depreciation and amortization was $418 million and $439 million for the nine months ended March 31, 2017 and 2016, respectively.

For the nine months ended March 31, 2017, Foxtel’s revenues increased $48 million, or 3%, as a result of the positive impact of foreign currency fluctuations as revenues decreased 2% in local currency. Operating income decreased primarily due to planned increases in programming spend and the lower revenues noted above, partially offset by lower depreciation costs and the positive impact of foreign currency fluctuations. Net income decreased mainly due to losses associated with Presto of $47 million, primarily resulting from Foxtel management’s decision to cease Presto operations in January 2017, and $36 million in losses associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings (“Ten”).

 

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During the first quarter of fiscal 2017, Foxtel was deemed to have significant influence over its investment in Ten. As a result, Foxtel was required to treat its investment in Ten as an equity method investment. Foxtel elected the fair value option under ASC 825, Financial Instruments, (“ASC 825”) and adjusts the carrying value of the Ten investment to fair value each reporting period. Although Foxtel ceased to have significant influence in Ten during the third quarter of fiscal 2017, it will continue to adjust the carrying value of the Ten investment to fair value each reporting period due to its election of the fair value option under ASC 825. This adjustment will be recorded as a component of Foxtel’s net income.

NOTE 6. BORROWINGS

The Company’s total borrowings consist of the following:

 

     As of
March 31,
2017
    As of
June 30,
2016
 
      
      
     (in millions)  

Facility due December 2017

   $ 91     $ 90  

Facility due December 2018

     91       90  

Facility due December 2019

     183       179  

Other obligations

     11       13  
  

 

 

   

 

 

 

Total debt

     376       372  

Less: Current portion of long-term debt(a)

     (103     (3
  

 

 

   

 

 

 

Total long-term debt

   $ 273     $ 369  
  

 

 

   

 

 

 

 

(a)

The current portion of long-term debt is included in Other current liabilities. (See Note 14—Additional Financial Information).

REA Group Unsecured Revolving Loan Facility

REA Group entered into an A$480 million unsecured syndicated revolving loan facility agreement in connection with the acquisition of iProperty. The REA Facility consists of three sub facilities of A$120 million, A$120 million and A$240 million which become due in December 2017, December 2018 and December 2019, respectively. In February 2016, REA Group drew down the full A$480 million (approximately $340 million as of such date) available under the REA Facility, and the proceeds, less lenders’ fees of $1 million, were used to fund the iProperty acquisition. Borrowings under the REA Facility bear interest at a floating rate of the Australian BBSY plus a margin in the range of 0.85% and 1.45% depending on REA Group’s net leverage ratio. As of March 31, 2017, REA Group was paying a margin of between 0.85% and 1.05%. REA Group paid approximately $3 million and $8 million in interest for the three and nine months ended March 31, 2017, respectively, at a weighted average interest rate of 2.7% and 2.8%, respectively. The REA Facility requires REA Group to maintain a net leverage ratio of not more than 3.25 to 1.0 and an interest coverage ratio of not less than 3.0 to 1.0. As of March 31, 2017, REA Group was in compliance with all of the applicable debt covenants.

Revolving Credit Facility

The Company’s Credit Agreement (as amended, the “Credit Agreement”) provides for an unsecured $650 million revolving credit facility (the “Facility”) that can be used for general corporate purposes. The Facility has a sublimit of $100 million available for issuances of letters of credit. Under the Credit Agreement, the Company may request increases in the amount of the Facility up to a maximum amount of $900 million.

 

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In October 2015, the Company entered into an amendment to the Credit Agreement (the “Amendment”) which, among other things, extended the original term of the Facility by two years and lowered the commitment fee payable by the Company. As a result of the Amendment, the lenders’ commitments now terminate on October 23, 2020, and any borrowings will be due at that time. The Company may request that the commitments be extended under certain circumstances as set forth in the Credit Agreement for up to two additional one-year periods.

The Credit Agreement contains customary affirmative and negative covenants and events of default, with customary exceptions, including limitations on the ability of the Company and its subsidiaries to engage in transactions with affiliates, incur liens, merge into or consolidate with any other entity, incur subsidiary debt or dispose of all or substantially all of its assets or all or substantially all of the stock of its subsidiaries. In addition, the Credit Agreement requires the Company to maintain an adjusted operating income leverage ratio of not more than 3.0 to 1.0 and an interest coverage ratio of not less than 3.0 to 1.0. If any of the events of default occur and are not cured within applicable grace periods or waived, any unpaid amounts under the Credit Agreement may be declared immediately due and payable. As of March 31, 2017, the Company was in compliance with all of the applicable debt covenants.

Interest on borrowings under the Facility is based on either (a) a Eurodollar Rate formula or (b) the Base Rate formula, each as set forth in the Credit Agreement. The applicable margin and the commitment fee are based on the pricing grid in the Credit Agreement, which varies based on the Company’s adjusted operating income leverage ratio. As of March 31, 2017, the Company was paying a commitment fee of 0.225% on any undrawn balance and an applicable margin of 0.50% for a Base Rate borrowing and 1.50% for a Eurodollar Rate borrowing.

As of the date of this filing, the Company has not borrowed any funds under the Facility.

NOTE 7. EQUITY

The following table summarizes changes in equity:

 

     For the nine months ended March 31,  
    2017     2016  
    News
Corporation
stockholders
    Noncontrolling
Interests
    Total
Equity
    News
Corporation
stockholders
    Noncontrolling
Interests
    Total
Equity
 
             
             
    (in millions)  

Balance, beginning of period

  $ 11,564     $ 218     $ 11,782     $ 11,945     $ 171     $ 12,116  

Net (loss) income

    (309     90       (219     89       52       141  

Other comprehensive (loss) income

    (18     7       (11     (263     (1     (264

Dividends

    (118     (33     (151     (118     (28     (146

Stock repurchases

    —         —         —         (39     —         (39

Other

    20       (4     16       32       5       37  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 11,139     $ 278     $ 11,417     $ 11,646     $ 199     $ 11,845  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stock Repurchases

In May 2013, the Company’s Board of Directors (the “Board of Directors”) authorized the Company to repurchase up to an aggregate of $500 million of its Class A Common Stock. On May 10, 2015, the Company announced it had begun repurchasing shares of Class A Common Stock under the stock repurchase program. No

 

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stock repurchases were made during the nine months ended March 31, 2017. Through May 5, 2017, the Company repurchased approximately 5.2 million shares of Class A Common Stock for an aggregate cost of approximately $71 million. The remaining authorized amount under the stock repurchase program as of May 5, 2017 was approximately $429 million. All decisions regarding any future stock repurchases are at the sole discretion of a duly appointed committee of the Board of Directors and management. The committee’s decisions regarding future stock repurchases will be evaluated from time to time in light of many factors, including the Company’s financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the committee may deem relevant. The stock repurchase authorization may be modified, extended, suspended or discontinued at any time by the Board of Directors and the Board of Directors cannot provide any assurances that any additional shares will be repurchased.

Dividends

In August 2016, the Board of Directors declared a semi-annual cash dividend of $0.10 per share for Class A Common Stock and Class B Common Stock. This dividend was paid on October 19, 2016 to stockholders of record at the close of business on September 14, 2016. In February 2017, the Board of Directors declared a semi-annual cash dividend of $0.10 per share for Class A Common Stock and Class B Common Stock. This dividend was paid on April 19, 2017 to stockholders of record as of March 15, 2017.

In August 2015, the Board of Directors declared a semi-annual cash dividend of $0.10 per share of Class A Common Stock and Class B Common Stock. This dividend was paid on October 21, 2015 to stockholders of record at the close of business on September 16, 2015. In February 2016, the Board of Directors declared a semi-annual cash dividend of $0.10 per share of Class A Common Stock and Class B Common Stock. This dividend was paid on April 13, 2016 to stockholders of record at the close of business on March 9, 2016.

The following table summarizes the dividends paid per share on both the Company’s Class A Common Stock and the Class B Common Stock:

 

     For the nine months ended
March 31,
 
         2017              2016      

Cash dividend paid per share

   $ 0.10      $ 0.10  

The timing, declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the Board of Directors. The Board of Directors’ decisions regarding the payment of future dividends will depend on many factors, including the Company’s financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the Board of Directors deems relevant.

NOTE 8. EQUITY-BASED COMPENSATION

Employees of the Company participate in the News Corporation 2013 Long-Term Incentive Plan (the “2013 LTIP”) under which equity-based compensation, including stock options, performance stock units (“PSUs”), restricted stock awards, restricted stock units (“RSUs”) and other types of awards can be granted. The Company has the ability to award up to 30 million shares of Class A Common Stock under the terms of the 2013 LTIP. Additionally, in connection with the acquisition of Move, Inc. (“Move”), the Company assumed Move’s equity incentive plans and substantially all of the awards outstanding under such plans.

 

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The Company recognized $8 million and $39 million of equity-based compensation expense for the three and nine months ended March 31, 2017, respectively, and $12 million and $43 million for the corresponding periods of fiscal 2016, respectively.

Performance Stock Units

Fiscal 2017

During the nine months ended March 31, 2017, the Company granted approximately 5.3 million PSUs, including dividend equivalents, at target, of which approximately 3.9 million will be settled in Class A Common Stock, assuming performance conditions are met, with the remaining, having been granted to executive directors and to employees in certain foreign locations, being settled in cash. Cash settled awards are marked-to-market each reporting period.

During the nine months ended March 31, 2017, approximately 2.8 million PSUs vested, of which approximately 1.8 million were settled in shares of Class A Common Stock before statutory tax withholdings. The remaining 1.0 million PSUs that vested during the nine months ended March 31, 2017 were settled in cash for approximately $13.1 million before statutory tax withholdings.

Fiscal 2016

During the three and nine months ended March 31, 2016, the Company granted approximately 0.2 million and 4.2 million PSUs, respectively, at target, of which approximately 0.1 million and 3.0 million, respectively, will be settled in Class A Common Stock, assuming performance conditions are met, with the remaining, having been granted to executive directors and to employees in certain foreign locations, being settled in cash. Cash settled awards are marked-to-market each reporting period.

During the nine months ended March 31, 2016, approximately 1.2 million PSUs vested, of which approximately 1.0 million were settled in shares of Class A Common Stock before statutory tax withholdings. The remaining 0.2 million PSUs that vested during the nine months ended March 31, 2016 were settled in cash for approximately $3.3 million before statutory tax withholdings.

Restricted Stock Units

Fiscal 2017

During the three and nine months ended March 31, 2017, the Company granted approximately 0.2 million RSUs, all of which will be settled in Class A Common Stock.

During the three and nine months ended March 31, 2017, approximately 0.1 million and 0.2 million RSUs vested, respectively, all of which were settled in shares of Class A Common Stock.

Fiscal 2016

During the three and nine months ended March 31, 2016, the Company granted approximately 0.1 million and 0.3 million RSUs, respectively, all of which will be settled in Class A Common Stock.

During the three and nine months ended March 31, 2016, approximately 0.2 million and 0.3 million RSUs vested, respectively, all of which were settled in shares of Class A Common Stock.

 

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NOTE 9. EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share under ASC 260, “Earnings per Share”:

 

     For the three
months ended
March 31,
    For the nine
months ended
March 31,
 
         2017             2016             2017             2016      
     (in millions, except per share amounts)  

Income (loss) from continuing operations

   $ —       $ (128   $ (219   $ 121  

Less: Net income attributable to noncontrolling interests

     (5     (19     (90     (52

Less: Redeemable preferred stock dividends(a)

     —         —         (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations available to News Corporation stockholders

     (5     (147     (310     68  

(Loss) income from discontinued operations, net of tax, available to News Corporation stockholders

     —         (2     —         20  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to News Corporation stockholders

   $ (5   $ (149   $ (310   $ 88  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares of common stock
outstanding—basic

     581.6       580.2       581.2       580.8  

Dilutive effect of equity awards(b)

     —         —         —         1.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares of common stock
outstanding—diluted

     581.6       580.2       581.2       582.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations available to News Corporation stockholders per share—basic and diluted

   $ (0.01   $ (0.26   $ (0.53   $ 0.12  

(Loss) income from discontinued operations available to News Corporation stockholders per share—basic and diluted

   $ —       $ —       $ —       $ 0.03  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to News Corporation stockholders per share—basic and diluted

   $ (0.01   $ (0.26   $ (0.53   $ 0.15  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

In connection with the Separation, as defined in Note 10, Twenty-First Century Fox, Inc. (“21st Century Fox”) sold 4,000 shares of cumulative redeemable preferred stock with a par value of $5,000 per share of a newly formed U.S. subsidiary of the Company. The preferred stock pays dividends at a rate of 9.5% per annum, payable quarterly. The preferred stock is callable by the Company at any time after the fifth year and is puttable at the option of the holder after 10 years.

(b) 

The dilutive impact of the Company’s PSUs, RSUs and stock options has been excluded from the calculation of diluted (loss) earnings per share for the three and nine months ended March 31, 2017 because their inclusion would have an antidilutive effect on the net loss per share.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The Company’s commitments as of March 31, 2017 have not changed significantly from the disclosures included in the 2016 Form 10-K.

 

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Contingencies

The Company routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed below. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution of these matters. Fees, expenses, fines, penalties, judgments or settlement costs which might be incurred by the Company in connection with the various proceedings could adversely affect its results of operations and financial condition.

The Company establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings are expensed as incurred. Except as otherwise provided below, for the contingencies disclosed for which there is at least a reasonable possibility that a loss may be incurred, the Company was unable to estimate the amount of loss or range of loss. The Company recognizes gain contingencies when the gain becomes realized or realizable.

News America Marketing

In-Store Marketing and FSI Purchasers

On February 29, 2016, the parties agreed to settle the litigation in the U.S. District Court for the Southern District of New York in which The Dial Corporation, Henkel Consumer Goods, Inc., H.J. Heinz Company, H.J. Heinz Company, L.P., Foster Poultry Farms, Smithfield Foods, Inc., HP Hood LLC and BEF Foods, Inc. alleged various claims under federal and state antitrust law against News Corporation, News America Incorporated (“NAI”), News America Marketing FSI L.L.C. (“NAM FSI”) and News America Marketing In-Store Services L.L.C. (“NAM In-Store Services” and, together with News Corporation, NAI and NAM FSI, the “NAM Group”). Under the terms of the settlement, the NAM Group agreed, among other things, to pay the plaintiffs and their attorneys approximately $250 million, and the parties agreed to dismiss the litigation with prejudice. As required under the settlement agreement, the NAM Group delivered the proposed settlement amount into escrow during the three months ended September 30, 2016, to be held pending District Court approval. On October 31, 2016, the District Court approved the settlement, and the settlement payment was subsequently released to the plaintiffs and their attorneys. The NAM Group also settled related claims for approximately $30 million in February 2016.

Valassis Communications, Inc.

On November 8, 2013, Valassis Communications, Inc. (“Valassis”) initiated legal proceedings against certain of the Company’s subsidiaries alleging violations of various antitrust laws. These proceedings are described in further detail below.

 

   

Valassis previously initiated an action against NAI, NAM FSI and NAM In-Store Services (collectively, the “NAM Parties”), captioned Valassis Communications, Inc. v. News America Incorporated, et al., No. 2:06-cv-10240 (E.D. Mich.) (“Valassis I”), alleging violations of federal antitrust laws, which was settled in February 2010. On November 8, 2013, Valassis filed a motion for expedited discovery in the previously settled case based on its belief that defendants had engaged in activities prohibited under an order issued by the U.S. District Court for the Eastern District of Michigan in connection with the parties’ settlement, which motion was granted by the magistrate judge.

 

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Valassis subsequently filed a Notice of Violation of the order issued by the District Court in Valassis I. The Notice re-asserted claims of unlawful bundling and tying which the magistrate judge had previously recommended be dismissed from Valassis II on the grounds that such claims could only be brought before a panel of antitrust experts previously appointed in Valassis I (the “Antitrust Expert Panel”), and sought treble damages, injunctive relief and attorneys’ fees on those claims. On March 2, 2015, the NAM Parties filed a motion to refer the Notice to the Antitrust Expert Panel or, in the alternative, strike the Notice. The District Court granted the NAM Parties’ motion in part on March 30, 2016 and ordered that the Notice be referred to the Antitrust Expert Panel. The District Court further ordered that the case be administratively closed and that it may be re-opened following proceedings before the Antitrust Expert Panel.

 

   

On November 8, 2013, Valassis also filed a new complaint in the U.S. District Court for the Eastern District of Michigan against the NAM Group alleging violations of federal and state antitrust laws and common law business torts (“Valassis II”). The complaint sought treble damages, injunctive relief and attorneys’ fees and costs. On December 19, 2013, the NAM Group filed a motion to dismiss the newly filed complaint.

The District Court referred the NAM Group’s motion to dismiss to the magistrate judge for determination, and on July 16, 2014, the magistrate judge recommended that the District Court grant the NAM Group’s motion in part with respect to certain claims regarding alleged bundling and tying conduct and stay the remainder of the action. On March 30, 2016, the District Court adopted in part the magistrate judge’s recommendation. The District Court ordered that Valassis’s bundling and tying claims be dismissed without prejudice to Valassis’s rights to pursue relief for those claims in Valassis I. The District Court sustained Valassis’s objection to the stay of Valassis II, but further ordered that all remaining claims in the NAM Group’s motion to dismiss be referred to the Antitrust Expert Panel. The District Court further ordered that the case be administratively closed and that it may be re-opened following proceedings before the Antitrust Expert Panel.

The Antitrust Expert Panel was convened and, on February 8, 2017, it recommended that the Notice of Violation in Valassis I be dismissed and the NAM Group’s counterclaims in Valassis II be dismissed with leave to replead three of the four counterclaims. The NAM Group filed an amended counterclaim on February 27, 2017. Valassis did not object to the Antitrust Expert Panel’s recommendation to dismiss Valassis I, and the parties are awaiting the District Court’s order of dismissal. However, Valassis filed a motion with the District Court asserting that the referral of Valassis II to the Antitrust Expert Panel is no longer valid and seeking either to re-open Valassis II in the District Court or to transfer the case to the United States District Court for the Southern District of New York. The NAM Group opposed the motion, and the District Court heard arguments on April 13, 2017. While it is not possible at this time to predict with any degree of certainty the ultimate outcome of these actions, the NAM Group believes it has been compliant with applicable laws and intends to defend itself vigorously in both actions.

U.K. Newspaper Matters and Related Investigations and Litigation

Civil claims have been brought against the Company with respect to, among other things, voicemail interception and inappropriate payments to public officials at the Company’s former publication, The News of the World, and at The Sun, and related matters (the “U.K. Newspaper Matters”). The Company has admitted liability in many civil cases and has settled a number of cases. The Company also settled a number of claims through a private compensation scheme which was closed to new claims after April 8, 2013.

In connection with the Company’s separation of its businesses (the “Separation”) from 21st Century Fox on June 28, 2013 (the “Distribution Date”), the Company and 21st Century Fox agreed in the Separation and

 

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Distribution Agreement that 21st Century Fox would indemnify the Company for payments made after the Distribution Date arising out of civil claims and investigations relating to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the previously concluded criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. 21st Century Fox’s indemnification obligations with respect to these matters will be settled on an after-tax basis.

The net expense related to the U.K. Newspaper Matters in Selling, general and administrative expenses was $2 million and $3 million for the three months ended March 31, 2017 and 2016, respectively, and $6 million and $15 million for the nine months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the Company has provided for its best estimate of the liability for the claims that have been filed and costs incurred, including liabilities associated with employment taxes, and has accrued approximately $105 million, of which approximately $60 million will be indemnified by 21st Century Fox, and a corresponding receivable was recorded in Other current assets on the Balance Sheet as of March 31, 2017. It is not possible to estimate the liability or corresponding receivable for any additional claims that may be filed given the information that is currently available to the Company. If more claims are filed and additional information becomes available, the Company will update the liability provision and corresponding receivable for such matters.

The Company is not able to predict the ultimate outcome or cost of the civil claims. It is possible that these proceedings and any adverse resolution thereof could damage its reputation, impair its ability to conduct its business and adversely affect its results of operations and financial condition.

Other

The Company’s tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in the Company’s tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid; however, these liabilities may need to be adjusted as new information becomes known and as tax examinations continue to progress. As subsidiaries of 21st Century Fox prior to the Separation, the Company and each of its domestic subsidiaries have joint and several liability with 21st Century Fox for the consolidated U.S. federal income taxes of the 21st Century Fox consolidated group relating to any taxable periods during which the Company or any of the Company’s domestic subsidiaries were a member of the 21st Century Fox consolidated group. Consequently, the Company could be liable in the event any such liability is incurred, and not discharged, by any other member of the 21st Century Fox consolidated group. In conjunction with the Separation, the Company entered into the Tax Sharing and Indemnification Agreement with 21st Century Fox, which requires 21st Century Fox to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the IRS or other taxing authorities in amounts that the Company cannot quantify.

NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company provides pension, postretirement health care, defined contribution and medical benefits primarily in the U.S., U.K. and Australia to the Company’s eligible employees and retirees. The Company funds amounts, at a minimum, in accordance with statutory requirements for all plans. Plan assets consist principally of common stocks, marketable bonds and government securities.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The amortization of amounts related to unrecognized prior service (credits) and deferred losses were reclassified out of other comprehensive (loss) income as a component of net periodic benefit costs. The components of net periodic benefits costs were as follows:

 

     Pension benefits     Postretirement
benefits
 
     Domestic     Foreign    
     For the three months ended March 31,  
     2017     2016     2017     2016     2017     2016  
     (in millions)  

Service cost benefits earned during the period

   $     —       $     —       $ 2     $ 2     $     —       $     —    

Interest costs on projected benefit obligations

     3       4       7       10       1       2  

Expected return on plan assets

     (5     (4     (14     (15     —         —    

Amortization of deferred losses

     2       1       4       4       —         —    

Amortization of prior service (credits)

     —         —           —           —         (1     (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ —       $ 1     $ (1   $ 1     $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Pension benefits     Postretirement
benefits
 
     Domestic     Foreign    
     For the nine months ended March 31,  
     2017     2016     2017     2016     2017     2016  
     (in millions)  

Service cost benefits earned during the period

   $     —       $     —       $ 6     $ 7     $     —       $     —    

Interest costs on projected benefit obligations

     9       12       22       33       3       4  

Expected return on plan assets

     (14     (14     (42     (47     —         —    

Amortization of deferred losses

     4       3       12       11       —         —    

Amortization of prior service (credits)

     —         —           —           —         (3     (5

Settlements, curtailments and other

     —         —         —         (1     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefits costs

   $ (1   $ 1     $ (2   $ 3     $ —       $ (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During each of the nine months ended March 31, 2017 and 2016, the Company contributed approximately $27 million to its various pension and postretirement plans, of which $8 million and $9 million, respectively, was contributed in the three months ended March 31, 2017 and 2016.

NOTE 12. INCOME TAXES

At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect and are individually computed are recognized in the interim period in which those items occur. In addition, the effects of changes in enacted tax laws or rates or tax status are recognized in the interim period in which the change occurs.

For the three months ended March 31, 2017, the Company recorded a tax charge of $45 million on pre-tax income of $45 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

For the nine months ended March 31, 2017, the Company recorded a tax charge of $12 million on a pre-tax loss of $207 million resulting in an effective tax rate that was lower than the U.S. statutory tax rate. The lower tax rate was primarily due to a lower net tax benefit of $121 million on the non-cash write-down of assets and investments in Australia and valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses, offset by lower taxes on the sale of REA Group’s European business.

Management assesses available evidence to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Based on management’s assessment of available evidence, it has been determined that it is more likely than not that deferred tax assets in certain foreign jurisdictions may not be realized and therefore, a valuation allowance has been established against those tax assets.

For the three months ended March 31, 2016 the Company recorded a tax benefit of $98 million on a pre-tax loss of $226 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to the $29 million non-taxable gain resulting from the revaluation of REA Group’s previously held equity interest in iProperty (See Note 2—Acquisitions, Disposals and Other Transactions), as well as a tax benefit of $107 million in connection with the settlement of certain litigation and related claims at News America Marketing. (See Note 10—Commitments and Contingencies).

For the nine months ended March 31, 2016 the Company recorded a tax benefit of $140 million on a pre-tax loss of $19 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. In addition to the third quarter impacts discussed above, the higher tax rate was primarily due to a tax benefit of approximately $106 million related to the release of previously established valuation allowances related to certain U.S. federal net operating losses and state deferred tax assets. This benefit was recognized in conjunction with management’s plan to dispose of the Company’s digital education business in the first quarter of fiscal 2016, as the Company now expects to generate sufficient U.S. taxable income to utilize these deferred tax assets prior to expiration.

In addition, the Company recognized a tax benefit of approximately $144 million upon reclassification of the Digital Education segment to discontinued operations in (Loss) income from discontinued operations, net of tax, in the Statement of Operations for the nine months ended March 31, 2016. In addition, a tax benefit of $30 million related to operations for the period of the Digital Education segment was reclassified to discontinued operations in (Loss) income from discontinued operations, net of tax, in the Statement of Operations for the nine months ended March 31, 2016.

The Company’s tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in the Company’s tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid, however, these liabilities may need to be adjusted as new information becomes known and as tax examinations continue to progress.

The Company paid gross income taxes of $89 million and $78 million during the nine months ended March 31, 2017 and 2016, respectively, and received income tax refunds of $1 million and $1 million, respectively.

NOTE 13. SEGMENT INFORMATION

The Company manages and reports its businesses in the following five segments:

 

   

News and Information Services—The News and Information Services segment includes the Company’s global print, digital and broadcast radio media platforms. These product offerings include the global

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

print and digital versions of The Wall Street Journal and the Dow Jones Media Group, which includes Barron’s and MarketWatch, as well as the Company’s suite of professional information products, including Factiva, Dow Jones Risk & Compliance, Dow Jones Newswires, Dow Jones PEVC and DJX. The Company also owns, among other publications, The Australian, The Daily Telegraph, Herald Sun and The Courier-Mail in Australia, The Times, The Sunday Times, The Sun and The Sun on Sunday in the U.K. and the New York Post in the U.S. This segment also includes News America Marketing, a leading provider of home-delivered shopper media, in-store marketing products and services and digital marketing solutions, including Checkout 51’s mobile application, as well as Unruly, a leading global video advertising distribution platform, Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K., and Storyful, a social media news agency.

 

   

Book Publishing—The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with operations in 18 countries and particular strengths in general fiction, nonfiction, children’s and religious publishing. HarperCollins owns more than 120 branded publishing imprints, including Avon, Harper, HarperCollins Children’s Books, William Morrow, Harlequin and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as Harper Lee, Patricia Cornwell, Veronica Roth, Rick Warren, Sarah Young and Agatha Christie and popular titles such as The Hobbit, Goodnight Moon, To Kill a Mockingbird, Jesus Calling and the Divergent series.

 

   

Digital Real Estate Services—The Digital Real Estate Services segment consists of the Company’s interests in REA Group, Move and DIAKRIT. REA Group is a publicly traded company listed on the Australian Securities Exchange (ASX: REA) that advertises property and property-related services on websites and mobile applications across Australia and Asia, including iProperty.com. REA Group operates Australia’s leading residential and commercial property websites, realestate.com.au and realcommercial.com.au. The Company holds a 61.6% interest in REA Group.

Move is a leading provider of online real estate services in the U.S. and primarily operates realtor.com®, a premier real estate information and services marketplace. Move offers real estate advertising solutions to agents and brokers, including its ConnectionsSM for Buyers and Advantage products. Move also offers a number of professional software and services products, including Top Producer® and ListHubTM. The Company owns an 80% interest in Move, with the remaining 20% being held by REA Group.

 

   

Cable Network Programming—The Cable Network Programming segment primarily consists of FOX SPORTS Australia and a number of news channels operated by Australian News Channel Pty Ltd (“SKY NEWS”). FOX SPORTS Australia is the leading sports programming provider in Australia, with seven high definition television channels distributed via cable, satellite and IP, several interactive viewing applications and broadcast rights to live sporting events in Australia including: National Rugby League, the domestic football league, international cricket, Australian Rugby Union and various motorsports programming.

Australian News Channel Pty Ltd, acquired in December 2016, operates the SKY NEWS network, Australia’s 24-hour multi-channel, multi-platform news service. SKY NEWS channels broadcast throughout Australia and New Zealand and are available on Foxtel and Sky Television. SKY NEWS owns and operates the international Australia Channel IPTV service and also offers content across a variety of digital media platforms, including mobile, podcasts and social media websites.

 

   

Other—The Other segment consists primarily of general corporate overhead expenses, the corporate Strategy and Creative Group and costs related to the U.K. Newspaper Matters. The Company’s corporate Strategy and Creative Group was formed to identify new products and services across its businesses to increase revenues and profitability and to target and assess potential acquisitions, investments and dispositions.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Segment EBITDA is defined as revenues less operating expenses, selling, general and administrative expenses and the NAM Group settlement charge. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity (losses) earnings of affiliates, interest, net, other, net, income tax (expense) benefit and net income attributable to noncontrolling interests. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of Segment EBITDA.

Segment EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate the performance of and allocate resources within the Company’s businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the Company’s business segments and its enterprise value against historical data and competitors’ data, although historical results may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. The Company believes that the presentation of Total Segment EBITDA provides useful information regarding the Company’s operations and other factors that affect the Company’s reported results. Specifically, the Company believes that by excluding certain one-time or non-cash items such as impairment and restructuring charges and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures and changes in tax positions or regimes, the Company provides users of its consolidated financial statements with insight into both its core operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its core business. As a result, users of the Company’s consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. The following table reconciles Total Segment EBITDA to Income (loss) from continuing operations.

 

     For the three months
ended March 31,
    For the nine months
ended March 31,
 
         2017             2016             2017             2016      
     (in millions)  

Revenues:

        

News and Information Services

   $ 1,263     $ 1,231     $ 3,788     $ 3,921  

Book Publishing

     374       358       1,229       1,213  

Digital Real Estate Services

     219       194       687       593  

Cable Network Programming

     122       107       354       337  

Other

     —         1       1       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     1,978       1,891       6,059       6,066  
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA:

        

News and Information Services

   $ 123     $ (187   $ 311     $ 54  

Book Publishing

     37       36       160       135  

Digital Real Estate Services

     75       39       237       169  

Cable Network Programming

     34       34       99       101  

Other

     (54     (44     (137     (136
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Segment EBITDA

     215       (122     670       323  
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (109     (126     (349     (370

Impairment and restructuring charges

     (33     (24     (409     (63

Equity (losses) earnings of affiliates

     (23     2       (276     25  

Interest, net

     8       11       30       34  

Other, net

     (13     33       127       32  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax (expense) benefit

     45       (226     (207     (19

Income tax (expense) benefit

     (45     98       (12     140  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

   $ —       $ (128   $ (219   $ 121  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     As of March 31,
2017
     As of June 30,
2016
 
     (in millions)  

Total assets:

     

News and Information Services

   $ 6,641      $ 6,728  

Book Publishing

     1,824        1,855  

Digital Real Estate Services

     2,271        2,158  

Cable Network Programming

     1,174        1,101  

Other(a)

     966        1,371  

Investments

     2,010        2,270  
  

 

 

    

 

 

 

Total assets

   $ 14,886      $ 15,483  
  

 

 

    

 

 

 

 

(a)

The Other segment primarily includes Cash and cash equivalents.

 

     As of March 31,
2017
     As of June 30,
2016
 
     (in millions)  

Goodwill and intangible assets, net:

     

News and Information Services

   $ 2,955      $ 2,651  

Book Publishing

     825        869  

Digital Real Estate Services

     1,481        1,499  

Cable Network Programming

     910        898  

Other

     4        4  
  

 

 

    

 

 

 

Total goodwill and intangible assets, net

   $ 6,175      $ 5,921  
  

 

 

    

 

 

 

NOTE 14. ADDITIONAL FINANCIAL INFORMATION

Receivables, net

Receivables are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of the Company’s products. Based on this information, management reserves a certain portion of revenues that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on historical experience, receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being collected.

Receivables, net consist of:

 

     As of
March 31, 2017
    As of
June 30, 2016
 
     (in millions)  

Receivables

   $ 1,540     $ 1,442  

Allowance for sales returns

     (173     (170

Allowances for doubtful accounts

     (41     (43
  

 

 

   

 

 

 

Receivables, net

   $ 1,326     $ 1,229  
  

 

 

   

 

 

 

The Company’s receivables did not contain significant concentrations of credit risk as of March 31, 2017 or June 30, 2016 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Other Current Assets

The following table sets forth the components of Other current assets:

 

     As of
March 31, 2017
     As of
June 30, 2016
 
     (in millions)  

Inventory(a)

   $ 228      $ 218  

Amounts due from 21st Century Fox(b)

     60        55  

Prepayments and other current assets

     298        240  
  

 

 

    

 

 

 

Total Other current assets

   $ 586      $ 513  
  

 

 

    

 

 

 

 

(a)

Inventory at March 31, 2017 and June 30, 2016 was primarily comprised of books, newsprint and programming rights.

(b)

Relates to costs incurred in connection with the U.K. Newspaper Matters which will be indemnified by 21st Century Fox.

Other Non-Current Assets

The following table sets forth the components of Other non-current assets:

 

     As of
March 31, 2017
     As of
June 30, 2016
 
     (in millions)  

Royalty advances to authors

   $ 308      $ 311  

Other

     134        85  
  

 

 

    

 

 

 

Total Other non-current assets

   $ 442      $ 396  
  

 

 

    

 

 

 

Other Current Liabilities

The following table sets forth the components of Other current liabilities:

 

     As of
March 31, 2017
     As of
June 30, 2016
 
     (in millions)  

Current tax payable

   $ 41      $ 33  

Royalties and commissions payable

     180        179  

Current portion of long-term debt

     103        3  

Other

     259        251  
  

 

 

    

 

 

 

Total Other current liabilities

   $ 583      $ 466  
  

 

 

    

 

 

 

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Other, net

The following table sets forth the components of Other, net:

 

     For the three months
ended March 31,
     For the nine months
ended March 31,
 
         2017             2016              2017             2016      
     (in millions)  

Gain on sale of REA Group’s European business(a)

   $ (13   $   —        $ 107     $   —    

Gain on iProperty transaction(b)

       —         29        —         29  

Write-down of marketable securities

     —         —          (21     —    

Gain on sale of other businesses

     —         —          11       —    

Gain on sale of equity method investments

     —         1        17       1  

Other, net

     —         3        13       2  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Other, net

   $ (13   $ 33      $ 127     $ 32  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) In December 2016, REA Group sold its European business for approximately $140 million (approximately €133 million) in cash, which resulted in a pre-tax gain of $120 million in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.
(b) The Company recorded a $29 million gain resulting from the revaluation of REA Group’s previously held equity interest in iProperty. (See Note 2—Acquisitions, Disposals and Other Transactions).

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This document, including the following discussion and analysis, contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Risk Factors” in Part I, Item 1A in News Corporation’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 as filed with the Securities and Exchange Commission (the “SEC”) on August 12, 2016 (the “2016 Form 10-K”), and as may be updated in this and other subsequent Quarterly Reports on Form 10-Q. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the SEC. This section should be read together with the unaudited consolidated financial statements of News Corporation and related notes set forth elsewhere herein and the audited consolidated financial statements of News Corporation and related notes set forth in the 2016 Form 10-K.

INTRODUCTION

News Corporation (together with its subsidiaries, “News Corporation,” “News Corp,” the “Company,” “we,” or “us”) is a global diversified media and information services company comprised of businesses across a range of media, including: news and information services, book publishing, digital real estate services, cable network programming in Australia and pay-TV distribution in Australia.

During the first quarter of fiscal 2016, management approved a plan to dispose of the Company’s digital education business. As a result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the notes to the Consolidated Financial Statements relates to the Company’s continuing operations. (See Note 3—Discontinued Operations in the accompanying Consolidated Financial Statements).

For the three and nine months ended March 31, 2017 and 2016, the Company reclassified its listing revenues generated primarily from agents, brokers and developers from advertising revenue to real estate revenue to better reflect the Company’s revenue mix and how management reviews the performance of the Digital Real Estate Services segment.

The unaudited consolidated financial statements are referred to herein as the “Consolidated Financial Statements.” The consolidated statements of operations are referred to herein as the “Statements of Operations.” The consolidated balance sheets are referred to herein as the “Balance Sheets.” The consolidated statements of cash flows are referred to herein as the “Statements of Cash Flows.” The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

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Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company’s financial condition, changes in financial condition and results of operations. This discussion is organized as follows:

 

   

Overview of the Company’s Business—This section provides a general description of the Company’s businesses, as well as developments that occurred to date during fiscal 2017 and in the nine months ended March 31, 2016 that the Company believes are important in understanding its financial condition and results of operations or to disclose known trends.

 

   

Results of Operations—This section provides an analysis of the Company’s results of operations for the three and nine months ended March 31, 2017 and 2016. This analysis is presented on both a consolidated basis and a segment basis. In addition, a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed.

 

   

Liquidity and Capital ResourcesThis section provides an analysis of the Company’s cash flows for the nine months ended March 31, 2017 and 2016 as well as a discussion of the Company’s financial arrangements and outstanding commitments, both firm and contingent, that existed during fiscal 2017.

OVERVIEW OF THE COMPANY’S BUSINESSES

The Company manages and reports its businesses in the following five segments:

 

   

News and Information Services—The News and Information Services segment includes the Company’s global print, digital and broadcast radio media platforms. These product offerings include the global print and digital versions of The Wall Street Journal and the Dow Jones Media Group, which includes Barron’s and MarketWatch, as well as the Company’s suite of professional information products, including Factiva, Dow Jones Risk & Compliance, Dow Jones Newswires, Dow Jones PEVC and DJX. The Company also owns, among other publications, The Australian, The Daily Telegraph, Herald Sun and The Courier-Mail in Australia, The Times, The Sunday Times, The Sun and The Sun on Sunday in the U.K. and the New York Post in the U.S. This segment also includes News America Marketing, a leading provider of home-delivered shopper media, in-store marketing products and services and digital marketing solutions, including Checkout 51’s mobile application, as well as Unruly, a leading global video advertising distribution platform, Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K., and Storyful, a social media news agency.

 

   

Book Publishing—The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with operations in 18 countries and particular strengths in general fiction, nonfiction, children’s and religious publishing. HarperCollins owns more than 120 branded publishing imprints, including Avon, Harper, HarperCollins Children’s Books, William Morrow, Harlequin and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as Harper Lee, Patricia Cornwell, Veronica Roth, Rick Warren, Sarah Young and Agatha Christie and popular titles such as The Hobbit, Goodnight Moon, To Kill a Mockingbird, Jesus Calling and the Divergent series.

 

   

Digital Real Estate Services—The Digital Real Estate Services segment consists of the Company’s interests in REA Group Limited (“REA Group”), Move, Inc. (“Move”) and DIAKRIT International Limited (“DIAKRIT”). REA Group is a publicly traded company listed on the Australian Securities Exchange (ASX: REA) that advertises property and property-related services on websites and mobile applications across Australia and Asia, including iProperty.com. REA Group operates Australia’s leading residential and commercial property websites, realestate.com.au and realcommercial.com.au. The Company holds a 61.6% interest in REA Group.

Move is a leading provider of online real estate services in the U.S. and primarily operates realtor.com®, a premier real estate information and services marketplace. Move offers real estate advertising solutions to agents and brokers, including its ConnectionsSM for Buyers and Advantage products. Move also offers

 

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a number of professional software and services products, including Top Producer® and ListHubTM. The Company owns an 80% interest in Move, with the remaining 20% being held by REA Group.

 

   

Cable Network Programming—The Cable Network Programming segment consists of FOX SPORTS Australia and a number of news channels operated by Australian News Channel Pty Ltd (“SKY NEWS”). FOX SPORTS Australia is the leading sports programming provider in Australia, with seven high definition television channels distributed via cable, satellite and IP, several interactive viewing applications and broadcast rights to live sporting events in Australia including: National Rugby League, the domestic football league, international cricket, Australian Rugby Union and various motorsports programming.

Australian News Channel Pty Ltd, acquired in December 2016, operates the SKY NEWS network, Australia’s 24-hour multi-channel, multi-platform news service. SKY NEWS channels broadcast throughout Australia and New Zealand and are available on Foxtel and Sky Television. SKY NEWS owns and operates the international Australia Channel IPTV service and also offers content across a variety of digital media platforms, including mobile, podcasts and social media websites.

 

   

Other—The Other segment consists primarily of general corporate overhead expenses, the corporate Strategy and Creative Group and costs related to the U.K. Newspaper Matters (as defined in Note 10 to the Consolidated Financial Statements). The Company’s corporate Strategy and Creative Group was formed to identify new products and services across its businesses to increase revenues and profitability and to target and assess potential acquisitions, investments and dispositions.

News and Information Services

Revenue at the News and Information Services segment is derived from the sale of advertising, circulation and subscriptions, as well as licensing. Adverse changes in general market conditions for advertising continue to affect revenues. Advertising revenues at the News and Information Services segment are also subject to seasonality, with revenues typically being highest in the Company’s second fiscal quarter due to the end-of-year holiday season in its main operating geographies. Circulation and subscription revenues can be greatly affected by changes in the prices of the Company’s and/or competitors’ products, as well as by promotional activities.

Operating expenses include costs related to paper, production, distribution, third party printing, editorial, commissions and radio sports rights. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead.

The News and Information Services segment’s advertising volume and rates, circulation and the price of paper are the key variables whose fluctuations can have a material effect on the Company’s operating results and cash flow. The Company has to anticipate the level of advertising volume and rates, circulation and paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles. The Company continues to be exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand. The Company’s expenses are affected by the cyclical increases and decreases in the price of paper. The News and Information Services segment’s products compete for readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets. Competition for circulation and subscriptions is based on the content of the products provided, pricing and, from time to time, various promotions. The success of these products also depends upon advertisers’ judgments as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products, advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of readership demographics.

The Company’s traditional print business faces challenges from alternative media formats and shifting consumer preferences. The Company is also exposed to the impact of long-term structural movements in advertising spending, in particular, the move in advertising from print to digital. These alternative media formats could impact the Company’s overall performance, positively or negatively. In addition, technologies have been and will continue to be developed that allow users to block advertising on websites and mobile devices, which may impact advertising rates or revenues.

 

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As a multi-platform news provider, the Company recognizes the importance of maximizing revenues from a variety of media formats and platforms, both in terms of paid-for content and in new advertising models, and continues to invest in its digital products. Technologies such as smartphones, tablets and similar devices and their related applications provide continued opportunities for the Company to make its journalism available to a new audience of readers, introduce new or different pricing schemes, and develop its products to continue to attract advertisers and/or affect the relationship between publisher and consumer. The Company continues to develop and implement strategies to exploit its content across a variety of media channels and platforms.

Book Publishing

The Book Publishing segment derives revenues from the sale of general fiction, nonfiction, children’s and religious books in the U.S. and internationally. The revenues and operating results of the Book Publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand during the end-of-year holiday season in its main operating geographies. This marketplace is highly competitive and continues to change due to technological developments and other factors. Each book is a separate and distinct product, and its financial success depends upon many factors, including public acceptance.

Major new title releases represent a significant portion of the Book Publishing segment’s sales throughout the fiscal year. Print-based consumer books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Book Publishing segment is subject to global trends and local economic conditions. Operating expenses for the Book Publishing segment include costs related to paper, printing, authors’ royalties, editorial, promotional, art and design expenses. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine overhead.

Digital Real Estate Services

The Digital Real Estate Services segment generates revenue through the sale of real estate listing products to agents, brokers and developers and display advertising on its residential real estate and commercial property sites and also licenses certain professional software products on a subscription basis. Significant expenses associated with these sites and software solutions include development costs, advertising and promotional expenses, hosting and support services, salaries, employee benefits and other routine overhead expenses.

Consumers are increasingly turning to the Internet and mobile devices for real estate information. The Digital Real Estate Services segment’s success depends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals and attractive to its advertisers.

Cable Network Programming

The Cable Network Programming segment primarily consists of FOX SPORTS Australia and SKY NEWS. FOX SPORTS Australia offers the following seven channels in high definition: FOX SPORTS 501, FOX SPORTS 503, FOX SPORTS 505, FOX SPORTS 506, FOX LEAGUE, FOX FOOTY and FOX SPORTS NEWS. Revenue is primarily derived from monthly affiliate fees received from pay-tv providers (mainly Foxtel) based on the number of subscribers.

FOX SPORTS Australia competes primarily with ESPN, beIN SPORTS, the Free-To-Air (“FTA”) channels and certain telecommunications companies in Australia.

SKY NEWS’ services include the following channels: SKY NEWS LIVE, SKY NEWS BUSINESS, SKY NEWS WEATHER, SKY NEWS Multiview, A-PAC Australia’s Public Affairs Channel, SKY NEWS New Zealand and Australia Channel for international markets. Revenue is primarily derived from monthly affiliate fees received from pay-tv providers based on the number of subscribers and advertising.

 

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The most significant operating expenses of the Cable Network Programming segment are the acquisition and production expenses related to programming and the expenses related to operating the technical facilities of the broadcast operations. The expenses associated with licensing programming rights are recognized during the applicable season or event, which can cause results at the Cable Network Programming segment to fluctuate based on the timing and mix of the Company’s local and international sports programming. Other expenses include marketing and promotional expenses related to improving the market visibility and awareness of the channels and their programming. Additional expenses include salaries, employee benefits, rent and other routine overhead expenses.

Other

The Other segment primarily consists of general corporate overhead expenses, the corporate Strategy and Creative Group and costs related to the U.K. Newspaper Matters. The Company’s corporate Strategy and Creative Group was formed to identify new products and services across the Company’s businesses to increase revenues and profitability and to target and assess potential acquisitions, investments and dispositions.

OTHER BUSINESS DEVELOPMENTS

In January 2017, REA Group acquired an approximately 15% interest in Elara Technologies Pte. Ltd., a leading online real estate services provider in India (“Elara”), for $50 million. Elara operates PropTiger.com, Makaan.com and the recently acquired Housing.com, and the investment further strengthens REA Group’s presence in Asia. Following the completion of the investment and certain related transactions, including Elara’s acquisition of Housing.com, News Corporation’s pre-existing interest in Elara decreased to approximately 23%.

In December 2016, REA Group sold its European business for approximately $140 million (approximately €133 million) in cash, which resulted in a pre-tax gain of $120 million in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.

In December 2016, the Company acquired Australian Regional Media (“ARM”) from APN News and Media Limited (“APN”) for approximately $30 million. ARM operates a portfolio of regional print assets and websites and extends the reach of the Australian newspaper business to new customers in new geographic regions. ARM is a subsidiary of News Corp Australia, and its results are included within the News and Information Services segment.

In September 2016, the Company completed its acquisition of Wireless Group plc (“Wireless Group”) for a purchase price of 315 pence per share in cash, or approximately £220 million (approximately $285 million) in the aggregate, plus $23 million of assumed debt which was repaid subsequent to closing. Wireless Group operates talkSPORT, the leading sports radio network in the U.K., and a portfolio of radio stations in the U.K. and Ireland. The acquisition broadens the Company’s range of services in the U.K., Ireland and internationally and the Company expects to closely align Wireless Group’s operations with those of The Sun and The Times. Wireless Group’s results are included within the News and Information Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

In May 2016, REA Group acquired Flatmates.com.au Pty Ltd (“Flatmates”) for $19 million in cash at closing and up to $15 million in future cash consideration related to payments contingent upon the achievement of certain performance objectives. Flatmates operates the Flatmates.com.au website, which is a market leading share accommodation site in Australia. The acquisition enhances REA Group’s Australian product offering by extending its reach into the quickly growing share accommodation business. Flatmates is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment.

 

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In February 2016, the Company acquired a 92% interest in DIAKRIT for approximately $40 million in cash. The Company has the option to purchase, and the minority shareholders also have the option to sell to the Company, the remaining 8% in two tranches over the next six years at fair value. DIAKRIT is a digital visualization solutions company that helps homeowners see the potential in their future living environment with digital visualization solutions that enable them to plan, furnish and decorate their dream home, while also helping agents and developers generate more buyer inquiries and accelerate their property sale processes. DIAKRIT’s results are included within the Digital Real Estate Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

In February 2016, REA Group increased its investment in iProperty Group Limited (“iProperty”) from 22.7% to approximately 86.9% for A$482 million in cash (approximately $340 million). The remaining 13.1% not currently owned will become mandatorily redeemable during fiscal 2018, and as a result, the Company recognized a liability of approximately $76 million. The acquisition was funded primarily with the proceeds from borrowings under an unsecured syndicated revolving loan facility (the “REA Facility”). (See Note 6—Borrowings in the accompanying Consolidated Financial Statements). The acquisition of iProperty extends REA Group’s market leading business in Australia to attractive markets throughout Southeast Asia. iProperty is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment. During the fiscal year ended June 30, 2016, REA Group recognized a gain of $29 million related to the revaluation of its previously held equity interest in iProperty in Other, net in the Statements of Operations.

The total fair value of iProperty at the acquisition date is set forth below (in millions):

 

Cash paid for iProperty equity

   $ 340  

Deferred consideration

     76  
  

 

 

 

Total consideration

     416  
  

 

 

 

Fair value of previously held iProperty investment

     120  
  

 

 

 

Total fair value

   $ 536  
  

 

 

 

On September 30, 2015, the Company acquired Unruly Holdings Limited (“Unruly”) for approximately £60 million (approximately $90 million) in cash and up to £56 million (approximately $86 million) in future cash consideration related to payments primarily contingent upon the achievement of certain performance objectives. Unruly is a leading global video distribution platform that is focused on delivering branded video advertising across websites and mobile devices. Unruly’s results of operations are included within the News and Information Services segment, and it is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

In July 2015, the Company acquired Checkout 51 Mobile Apps ULC (“Checkout 51”) for approximately $13 million in cash at closing and approximately $10 million in deferred cash consideration which was paid during fiscal 2016. Checkout 51 is a data-driven digital incentives company that provides News America Marketing with a leading receipt recognition mobile app which enables packaged goods companies and brands to reach consumers with highly personalized marketing campaigns. Checkout 51’s results are included within the News and Information Services segment.

 

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RESULTS OF OPERATIONS

Results of Operations—For the three and nine months ended March 31, 2017 versus the three and nine months ended March 31, 2016

The following table sets forth the Company’s operating results for the three and nine months ended March 31, 2017 as compared to the three and nine months ended March 31, 2016.

 

    For the three months ended
March 31,
    For the nine months ended
March 31,
 
    2017     2016     Change     % Change     2017     2016     Change     % Change  
(in millions, except %)               Better/(Worse)                 Better/(Worse)  

Revenues:

               

Advertising

  $ 705     $ 671     $ 34       5 %     $ 2,123     $ 2,222     $ (99     (4)%  

Circulation and subscription

    618       615       3       — %       1,834       1,875       (41     (2)%  

Consumer

    359       343       16       5 %       1,183       1,164       19       2 %  

Real estate

    168       145       23       16 %       525       450       75       17 %  

Other

    128       117       11       9 %       394       355       39       11 %  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    1,978       1,891       87       5 %       6,059       6,066       (7     —  %  

Operating expenses

    (1,101     (1,084     (17     (2)%       (3,384     (3,476     92       3 %  

Selling, general and administrative

    (662     (649     (13     (2)%       (2,005     (1,987     (18     (1)%  

NAM Group settlement charge

    —         (280     280       **         —         (280     280       **    

Depreciation and amortization

    (109     (126     17       13 %       (349     (370     21       6 %  

Impairment and restructuring charges

    (33     (24     (9     (38)%       (409     (63     (346     **    

Equity (losses) earnings of affiliates

    (23     2       (25     **         (276     25       (301     **    

Interest, net

    8       11       (3     (27)%       30       34       (4     (12)%  

Other, net

    (13     33       (46     **         127       32       95       **    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax (expense) benefit

    45       (226     271       **         (207     (19     (188     **    

Income tax (expense) benefit

    (45     98       (143     **         (12     140       (152     **    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    —         (128     128       **         (219     121       (340     **    

(Loss) income from discontinued operations, net of tax

    —         (2     2       **         —         20       (20     **    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    —         (130     130       **         (219     141       (360     **    

Less: Net income attributable to noncontrolling interests

    (5     (19     14       74 %       (90     (52     (38     (73)%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to News Corporation

  $ (5   $ (149   $ 144       97 %     $ (309   $ 89     $ (398     **    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

Revenues—Revenues increased $87 million, or 5%, and decreased $7 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.

The revenue increase for the three months ended March 31, 2017 was in large part due to an increase in revenues at the News and Information Services segment of $32 million, primarily due to higher revenues at News America Marketing of $32 million and the acquisitions of ARM and Wireless Group which contributed $30 million and $24 million in revenues, respectively, partially offset by lower print advertising revenues and the negative impact of foreign currency fluctuations. The increase was also attributable to higher revenues of $25 million at the Digital Real Estate Services segment due to growth at both REA Group and Move and the positive impact of foreign currency fluctuations and $16 million at the Book Publishing segment due to strong frontlist and backlist sales. In addition, the Cable Network Programming segment contributed $15 million to the increase in revenues,

 

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primarily due to the acquisition of SKY NEWS and the positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Revenue decrease of $21 million for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The Company calculates the impact of foreign currency fluctuations for businesses reporting in currencies other than the U.S. dollar by multiplying the results for each quarter in the current period by the difference between the average exchange rate for that quarter and the average exchange rate in effect during the corresponding quarter of the prior year and totaling the impact for all quarters in the current period.

The revenue decrease for the nine months ended March 31, 2017 was primarily due to a decrease in revenues at the News and Information Services segment of $133 million, primarily resulting from weakness in the print advertising market across mastheads and the negative impact of foreign currency fluctuations, partially offset by higher revenues at News America Marketing of $38 million, the acquisitions of Wireless Group and ARM which contributed $51 million and $30 million in revenues, respectively, and higher Other revenues. The revenue decrease was also partially offset by revenue increases of $94 million at the Digital Real Estate Services segment, primarily as a result of growth at both REA Group and Move, $17 million at the Cable Network Programming segment, primarily due to the positive impact of foreign currency fluctuations and the acquisition of SKY NEWS, and $16 million at the Book Publishing segment, primarily due to strong sales across the business. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Revenue decrease of $110 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

Operating Expenses—Operating expenses increased $17 million, or 2%, and decreased $92 million, or 3%, for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.

The increase in Operating expenses for the three months ended March 31, 2017 was mainly due to operating expense increases of $16 million at the Book Publishing segment, primarily related to higher sales in the period, and $12 million at the Cable Network Programming segment, primarily resulting from the acquisition of SKY NEWS and the negative impact of foreign currency fluctuations. These increases were partially offset by a decrease at the News and Information Services segment of $13 million, primarily as a result of lower newsprint, production, editorial and distribution costs, the impact of cost savings initiatives and the positive impact of foreign currency fluctuations, partially offset by higher costs of $30 million associated with the acquisitions of ARM and Wireless Group. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $8 million for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

The decrease in Operating expenses for the nine months ended March 31, 2017 was mainly due to a decrease in operating expenses at the News and Information Services segment of $114 million, primarily as a result of a $58 million positive impact from foreign currency fluctuations, lower newsprint, production, editorial and distribution costs and the impact of cost savings initiatives, partially offset by higher costs of $46 million associated with the acquisitions of ARM and Wireless Group. The decrease was also offset by higher operating expenses of $14 million at the Cable Network Programming segment, primarily due to the negative impact of foreign currency fluctuations and the acquisition of SKY NEWS, and $13 million at the Digital Real Estate Services segment. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $44 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

Selling, general and administrative expenses—Selling, general and administrative expenses increased $13 million, or 2%, and $18 million, or 1%, for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.

The increase in Selling, general and administrative expenses for the three months ended March 31, 2017 was due primarily to an increase at the News and Information Services segment of $15 million, resulting in large part

 

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from higher costs of $21 million associated with the acquisitions of ARM and Wireless Group, partially offset by an adjustment to the deferred consideration accrual related to the acquisition of Unruly of $12 million and the positive impact of foreign currency fluctuations. The increase in Selling, general and administrative expenses was also attributable to a one-time corporate charge of $11 million associated with a change in the Company’s executive management in February 2017. These increases were partially offset by lower costs at the Digital Real Estate Services segment, mainly due to lower legal costs at Move of $13 million. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $13 million for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

The increase in Selling, general and administrative expenses for the nine months ended March 31, 2017 was mainly due to an increase at the Digital Real Estate Services segment of $13 million, primarily related to higher costs at REA Group and Move associated with revenue growth, higher marketing costs and the acquisition of iProperty, partially offset by lower legal costs at Move of $21 million. The increase was also attributable to a one-time corporate charge of $11 million associated with a change in the Company’s executive management in February 2017. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $64 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

NAM Group settlement charge—During the three and nine months ended March 31, 2016, the Company recognized one-time costs of approximately $280 million in connection with the settlement of certain litigation and related claims at News America Marketing (the “NAM Group settlement charge). (See Note 10—Commitments and Contingencies in the accompanying Consolidated Financial Statements).

Depreciation and amortization—Depreciation and amortization expense decreased $17 million, or 13% and $21 million, or 6% for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016 due primarily to the write down of fixed assets at the Australian newspapers in the second quarter of fiscal 2017 and the positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Depreciation and amortization expense decrease of $2 million and $7 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.

Impairment and restructuring charges—During the three and nine months ended March 31, 2017, the Company recorded restructuring charges of $21 million and $88 million, respectively, of which $19 million and $85 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in the three and nine months ended March 31, 2017 were for employee termination benefits.

In connection with a reorganization at Dow Jones, the Company has incurred $28 million of restructuring expense through the nine months ended March 31, 2017 which are included in the restructuring charges discussed above. The Company expects to incur approximately $5 million to $15 million in restructuring charges during the remainder of fiscal 2017. The reorganization is expected to reduce the Company’s costs by approximately $100 million on an annualized basis by the end of fiscal 2018.

During the three and nine months ended March 31, 2016, the Company recorded restructuring charges of $24 million and $63 million, respectively, of which $24 million and $56 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in the three and nine months ended March 31, 2016 were primarily for employee termination benefits.

During the second quarter of fiscal 2017, the Company recognized a non-cash impairment charge of approximately $310 million primarily related to the write-down of fixed assets at the Australian newspapers. The write-down was a result of the impact of adverse trends on the future expected performance of the Australian newspapers, where revenue declines from continued weakness in the print advertising market accelerated during the second quarter. The write-down was comprised of approximately $149 million related to printing presses and

 

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print related equipment, $77 million related to facilities, $66 million related to capitalized software and $18 million related to tradenames. Significant unobservable inputs utilized in the income approach valuation method were a discount rate of 11.5% and no long-term growth.

The Company continually evaluates whether current factors or indicators require the performance of an interim impairment assessment of goodwill, long-lived assets and investments. The valuation of goodwill and long-lived assets requires assumptions and estimates of many factors, including revenue and market growth, operating cash flows, market multiples and discount rates. In the quarter ended December 31, 2016, the Company revised its future outlook for a reporting unit within the News and Information Services segment due to the acceleration of declines in the global print advertising markets during the first half of fiscal 2017. As a result, the Company determined that this reporting unit has goodwill and indefinite-lived intangible assets that are considered to be at risk for future impairment because the fair value of the reporting unit exceeded its carrying value by less than 5% as of December 31, 2016. Significant unobservable inputs utilized in the income approach valuation method for this reporting unit and the related indefinite-lived intangible assets were discount rates (ranging from 9.0%-10.0%), long-term growth rates (ranging from 1.6%-3.0%) and royalty rates (ranging from 1.5%-2.5%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Any increase in the discount rate or decrease in the projected cash flows terminal growth rate could have resulted in this reporting unit failing step one of the goodwill impairment analysis. Including those reporting units disclosed in the 2016 Form 10-K, the News and Information Services and Cable Network Programming segments have reporting units with goodwill and indefinite-lived intangible assets of approximately $2.4 billion at March 31, 2017 that are at risk for future impairment, of which $1.9 billion related to the News and Information Services segment and $0.5 billion related to the Cable Network Programming segment.

Equity (losses) earnings of affiliates—Equity earnings of affiliates decreased $25 million and $301 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016.

The decrease for the three months ended March 31, 2017 was primarily a result of lower net income at Foxtel due to losses of $21 million, primarily resulting from Foxtel management’s decision to cease Presto operations in January 2017, and losses of $14 million associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings (“Ten”). (See Note 5—Investments in the accompanying Consolidated Financial Statements).

The decrease for the nine months ended March 31, 2017 was primarily a result of the $227 million non-cash write-down of the carrying value of the Company’s investment in Foxtel to fair value and lower net income at Foxtel due to losses of $47 million, primarily resulting from Foxtel management’s decision to cease Presto operations in January 2017, and losses of $36 million associated with the change in the fair value of Foxtel’s investment in Ten. (See Note 5—Investments in the accompanying Consolidated Financial Statements).

During the first quarter of fiscal 2017, Foxtel was deemed to have significant influence over its investment in Ten. As a result, Foxtel was required to treat its investment in Ten as an equity method investment. Foxtel elected the fair value option under ASC 825, Financial Instruments, (“ASC 825”) and adjusts the carrying value of the Ten investment to fair value each reporting period. Although Foxtel ceased to have significant influence in Ten during the third quarter of fiscal 2017, it will continue to adjust the carrying value of the Ten investment to fair value each reporting period due to its election of the fair value option under ASC 825. This adjustment will be recorded as a component of Foxtel’s net income.

 

     For the three months ended March 31,      For the nine months ended March 31,  
     2017     2016     Change     % Change      2017     2016     Change     % Change  
(in millions, except %)                Better/(Worse)                  Better/(Worse)  

Foxtel(a)

   $ (16   $ 4     $ (20     **      $ (260   $ 26     $ (286     **  

Other equity affiliates, net

     (7     (2     (5     **        (16     (1     (15     **  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity (losses) earnings of affiliates

   $ (23   $ 2     $ (25     **      $ (276   $ 25     $ (301     **  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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** not meaningful
(a)

During the second quarter of fiscal 2017, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. The write-down is reflected in Equity (losses) earnings of affiliates in the Statements of Operations for the nine months ended March 31, 2017. (See Note 5—Investments in the accompanying Consolidated Financial Statements).

Additionally, in accordance with ASC 350, the Company amortized $16 million and $53 million related to excess cost over the Company’s proportionate share of its investment’s underlying net assets allocated to finite-lived intangible assets during the three and nine months ended March 31, 2017, respectively, as compared to $12 million and $37 million in the three and nine months ended March 31, 2016, respectively. Such amortization is reflected in Equity (losses) earnings of affiliates in the Statements of Operations. The increase in amortization expense recognized by the Company in the current year period resulted from a corresponding decrease in amortization expense recognized by Foxtel as certain intangible assets were fully amortized in fiscal 2016. The higher amortization expense recognized by the Company was partially offset by the impact of the $227 million non-cash write-down of the carrying value of its investment in Foxtel in the second quarter of fiscal 2017.

Interest, net—Interest, net decreased $3 million and $4 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016, primarily due to higher interest expense associated with the REA Facility. The change in the nine months ended March 31, 2017 relative to the prior year period was also impacted by an adjustment to the deferred consideration related to REA Group’s acquisition of iProperty in the second fiscal quarter of 2017.

Other, net

The following table sets forth the components of Other, net:

 

     For the three months ended
March 31,
     For the nine months ended
March 31,
 
(in millions)      2017         2016          2017         2016    

Gain on sale of REA Group’s European business(a)

   $ (13   $ —        $ 107     $ —    

Gain on iProperty transaction(b)

       —         29        —         29  

Write-down of marketable securities

     —           —          (21       —    

Gain on sale of other businesses

     —         —          11       —    

Gain on sale of equity method investments

     —         1        17       1  

Other, net

     —         3        13       2  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Other, net

   $ (13   $ 33      $ 127     $ 32  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) 

In December 2016, REA Group sold its European business for approximately $140 million (approximately €133 million) in cash, which resulted in a pre-tax gain of $120 million in the second quarter of fiscal 2017. The gain was partially offset in the third quarter of fiscal 2017 by $13 million related to the impact of foreign currency fluctuations on the receipt of the sales proceeds, which were received in February 2017, and certain other currency translation impacts. The sale allows REA Group to focus on its core businesses in Australia and Asia.

 

(b) 

The Company recorded a $29 million gain resulting from the revaluation of REA Group’s previously held equity interest in iProperty. (See Note 2—Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements).

Income tax (expense) benefit—For the three months ended March 31, 2017, the Company recorded a tax charge of $45 million on pre-tax income of $45 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses.

 

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For the nine months ended March 31, 2017, the Company recorded a tax charge of $12 million on a pre-tax loss of $207 million resulting in an effective tax rate that was lower than the U.S. statutory tax rate. The lower tax rate was primarily due to a lower net tax benefit of $121 million on the non-cash write-down of assets and investments in Australia and valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses, offset by lower taxes on the sale of REA Group’s European business.

Management assesses available evidence to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Based on management’s assessment of available evidence, it has been determined that it is more likely than not that deferred tax assets in certain foreign jurisdictions may not be realized and therefore, a valuation allowance has been established against those tax assets.

For the three months ended March 31, 2016 the Company recorded a tax benefit of $98 million on a pre-tax loss of $226 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to the $29 million non-taxable gain resulting from the revaluation of REA Group’s previously held equity interest in iProperty (See Note 2—Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements ), as well as a tax benefit of $107 million in connection with the settlement of certain litigation and related claims at News America Marketing. (See Note 10—Commitments and Contingencies in the accompanying Consolidated Financial Statements).

For the nine months ended March 31, 2016 the Company recorded a tax benefit of $140 million on a pre-tax loss of $19 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. In addition to the third quarter impacts discussed above, the higher tax rate was primarily due to a tax benefit of approximately $106 million related to the release of previously established valuation allowances related to certain U.S. federal net operating losses and state deferred tax assets. This benefit was recognized in conjunction with management’s plan to dispose of the Company’s digital education business in the first quarter of fiscal 2016, as the Company now expects to generate sufficient U.S. taxable income to utilize these deferred tax assets prior to expiration.

(Loss) income from discontinued operations, net of tax—For the three and nine months ended March 31, 2017, the Company did not recognize any income from discontinued operations as the operations of the digital education business were discontinued during fiscal 2016.

For the three months ended March 31, 2016, the Company recorded a loss from discontinued operations, net of tax, of $2 million reflecting the continued operations of the Digital Education segment subsequent to the sale of Amplify Insight and Amplify Learning. For the nine months ended March 31, 2016, the Company recorded income from discontinued operations, net of tax, of $20 million, primarily due to the impact of a $144 million tax benefit recognized upon reclassification of the Digital Education segment to discontinued operations, a tax benefit of $30 million related to the operations for the period and lower operating losses as a result of the sale of Amplify Insight and Amplify Learning, which more than offset the pre-tax non-cash impairment charge recognized in the first quarter of fiscal 2016 of $76 million and $17 million in severance and lease termination charges recognized in the second quarter of fiscal 2016. (See Note 3—Discontinued Operations in the accompanying Consolidated Financial Statements).

Net income (loss)—Net income (loss) increased $130 million for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016 due to the absence of the $280 million NAM Group settlement charge in the prior year and higher Segment EBITDA, partially offset by higher tax expense, lower contribution from Other, net and lower equity earnings from Foxtel.

Net income (loss) for the nine months ended March 31, 2017 decreased $360 million as compared to the corresponding period of fiscal 2016 due to the non-cash impairment charge of approximately $310 million primarily related to the write-down of fixed assets at the Australian newspapers and lower equity earnings of affiliates, primarily due to the $227 million non-cash write-down of the carrying value of the Company’s

 

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investment in Foxtel to fair value and the tax benefit and income from discontinued operations recognized in fiscal 2016 which did not recur in fiscal 2017, partially offset by the absence of the $280 million NAM Group settlement charge in the prior year and higher Other, net.

Net income attributable to noncontrolling interests—Net income attributable to noncontrolling interests decreased by $14 million and increased by $38 million for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016 primarily due to the gain, and subsequent true-up, on the sale of REA Group’s European business.

Segment Analysis

Segment EBITDA is defined as revenues less operating expenses, selling, general and administrative expenses and the NAM Group settlement charge. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity (losses) earnings of affiliates, interest, net, other, net, income tax (expense) benefit and net income attributable to noncontrolling interests. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of Segment EBITDA.

Segment EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate the performance of and allocate resources within the Company’s businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the Company’s business segments and its enterprise value against historical data and competitors’ data, although historical results may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).

 

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Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. The Company believes that the presentation of Total Segment EBITDA provides useful information regarding the Company’s operations and other factors that affect the Company’s reported results. Specifically, the Company believes that by excluding certain one-time or non-cash items such as impairment and restructuring charges and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures and changes in tax positions or regimes, the Company provides users of its consolidated financial statements with insight into both its core operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its core business. As a result, users of the Company’s consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. The following table reconciles Total Segment EBITDA to Income (loss) from continuing operations:

 

     For the three months ended March 31,     For the nine months ended March 31,  
     2017     2016     Change     % Change   2017     2016     Change     % Change
(in millions, except %)                Better/(Worse)                 Better/(Worse)  

Revenues

   $ 1,978     $ 1,891     $ 87       5  %    $ 6,059     $ 6,066     $ (7      % 

Operating expenses

     (1,101     (1,084     (17     (2 )%      (3,384     (3,476     92       3  % 

Selling, general and administrative

     (662     (649     (13     (2 )%      (2,005     (1,987     (18     (1 )% 

NAM Group settlement charge

     —         (280     280       *     —         (280     280       *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Total Segment EBITDA

     215       (122     337       *     670       323       347       *

Depreciation and amortization

     (109     (126     17       13  %      (349     (370     21       6  % 

Impairment and restructuring charges

     (33     (24     (9     (38 )%      (409     (63     (346     *

Equity (losses) earnings of affiliates

     (23     2       (25     *     (276     25       (301     *

Interest, net

     8       11       (3     (27 )%      30       34       (4     (12 )% 

Other, net

     (13     33       (46     *     127       32       95       *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax (expense) benefit

     45       (226     271       *     (207     (19     (188     *

Income tax (expense) benefit

     (45     98       (143     *     (12     140       (152     *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) income from continuing operations

   $ —       $ (128   $ 128       *   $ (219   $ 121     $ (340     *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

 

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     For the three months ended March 31,  
     2017     2016  
     Revenues      Segment
EBITDA
    Revenues      Segment
EBITDA
 
(in millions)                           

News and Information Services

   $ 1,263      $ 123     $ 1,231      $ (187

Book Publishing

     374        37       358        36  

Digital Real Estate Services

     219        75       194        39  

Cable Network Programming

     122        34       107        34  

Other

     —          (54     1        (44
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,978      $ 215     $ 1,891      $ (122
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     For the nine months ended March 31,  
     2017     2016  
     Revenues      Segment
EBITDA
    Revenues      Segment
EBITDA
 
(in millions)                           

News and Information Services

   $ 3,788      $ 311     $ 3,921      $ 54  

Book Publishing

     1,229        160       1,213        135  

Digital Real Estate Services

     687        237       593        169  

Cable Network Programming

     354        99       337        101  

Other

     1        (137     2        (136
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 6,059      $ 670     $ 6,066      $ 323  
  

 

 

    

 

 

   

 

 

    

 

 

 

News and Information Services (63% and 65% of the Company’s consolidated revenues in the nine months ended March 31, 2017 and 2016, respectively)

 

    For the three months ended March 31,     For the nine months ended March 31,  
    2017     2016     Change     % Change   2017     2016     Change     % Change
(in millions, except %)               Better/(Worse)                 Better/(Worse)  

Revenues:

               

Advertising

  $ 652     $ 624     $ 28       4  %    $ 1,958     $ 2,074     $ (116     (6 )% 

Circulation and subscription

    503       507       (4     (1 )%      1,499       1,546       (47     (3 )% 

Other

    108       100       8       8  %      331       301       30       10  % 
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    1,263       1,231       32       3  %      3,788       3,921       (133     (3 )% 

Operating expenses

    (726     (739     13       2  %      (2,219     (2,333     114       5  % 

Selling, general and administrative

    (414     (399     (15     (4 )%      (1,258     (1,254     (4      % 

NAM Group settlement charge

    —         (280     280       *     —         (280     280       *
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

  $ 123     $ (187   $ 310       *   $ 311     $ 54     $ 257       *
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

Revenues at the News and Information Services segment increased $32 million, or 3%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The revenue increase was mainly due to higher advertising revenues of $28 million as compared to the corresponding period of fiscal 2016, primarily resulting from higher advertising revenues at News America Marketing of $29 million and the acquisitions of Wireless Group and ARM, which contributed $21 million and $20 million of advertising revenue in the quarter, respectively, partially offset by a $42 million decline primarily related to weakness in the print advertising market across territories. Circulation and subscription revenues for the three months ended March 31, 2017 decreased $4 million as compared to the corresponding period of fiscal 2016 as a result of an $18 million negative impact from foreign currency fluctuations, which more than offset an increase in circulation revenues at Dow Jones and the U.K newspapers.

 

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Segment EBITDA at the News and Information Services segment increased $310 million for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was primarily due to the absence of the $280 million NAM Group settlement charge in the prior year quarter, a $15 million impact from the higher revenues for News America Marketing discussed above and the $12 million impact of an adjustment to the deferred consideration accrual related to the acquisition of Unruly. The lower print advertising revenues discussed above were partially offset by lower newsprint, production, editorial and distribution costs and the impact of cost savings initiatives.

Revenues at the News and Information Services segment decreased $133 million, or 3%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The revenue decrease was mainly due to lower advertising revenues of $116 million as compared to the corresponding period of fiscal 2016, primarily resulting from weakness in the print advertising market across territories, a $20 million negative impact from foreign currency fluctuations and lower advertising revenues of $10 million from the Perth Sunday Times which was sold in November 2016. These decreases were partially offset by the acquisitions of Wireless Group and ARM, which contributed $43 million and $20 million of advertising revenues, respectively, and $32 million of higher advertising revenues at News America Marketing. Circulation and subscription revenues for the nine months ended March 31, 2017 decreased $47 million as compared to the corresponding period of fiscal 2016, primarily as a result of the $70 million negative impact of foreign currency fluctuations, which more than offset higher circulation and subscription revenues at Dow Jones. Other revenues for the nine months ended March 31, 2017 increased $30 million, primarily due to higher brand partnership revenues in the U.K. of $13 million, $12 million in Australia primarily due to higher third-party printing revenues and the acquisitions of Unruly and Wireless Group, which contributed $11 million and $8 million, respectively, to the increase. These increases were offset by the $22 million negative impact of foreign currency fluctuations.

Segment EBITDA at the News and Information Services segment increased $257 million for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was primarily due to the absence of the $280 million NAM Group settlement charge in the prior year quarter, a $20 million impact of higher revenues for News America Marketing discussed above and the $12 million impact of an adjustment to the deferred consideration accrual related to the acquisition of Unruly. These factors were partially offset by higher investment spending at Checkout 51 of $20 million and lower contributions from News Corp Australia, Dow Jones and News UK of $33 million, $17 million and $6 million, respectively, due to the impact of lower advertising revenues as discussed above, partially offset by lower newsprint, production, editorial and distribution costs and the impact of cost savings initiatives.

News Corp Australia

Revenues at the Australian newspapers for the three months ended March 31, 2017 increased $21 million, or 7%, as compared to the corresponding period of fiscal 2016. The impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulted in a revenue increase of $16 million, or 5%. Advertising revenues increased $8 million, primarily due to the acquisition of ARM, which contributed $20 million, and the $9 million positive impact of foreign currency fluctuations, partially offset by the $18 million impact of weakness in the print advertising market in Australia and the absence of $5 million of advertising revenues from the Perth Sunday Times, which was sold in November 2016. Circulation and subscription revenues increased $7 million, primarily due to the acquisition of ARM, which contributed $6 million, and the $5 million positive impact of foreign currency fluctuations, as price increases and digital subscriber growth largely offset print volume declines.

Revenues at the Australian newspapers for the nine months ended March 31, 2017 were relatively flat as compared to the corresponding period of fiscal 2016, with the impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulting in a revenue increase of $41 million, or 4%. Advertising revenues declined $30 million, primarily as a result of the $72 million impact of weakness in the print advertising market and lower advertising revenues of $10 million from the Perth Sunday Times, which was sold in November 2016,

 

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partially offset by the $24 million positive impact of foreign currency fluctuations and the acquisition of ARM, which contributed $20 million to advertising revenues. Circulation and subscription revenues increased $13 million due to the positive impact of foreign currency fluctuations, as price increases and digital subscriber growth were offset by print volume declines. Other revenues increased $16 million, primarily due to higher third-party printing revenues.

News UK

For the three months ended March 31, 2017 revenues at the U.K. newspapers decreased $33 million, or 12%, as compared to the corresponding period of fiscal 2016. The impact of foreign currency fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $40 million, or 14%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Circulation and subscription revenues decreased $16 million, primarily due to the $22 million negative impact of foreign currency fluctuations, as the $5 million impact of single-copy volume declines at The Sun was offset by the $7 million impact of cover price increases. Advertising revenues decreased $15 million, primarily due to the $11 million negative impact of foreign currency fluctuations and weakness in the print advertising market.

For the nine months ended March 31, 2017, revenues at the U.K. newspapers decreased $167 million, or 18%, as compared to the corresponding period of fiscal 2016. The impact of foreign currency fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $147 million, or 16%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Advertising revenues decreased $80 million, primarily due to the $44 million negative impact of foreign currency fluctuations and weakness in the print advertising market, partially offset by $6 million in digital advertising growth. Circulation and subscription revenues decreased $75 million due to the $79 million negative impact of foreign currency fluctuations, as the $24 million impact of single-copy volume declines, primarily at The Sun, was offset by the $28 million impact of cover price increases. Other revenues decreased $12 million due to the $24 million negative impact of foreign currency fluctuations, partially offset by higher brand partnership revenues.

Dow Jones

Revenues at Dow Jones decreased $7 million, or 2%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Advertising revenues decreased $14 million, primarily due to weakness in the print advertising market. Circulation and subscription revenues increased $6 million, primarily as a result of a $10 million increase in circulation revenues at The Wall Street Journal due to price increases and higher subscription volume. Professional information business revenues were relatively flat as compared to the corresponding period of fiscal 2016.

Revenues at Dow Jones decreased $61 million, or 5%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Advertising revenues decreased $78 million, primarily due to weakness in the print advertising market. Circulation and subscription revenues increased $15 million, primarily due to the $25 million impact of price increases and volume growth at The Wall Street Journal, as professional information business revenues were relatively flat.

News America Marketing

Revenues at News America Marketing increased $32 million, or 13%, and $38 million, or 5%, for the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of fiscal 2016. The increase was primarily due to an increase in domestic in-store product revenues of $34 million and $55 million, respectively, primarily due to higher customer spend and to a lesser extent timing which accounted for approximately $15 million of the increase in both periods, partially offset by lower revenues for domestic free-standing insert products of $11 million and $46 million, respectively.

 

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Book Publishing (20% of the Company’s consolidated revenues in the nine months ended March 31, 2017 and 2016)

 

     For the three months ended March 31,     For the nine months ended March 31,  
     2017     2016     Change     % Change   2017     2016     Change     % Change
(in millions, except %)                Better/(Worse)                 Better/(Worse)  

Revenues:

                

Consumer

   $ 359     $ 343     $ 16       5  %    $ 1,183     $ 1,164     $ 19       2  % 

Other

     15       15       —          %      46       49       (3     (6 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     374       358       16       4  %      1,229       1,213       16       1  % 

Operating expenses

     (267     (251     (16     (6 )%      (845     (848     3        % 

Selling, general and administrative

     (70     (71     1       1  %      (224     (230     6       3  % 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 37     $ 36     $ 1       3  %    $ 160     $ 135     $ 25       19  % 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Revenues at the Book Publishing segment increased $16 million, or 4%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was mainly due to strong sales in the general books category, primarily Hidden Figures by Margot Lee Shetterly and the continued success of Hillbilly Elegy by J.D. Vance, sales of Carve the Mark by Veronica Roth in the Children’s category and the continued expansion of HarperCollins’ global footprint. These increases were partially offset by the negative impact of foreign currency fluctuations, which resulted in a revenue decrease of $6 million, or 2%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Digital sales, which consist of revenues generated through the sale of e-books and digital audio books, represented 22% of Consumer revenues during the three months ended March 31, 2017. Digital sales increased 7% as compared to the corresponding period of fiscal 2016 due to increased audio sales compared to the prior year quarter.

Segment EBITDA at the Book Publishing segment increased $1 million, or 3%, for the three months ended March 31, 2017 as compared to the corresponding period of fiscal 2016.

Revenues at the Book Publishing segment increased $16 million, or 1%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was mainly due to strong frontlist and backlist sales in the Christian publishing category, primarily The Magnolia Story by Chip and Joanna Gaines and the continued success of Jesus Calling and Jesus Always by Sarah Young, as well as sales of Hillbilly Elegy by J.D. Vance and the continued expansion of HarperCollins’ global footprint, partially offset by the negative impact of foreign currency fluctuations, which resulted in a revenue decrease of $26 million, or 2%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. Digital sales represented 19% of Consumer revenues during the nine months ended March 31, 2017. Digital sales increased 1% as compared to the corresponding period of fiscal 2016.

Segment EBITDA at the Book Publishing segment increased $25 million, or 19%, for the nine months ended March 31, 2017 as compared to the corresponding period of fiscal 2016. The increase was primarily due to the mix of titles as compared to the prior year quarter.

 

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Digital Real Estate Services (11% and 10% of the Company’s consolidated revenues in the nine months ended March 31, 2017 and 2016, respectively)

 

&nbs