Market Overview

News Corporation Reports Fourth Quarter and Full Year Results for Fiscal 2018

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FISCAL 2018 FOURTH QUARTER KEY FINANCIAL
HIGHLIGHTS

  • Revenues of $2.69 billion, a 29% increase compared to $2.08 billion
    in the prior year, reflecting the consolidation of Foxtel and robust
    performance across the Company
  • Net loss of ($355) million, which includes the non-cash impact
    resulting from the combination of Foxtel and FOX SPORTS Australia of
    ($337) million, compared to a net loss of ($424) million in the prior
    year
  • Total Segment EBITDA was $312 million including the results of
    Foxtel, compared to $215 million in the prior year
  • Reported EPS were ($0.64) compared to ($0.74) in the prior year –
    Adjusted EPS were $0.08 compared to $0.11 in the prior year
  • Digital revenues represented 30% of News and Information Services
    segment revenues, compared to 26% in the prior year, reflecting strong
    paid digital subscriber growth at mastheads
  • Book Publishing segment posted a record quarter in revenues
  • Digital Real Estate Services segment revenues grew 19%, reflecting
    continued yield improvements at both REA Group and realtor.com
    ®

News Corporation ("News Corp" or the "Company") (Nasdaq: NWS, NWSA; ASX:
NWS, NWSLV) today reported financial results for the three months and
fiscal year ended June 30, 2018.

Commenting on the results, Chief Executive Robert Thomson said:

"Fiscal 2018 was a year of operational and transformational success
at News Corp, with robust performance across our businesses, and
positive and profound changes in the character of our revenue flows,
which were more global, digital and subscription-based.
We
generated strong revenue and Segment EBITDA growth in the Digital Real
Estate Services and Book Publishing segments, which, together with the
consolidation of Foxtel, drove over $1 billion in profitability for the
year.

Digital Real Estate Services continues to flourish and we expanded
into meaningful adjacencies, broadening our audience and our revenue
sources.
HarperCollins' success underscores the importance of
intelligent editors and great writers in creating premium content.
Algorithms
are, as yet, unable to write empathetic, compelling books. We also saw
meaningful operational improvements at the News and Information Services
segment led by higher digital paid subscribers and disciplined cost
initiatives, notably in Australia.
Mastheads like The Times, The
Sunday Times and The Wall Street Journal reached new heights in their
digital transformation, with digital paid subscribers now exceeding
print subscribers.
The new Foxtel is focused on product
innovation and leveraging its valuable content.

News Corp is now a more substantial company after the Foxtel
transaction, with a much higher percentage of recurring,
subscription-based revenues, which should help offset a volatile
advertising environment.

We are marking five years since our Separation and are confident News
Corp has a lustrous future, built on a strong digital and global
foundation."

FOURTH QUARTER RESULTS

The Company reported fiscal 2018 fourth quarter total revenues of $2.69
billion, a 29% increase compared to $2.08 billion in the prior year
period, reflecting the inclusion of Foxtel's results, following the
Transaction, as described below, continued strong growth in the Book
Publishing and Digital Real Estate Services segments and a $29 million
positive impact from foreign currency fluctuations. The growth was
partially offset by lower print advertising revenues at the News and
Information Services segment. Adjusted Revenues (which exclude the
foreign currency impact, acquisitions and divestitures as defined in
Note 1) increased 5%.

In April 2018, News Corp and Telstra combined their respective 50%
interests in Foxtel and News Corp's 100% interest in FOX SPORTS
Australia into a new company (the "Transaction"), which we refer to as
new Foxtel. Following completion of the Transaction, News Corp owns a
65% interest in new Foxtel with Telstra owning the remaining 35%.
Consequently, the Company began consolidating Foxtel in the fourth
quarter of fiscal 2018. See Note 4 for pro forma financial information
reflecting the Transaction.

Net loss for the quarter was ($355) million as compared to ($424)
million in the prior year. The result is mainly due to the loss of $337
million related to the Transaction, primarily resulting from the
write-off of the FOX SPORTS Australia channel distribution agreement
(the "FSA channel distribution agreement") intangible asset, which is
reflected in Other, net. The results were also impacted by higher tax
expense, driven primarily by certain one-time items related to the U.S.
Tax Cuts and Jobs Act (the "Tax Act"), tax settlements and the tax
effects of the Transaction. The prior year quarter's results included
non-cash impairment charges of $464 million, primarily related to the
write-down of fixed assets.

Total Segment EBITDA for the quarter was $312 million, a 45% increase
compared to $215 million in the prior year, reflecting the inclusion of
Foxtel's results and continued strength in the Book Publishing and
Digital Real Estate Services segments. Adjusted Total Segment EBITDA (as
defined in Note 1) increased 13%.

Loss per share available to News Corporation stockholders was ($0.64) as
compared to ($0.74) in the prior year.

Adjusted EPS (as defined in Note 3) were $0.08 compared to $0.11 in the
prior year.

FULL YEAR RESULTS

The Company reported fiscal 2018 full year total revenues of $9.02
billion, an 11% increase compared to $8.14 billion in the prior year
period, reflecting the inclusion of Foxtel's results, strong growth in
the Digital Real Estate Services and Book Publishing segments and a $172
million positive impact from foreign currency fluctuations. The growth
was partially offset by lower print advertising and News America
Marketing revenues at the News and Information Services segment.
Adjusted Revenues increased 2%.

Net loss for the full year was ($1.4) billion as compared to ($643)
million in the prior year. The loss was primarily driven by higher
non-cash write-downs, mainly comprised of $998 million related to Foxtel
and FOX SPORTS Australia and the $165 million related to News America
Marketing, as well as the $337 million loss on the Transaction
referenced above and a $237 million charge resulting from the Tax Act.
The prior year's results included non-cash impairment charges of $1.0
billion, primarily related to the write-down of fixed assets and Foxtel.

Total Segment EBITDA for the full year was $1.07 billion, a 21% increase
compared to $885 million in the prior year, driven by the strength in
the Digital Real Estate Services and Book Publishing segments, as well
as the inclusion of Foxtel's results. Adjusted Total Segment EBITDA
increased 6%.

Loss per share available to News Corporation stockholders was ($2.60) as
compared to ($1.27) in the prior year.

Adjusted EPS were $0.44 compared to $0.36 in the prior year.

SEGMENT REVIEW

       
For the three months ended For the fiscal years ended
June 30, June 30,
2018   2017   % Change 2018   2017   % Change

(in millions)

Better/
(Worse)

(in millions)

Better/
(Worse)

 
Revenues:
News and Information Services $ 1,294 $ 1,281 1 % $ 5,119 $ 5,069 1 %
Book Publishing 490 407 20 % 1,758 1,636 7 %
Digital Real Estate Services 299 251 19 % 1,141 938 22 %
Subscription Video Services 610 140 ** 1,004 494 **
Other   -     1   **     2     2   **  
Total Revenues $ 2,693   $ 2,080   29   % $ 9,024   $ 8,139   11   %
 
Segment EBITDA:
News and Information Services (a) $ 94 $ 103 (9 ) % $ 392 $ 414 (5 ) %
Book Publishing 71 39 82 % 244 199 23 %
Digital Real Estate Services 99 87 14 % 401 324 24 %
Subscription Video Services(b) 97 24 ** 173 123 41 %
Other (c)   (49 )   (38 ) (29 ) %   (138 )   (175 ) 21   %
Total Segment EBITDA $ 312   $ 215   45   % $ 1,072   $ 885   21   %
 
** - Not meaningful
 
(a)   News and Information Services Segment EBITDA for the fiscal year
ended June 30, 2017 included transaction related costs of $5 million
associated with the acquisition of Wireless Group.
(b) Subscription Video Services Segment EBITDA for the three months and
fiscal year ended June 30, 2018 included transaction related costs
of $12 million and $17 million, respectively, associated with the
Transaction.
(c) Other Segment EBITDA for the fiscal year ended June 30, 2018
includes a $46 million benefit from the reversal of certain
previously accrued net liabilities for the U.K. Newspaper Matters as
a result of an agreement reached with the relevant tax authority
related to certain employment taxes.
 

News and Information Services

Fourth Quarter Segment Results

Revenues in the quarter increased $13 million, or 1%, compared to the
prior year. Within the segment, News UK and Dow Jones revenues grew 4%
and 3%, respectively, while revenues at News Corp Australia and News
America Marketing declined 3% and 2%, respectively. Adjusted Revenues
for the segment were 1% lower compared to the prior year.

Advertising revenues declined $12 million, or 2%, compared to the prior
year, reflecting a moderating decline compared to the prior quarter
rate. The decline was driven by weakness in the print advertising market
and the decision to cease The Wall Street Journal's international
print editions in the second quarter of fiscal 2018. The decline was
partially offset by the growth in digital advertising revenues at News
Corp Australia and News UK, increase in advertising revenues at Wireless
Group and the positive impact from foreign currency fluctuations.

Circulation and subscription revenues increased $26 million, or 5%,
primarily due to a healthy contribution from Dow Jones, which saw a 9%
increase in its circulation revenues, reflecting continued digital
subscriber growth at The Wall Street Journal, and strong growth
in its professional information business. Cover and subscription price
increases, as well as the positive impact from foreign currency
fluctuations also contributed to the revenue improvement. These
increases were partially offset by lower print volume.

Segment EBITDA declined $9 million in the quarter, or 9%, as compared to
the prior year, primarily due to higher costs at Dow Jones and lower
revenues at News Corp Australia, partially offset by higher contribution
from News America Marketing and cost reduction initiatives at News Corp
Australia.

Digital revenues represented 30% of News and Information Services
segment revenues in the quarter, compared to 26% in the prior year. For
the quarter, digital revenues for Dow Jones and the newspaper mastheads
represented 33% of their combined revenues, and at Dow Jones, digital
accounted for 53% of its circulation revenues. Digital subscribers and
users across key properties within the News and Information Services
segment are summarized below:

  • The Wall Street Journal average daily digital subscribers in
    the three months ended June 30, 2018 were 1,590,000, compared to
    1,270,000 in the prior year (Source: Internal data)
  • Closing digital subscribers at News Corp Australia's mastheads as of
    June 30, 2018 were 415,600, compared to 363,600 in the prior year
    (Source: Internal data)
  • The Times and Sunday Times closing digital subscribers
    as of June 30, 2018 were 256,000, compared to 201,000 in the prior
    year (Source: Internal data)
  • The Sun's digital offering reached approximately 85 million
    global monthly unique users in June 2018, flat compared to the prior
    year, based on ABCe (Source: Omniture)

Full Year Segment Results

Fiscal 2018 full year revenues increased $50 million, or 1%, compared to
the prior year, including the $119 million positive impact from foreign
currency fluctuations. Within the segment, News UK, Dow Jones and News
Corp Australia revenues grew 4%, 2% and 1%, respectively, while revenues
at News America Marketing declined 6%. Adjusted Revenues for the segment
were 3% lower compared to the prior year.

Advertising revenues declined $76 million, or 3%, while circulation and
subscription revenues increased $105 million, or 5%, driven by the
factors discussed above in the fourth quarter segment results.

Full year Segment EBITDA declined $22 million, or 5%, as compared to the
prior year, primarily due to the $12 million impact from the absence of
the adjustment to reduce the deferred consideration accrual related to
the acquisition of Unruly in the prior year period. Adjusted Segment
EBITDA (as defined in Note 1) decreased 9% compared to the prior year.

Book Publishing

Fourth Quarter Segment Results

Revenues in the quarter increased $83 million, or 20%, compared to the
prior year, primarily due to higher sales in general, children's and
Christian books, including the success of frontlist titles such as Magnolia
Table
by Joanna Gaines, I'll Be Gone in the Dark by Michelle
McNamara and Girl Wash Your Face by Rachel Hollis, as well as the
continued strength of backlist titles such as The Subtle Art of Not
Giving a F*ck
by Mark Manson and The Hate U Give by Angie
Thomas. Growth was also driven by $28 million of revenue from the
sublicensing agreement for J. R. R. Tolkien's The Lord of the Rings
trilogy and the $5 million positive impact from foreign currency
fluctuations. Adjusted Revenues increased 19%. Digital sales increased
12% compared to the prior year, driven by the growth in downloadable
audiobook sales, and represented 20% of Consumer revenues for the
quarter. Segment EBITDA for the quarter increased $32 million, or 82%,
from the prior year due to the higher revenues noted above and the mix
of titles.

Full Year Segment Results

Fiscal 2018 full year revenues increased $122 million, or 7%, compared
to the prior year, primarily due to higher sales in general books,
including the success of The Subtle Art of Not Giving a F*ck by
Mark Manson, Magnolia Table by Joanna Gaines, The Pioneer
Woman Cooks: Come and Get It!
by Ree Drummond and The Woman in
the Window
by A. J. Finn. The growth was also driven by $28 million
of revenue from the sublicensing agreement for J. R. R. Tolkien's The
Lord of the Rings
trilogy and the $25 million positive impact from
foreign currency fluctuations. Digital sales increased 6% compared to
the prior year, driven by the growth in downloadable audiobook sales,
and represented 19% of Consumer revenues for the year. Segment EBITDA
increased $45 million, or 23%, from the prior year due to the higher
revenues noted above and the mix of titles. Adjusted Revenues increased
6% and Adjusted Segment EBITDA increased 22%.

Digital Real Estate Services

Fourth Quarter Segment Results

Revenues in the quarter increased $48 million, or 19%, compared to the
prior year, primarily due to the continued growth at REA Group and Move.
Segment EBITDA in the quarter increased $12 million, or 14%, compared to
the prior year, primarily due to the higher revenues discussed above,
partially offset by broker commissions from the acquisition of
Smartline, increased costs associated with revenue growth and higher
marketing costs, primarily at Move. Adjusted Revenues and Adjusted
Segment EBITDA increased 12% and 10%, respectively.

In the quarter, revenues at REA Group increased 27% to $172 million from
$135 million in the prior year, primarily due to an increase in
Australian residential depth revenue, driven by favorable product mix
and pricing increases, as well as higher financial services revenues
driven by the acquisition of Smartline.

Move's revenues in the quarter increased 11% to $120 million from $108
million in the prior year, primarily due to the continued growth in its
ConnectionsSM for Buyers product, driven by improvement in
yield optimization and an increase in leads and customers. Based on
Move's internal data, average monthly unique users of realtor.com®'s
web and mobile sites for the fiscal fourth quarter grew 9%
year-over-year to 63 million, with mobile representing more than half of
all unique users.

Full Year Segment Results

Fiscal 2018 full year revenues increased $203 million, or 22%, compared
to the prior year, primarily due to the continued strong growth at REA
Group and Move. Segment EBITDA increased $77 million, or 24%, compared
to the prior year, primarily due to the higher revenues discussed above,
partially offset by increased costs associated with revenue growth,
broker commissions from the acquisition of Smartline and higher
marketing costs, primarily at Move. Adjusted Revenues and Adjusted
Segment EBITDA increased 17% and 20%, respectively.

In the fiscal year, revenues at REA Group increased 27% to $666 million
from $525 million in the prior year, and Move's revenues in the fiscal
year increased 15% to $452 million from $394 million in the prior year,
driven by the factors discussed above in the fourth quarter segment
results.

Subscription Video Services

Fourth Quarter Segment Results

Revenues and Segment EBITDA in the quarter increased $470 million and
$73 million, respectively, compared to the prior year, primarily due to
the inclusion of Foxtel. Segment EBITDA also includes $12 million of
costs related to the Transaction. Adjusted Revenues and Adjusted Segment
EBITDA, which exclude the impact of foreign currency fluctuations,
acquisitions and divestitures, increased 6% and 38%, respectively.

On a pro forma basis reflecting the Transaction, segment revenues in the
quarter decreased $33 million, or 5%, compared with the prior year,
primarily due to lower subscription revenues at new Foxtel, due to
subscriber mix, and lower advertising revenues, partially offset by the
positive impact from foreign currency fluctuations.

As of June 30, 2018, new Foxtel's total closing subscribers were
approximately 2.8 million, which was higher than the prior year,
primarily due to the launch of Foxtel Now. In the fourth quarter, cable
and satellite residential churn was 12.5% compared to 13.3% in the prior
year. Broadcast residential ARPU for the quarter declined 3%.

Pro forma Segment EBITDA in the quarter decreased $69 million, or 39%,
compared with the prior year, primarily due to the lower revenues
discussed above, higher programming costs which reflect increased
National Rugby League and domestic football league rights costs and $10
million of transition costs.

Full Year Segment Results

Revenues and Segment EBITDA for fiscal 2018 increased $510 million and
$50 million, respectively, compared to the prior year, primarily due to
the inclusion of Foxtel. Segment EBITDA also includes $17 million of
costs related to the Transaction. Adjusted Revenues and Adjusted Segment
EBITDA, which exclude the impact of foreign currency fluctuations,
acquisitions and divestitures, increased 4% and declined 5%,
respectively.

On a pro forma basis, segment revenues for fiscal 2018 were flat
compared with the prior year, as the positive impact from foreign
currency fluctuations was offset by lower subscription revenues at new
Foxtel, due to subscriber mix, and lower advertising revenues.

Pro forma Segment EBITDA for fiscal 2018 decreased $154 million, or 22%,
compared with the prior year, primarily due to $90 million of higher
sports programming costs, mainly related to the Australian Football
League and National Rugby League rights, as well as the lower
subscription revenues noted above and $10 million of transition costs.

REVIEW OF EQUITY LOSSES OF AFFILIATES' RESULTS

     
For the three months ended For the fiscal years ended
June 30, June 30,
2018   2017 2018   2017
(in millions)
 
Foxtel (a) $ - $ (5 ) $ (974 ) $ (265 )
Other equity affiliates, net   (4 )   (14 )   (32 )   (30 )
Total equity losses of affiliates $ (4 ) $ (19 ) $ (1,006 ) $ (295 )
 
(a)   The Company amortized nil and $49 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 months and fiscal year ended June 30, 2018,
respectively, and $15 million and $68 million in the corresponding
periods of fiscal 2017, respectively. Such amortization is reflected
in Equity losses of affiliates in the Statements of Operations.
 

Equity losses of affiliates for the fourth quarter improved to ($4)
million compared to ($19) million in the prior year, primarily due to
the absence of write-offs and impairments of $9 million on certain other
equity method investments in the prior year as well as the absence of
Foxtel's results.

Fiscal 2018 full year equity losses of affiliates were ($1,006) million
compared to ($295) million in the prior year. During fiscal 2018, the
Company recognized a $957 million non-cash write-down of its investment
in Foxtel and $13 million in non-cash write-downs of certain equity
method investments' carrying values. During fiscal 2017, the Company
recognized a $227 million non-cash write-down of its investment in
Foxtel as well as write-offs and impairments of $9 million on certain
other equity method investments.

FULL YEAR CASH FLOW

The following table presents a reconciliation of net cash provided by
continuing operating activities to free cash flow available to News
Corporation:

   

For the fiscal years ended
June 30,

2018   2017
(in millions)
 
Net cash provided by continuing operating activities $ 757 $ 499
Less: Capital expenditures   (364 )   (256 )
393 243
Less: REA Group free cash flow (207 ) (183 )
Plus: Cash dividends received from REA Group   63     53  
Free cash flow available to News Corporation $ 249   $ 113  
 

Net cash provided by continuing operating activities improved $258
million for the fiscal year ended June 30, 2018 as compared to the prior
year period, primarily due to the absence of the NAM Group's settlement
payments of $256 million, higher Total Segment EBITDA and lower
restructuring payments of $61 million, partially offset by increased
working capital primarily related to higher revenues and the reversal of
a portion of the previously accrued net liability related to the U.K.
Newspaper Matters as a result of an agreement reached with the relevant
tax authority and certain timing-related items, as well as higher net
tax payments of $30 million.

Free cash flow available to News Corporation for the fiscal year ended
June 30, 2018 was $249 million compared to $113 million in the prior
year period. The improvement was primarily due to higher net cash
provided by continuing operating activities as discussed above,
partially offset by higher capital expenditures, of which approximately
$60 million was due to the consolidation of Foxtel. Foxtel's full year
capital expenditures for fiscal 2018 were approximately $285 million,
including the capital expenditures incurred prior to the consolidation.
Foxtel's total capital expenditures in fiscal 2019, which will be
primarily related to subscriber-related expenditures, is expected to be
higher than fiscal 2018 by more than $50 million.

Free cash flow available to News Corporation is a non-GAAP financial
measure defined as net cash provided by continuing operating activities,
less capital expenditures ("free cash flow"), less REA Group free cash
flow, plus cash dividends received from REA Group. Free cash flow
available to News Corporation excludes cash flows from discontinued
operations.

The Company considers free cash flow available to News Corporation to
provide useful information to management and investors about the amount
of cash that is available to be used to strengthen the Company's balance
sheet and for strategic opportunities including, among others, investing
in the Company's business, strategic acquisitions, dividend payouts and
repurchasing stock. The Company believes excluding REA Group's free cash
flow and including dividends received from REA Group provides users of
its consolidated financial statements with a measure of the amount of
cash flow that is readily available to the Company, as REA Group is a
separately listed public company in Australia and must declare a
dividend in order for the Company to have access to its share of REA
Group's cash balance. The Company believes free cash flow available to
News Corporation provides a more conservative view of the Company's free
cash flow because this presentation includes only that amount of cash
the Company actually receives from REA Group, which has generally been
lower than the Company's unadjusted free cash flow. A limitation of free
cash flow available to News Corporation is that it does not represent
the total increase or decrease in the cash balance for the period.
Management compensates for the limitation of free cash flow available to
News Corporation by also relying on the net change in cash and cash
equivalents as presented in the Company's consolidated statements of
cash flows prepared in accordance with GAAP which incorporates all cash
movements during the period.

OTHER ITEMS

The Company today declared a semi-annual cash dividend of $0.10 per
share for Class A Common Stock and Class B Common Stock. This dividend
is payable on October 17, 2018 to stockholders of record as of September
12, 2018.

COMPARISON OF ADJUSTED INFORMATION TO U.S. GAAP INFORMATION

Adjusted Revenues, Total Segment EBITDA, Adjusted Total Segment EBITDA,
Adjusted Segment EBITDA, adjusted net income available to News
Corporation stockholders, Adjusted EPS and free cash flow available to
News Corporation are non-GAAP financial measures contained in this
earnings release. The Company believes these measures are important
tools for investors and analysts to use in assessing the Company's
underlying business performance and to provide for more meaningful
comparisons of the Company's operating performance between periods.
These measures also allow investors and analysts to view the Company's
business from the same perspective as Company management. These non-GAAP
measures may be different than similar measures used by other companies
and should be considered in addition to, not as a substitute for,
measures of financial performance calculated in accordance with GAAP.
Reconciliations for the differences between non-GAAP measures used in
this earnings release and comparable financial measures calculated in
accordance with U.S. GAAP are included in Notes 1, 2 and 3 and the
reconciliation of net cash provided by continuing operating activities
to free cash flow available to News Corporation is included above.

Conference call

News Corporation's earnings conference call can be heard live at 5:00
p.m. EDT on August 9, 2018. To listen to the call, please visit http://investors.newscorp.com.

Cautionary Statement Concerning Forward-Looking Statements

This document contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on management's views and assumptions
regarding future events and business performance as of the time the
statements are made. Actual results may differ materially from these
expectations due to changes in global economic, business, competitive
market and regulatory factors. More detailed information about these and
other factors that could affect future results is contained in our
filings with the Securities and Exchange Commission. The
"forward-looking statements" included in this document are made only as
of the date of this document and we do not have any obligation to
publicly update any "forward-looking statements" to reflect subsequent
events or circumstances, except as required by law.

About News Corp

News Corp (NASDAQ:NWS, NWSA, ASX: NWS, NWSLV)) is a global, diversified
media and information services company focused on creating and
distributing authoritative and engaging content. The company comprises
businesses across a range of media, including: news and information
services, book publishing, digital real estate services and subscription
video services in Australia. Headquartered in New York, News Corp
operates primarily in the United States, Australia, and the United
Kingdom, and its content is distributed and consumed worldwide. More
information is available at: www.newscorp.com.

 
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
 
      For the three months   For the fiscal years
ended June 30, ended June 30,
2018   2017 2018   2017
 
Revenues:
Advertising $ 740 $ 737 $ 2,799 $ 2,860
Circulation and subscription 1,074 636 3,021 2,470
Consumer 444 390 1,664 1,573
Real estate 225 171 858 696
Other   210     146     682     540  
 
Total Revenues 2,693 2,080 9,024 8,139
 
Operating expenses (1,464 ) (1,145 ) (4,903 ) (4,529 )
Selling, general and administrative (917 ) (720 ) (3,049 ) (2,725 )
Depreciation and amortization (175 ) (100 ) (472 ) (449 )
Impairment and restructuring charges (78 ) (518 ) (351 ) (927 )
Equity losses of affiliates (4 ) (19 ) (1,006 ) (295 )
Interest, net (16 ) 9 (7 ) 39
Other, net   (331 )   5     (325 )   132  
Loss before income tax expense (292 ) (408 ) (1,089 ) (615 )
Income tax expense   (63 )   (16 )   (355 )   (28 )
Net loss (355 ) (424 ) (1,444 ) (643 )
Less: Net income attributable to noncontrolling interests   (16 )   (5 )   (70 )   (95 )
Net loss attributable to News Corporation stockholders (371 ) (429 ) (1,514 ) (738 )
Less: Adjustments to Net loss attributable to News Corporation
stockholders – Redeemable preferred stock dividends
  (1 )   (1 )   (2 )   (2 )
Net loss available to News Corporation stockholders $ (372 ) $ (430 ) $ (1,516 ) $ (740 )
 
Weighted average shares outstanding:
Basic 583 582 583 581
Diluted 583 582 583 581
 
Net loss available to News Corporation stockholders per share -
basic and diluted
$ (0.64 ) $ (0.74 ) $ (2.60 ) $ (1.27 )
 
 
NEWS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
 
     

As of June 30,
2018

 

As of June 30,
2017

ASSETS
Current assets:
Cash and cash equivalents $ 2,034 $ 2,016
Receivables, net 1,612 1,276
Inventory, net 376 208
Other current assets   372     315  
Total current assets   4,394     3,815  
 
Non-current assets:
Investments 393 2,027
Property, plant and equipment, net 2,560 1,624
Intangible assets, net 2,671 2,281
Goodwill 5,218 3,838
Deferred income tax assets 279 525
Other non-current assets   831     442  
Total assets $ 16,346   $ 14,552  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 605 $ 222
Accrued expenses 1,340 1,204
Deferred revenue 516 426
Current borrowings 462 103
Other current liabilities   372     497  
Total current liabilities   3,295     2,452  
 
Non-current liabilities:
Borrowings 1,490 276
Retirement benefit obligations 245 319
Deferred income tax liabilities 389 61
Other non-current liabilities 430 351
 
Commitments and contingencies
 
Redeemable preferred stock 20 20
 
Equity:
Class A common stock 4 4
Class B common stock 2 2
Additional paid-in capital 12,322 12,395
Accumulated deficit (2,163 ) (648 )
Accumulated other comprehensive loss   (874 )   (964 )
Total News Corporation stockholders' equity 9,291 10,789
Noncontrolling interests   1,186     284  
Total equity   10,477     11,073  
Total liabilities and equity $ 16,346   $ 14,552  
 
 
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
      For the fiscal years ended
June 30,
2018   2017
 
Operating activities:
Net loss $ (1,444 ) $ (643 )
Less: Income from discontinued operations   -     -  
Loss from continuing operations (1,444 ) (643 )
Adjustments to reconcile loss from continuing operations to cash
provided by operating activities:
Depreciation and amortization 472 449
Equity losses of affiliates 1,006 295
Cash distributions received from affiliates 5 4
Impairment charges 280 785
Other, net 325 (132 )
Deferred income taxes and taxes payable 202 (95 )
Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets (128 ) (58 )
Inventories, net (14 ) 15
Accounts payable and other liabilities 53 137
NAM Group settlement   -     (258 )
Net cash provided by operating activities from continuing operations 757 499
Net cash used in operating activities from discontinued operations   -     (5 )
Net cash provided by operating activities   757     494  
 
Investing activities:
Capital expenditures (364 ) (256 )
Changes in restricted cash for Wireless Group acquisition - 315
Acquisitions, net of cash acquired (77 ) (347 )
Investments in equity affiliates and other (18 ) (59 )
Other investments (33 ) (39 )
Proceeds from business dispositions 1 162
Proceeds from property, plant and equipment and other asset
dispositions
137 109
Other   33     10  
Net cash used in investing activities from continuing operations (321 ) (105 )
Net cash used in investing activities from discontinued operations   -     -  
Net cash used in investing activities   (321 )   (105 )
 
Financing activities:
Borrowings 95 -
Repayment of borrowings (213 ) (23 )
Dividends paid (158 ) (152 )
Other, net   (122 )   (42 )
Net cash used in financing activities from continuing operations (398 ) (217 )
Net cash used in financing activities from discontinued operations   -     -  
Net cash used in financing activities   (398 )   (217 )
Net increase in cash and cash equivalents 38 172
Cash and cash equivalents, beginning of year 2,016 1,832
Exchange movement on opening cash balance   (20 )   12  
Cash and cash equivalents, end of year $ 2,034   $ 2,016  
 

NOTE 1 – ADJUSTED REVENUES, ADJUSTED TOTAL SEGMENT EBITDA AND
ADJUSTED SEGMENT EBITDA

The Company uses revenues, Total Segment EBITDA and Segment EBITDA
excluding the impact of acquisitions, divestitures, fees and costs, net
of indemnification, related to the claims and investigations arising out
of certain conduct at The News of the World (the "U.K. Newspaper
Matters") and foreign currency fluctuations ("Adjusted Revenues,"
"Adjusted Total Segment EBITDA" and "Adjusted Segment EBITDA,"
respectively) to evaluate the performance of the Company's core business
operations exclusive of certain items that impact the comparability of
results from period to period such as the unpredictability and
volatility of currency fluctuations. 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 calculation of Adjusted Revenues, Adjusted Total Segment EBITDA and
Adjusted Segment EBITDA may not be comparable to similarly titled
measures reported by other companies, since companies and investors may
differ as to what type of events warrant adjustment. Adjusted Revenues,
Adjusted Total Segment EBITDA and Adjusted Segment EBITDA are not
measures of performance under generally accepted accounting principles
and should not be construed as substitutes for amounts determined under
GAAP as measures of performance. However, management uses these measures
in comparing the Company's historical performance and believes that they
provide meaningful and comparable information to investors to assist in
their analysis of our performance relative to prior periods and our
competitors.

The following tables reconcile reported revenues and reported Total
Segment EBITDA to Adjusted Revenues and Adjusted Total Segment EBITDA
for the three months and fiscal years ended June 30, 2018 and 2017.

     
Revenues Total Segment EBITDA
For the three months ended June 30, For the three months ended June 30,
2018   2017   Difference 2018   2017   Difference
(in millions) (in millions)
 
As reported $ 2,693 $ 2,080 $ 613 $ 312 $ 215 $ 97
 
Impact of acquisitions (477 ) - (477 ) (66 ) - (66 )
 
Impact of divestitures (2 ) (3 ) 1 - - -
 
Impact of foreign currency fluctuations (29 ) - (29 ) (1 ) - (1 )
 
Net impact of U.K. Newspaper Matters - - - 3 4 (1 )
                       
As adjusted $ 2,185   $ 2,077   $ 108   $ 248   $ 219 $ 29  
 
Revenues Total Segment EBITDA
For the fiscal years ended June 30, For the fiscal years ended June 30,
2018 2017 Difference 2018 2017 Difference
(in millions) (in millions)
 
As reported $ 9,024 $ 8,139 $ 885 $ 1,072 $ 885 $ 187
 
Impact of acquisitions (624 ) - (624 ) (66 ) 5 (71 )
 
Impact of divestitures (8 ) (57 ) 49 1 1 -
 
Impact of foreign currency fluctuations (172 ) - (172 ) (16 ) - (16 )
 
Net impact of U.K. Newspaper Matters - - - (35 ) 10 (45 )
                       
As adjusted $ 8,220   $ 8,082   $ 138   $ 956   $ 901 $ 55  
 

Adjusted Revenues and Adjusted Segment EBITDA by segment for the three
months and fiscal years ended June 30, 2018 and 2017 are as follows:

     
For the three months ended June 30,
2018   2017   % Change
(in millions) Better/(Worse)
 
Adjusted Revenues:
News and Information Services $ 1,270 $ 1,278 (1 ) %
Book Publishing 485 407 19 %
Digital Real Estate Services 281 251 12 %
Subscription Video Services 149 140 6 %
Other   -     1   **  
Adjusted Total Revenues $ 2,185   $ 2,077   5   %
 
Adjusted Segment EBITDA:
News and Information Services $ 94 $ 103 (9 ) %
Book Publishing 71 39 82 %
Digital Real Estate Services 96 87 10 %
Subscription Video Services 33 24 38 %
Other   (46 )   (34 ) (35 ) %
Adjusted Total Segment EBITDA $ 248   $ 219   13   %
 
     
For the fiscal years ended June 30,
2018   2017   % Change
(in millions) Better/(Worse)
 
Adjusted Revenues:
News and Information Services $ 4,905 $ 5,036 (3 ) %
Book Publishing 1,733 1,636 6 %
Digital Real Estate Services 1,066 914 17 %
Subscription Video Services 514 494 4 %
Other   2     2   **  
Adjusted Total Revenues $ 8,220   $ 8,082   2   %
 
Adjusted Segment EBITDA:
News and Information Services $ 383 $ 422 (9 ) %
Book Publishing 243 199 22 %
Digital Real Estate Services 386 322 20 %
Subscription Video Services 117 123 (5 ) %
Other   (173 )   (165 ) (5 ) %
Adjusted Total Segment EBITDA $ 956   $ 901   6   %
 
** - Not meaningful
 

The following tables reconcile reported revenues and Segment EBITDA by
segment to Adjusted Revenues and Adjusted Segment EBITDA by segment for
the three months ended June 30, 2018 and 2017.

     
For the three months ended June 30, 2018

As
Reported

 

Impact of
Acquisitions

 

Impact of
Divestitures

 

Impact of
Foreign
Currency
Fluctuations

 

Net Impact
of U.K.
Newspaper
Matters

 

As
Adjusted

(in millions)
 
Revenues:
News and Information Services $ 1,294 $ - $ (2 ) $ (22 ) $ - $ 1,270
Book Publishing 490 - - (5 ) - 485
Digital Real Estate Services 299 (16 ) - (2 ) - 281
Subscription Video Services 610 (461 ) - - - 149
Other   -     -     -     -     -   -  
Total Revenues $ 2,693   $ (477 ) $ (2 ) $ (29 ) $ - $ 2,185  
 
Segment EBITDA:
News and Information Services $ 94 $ - $ - $ - $ - $ 94
Book Publishing 71 - - - - 71
Digital Real Estate Services 99 (2 ) - (1 ) - 96
Subscription Video Services 97 (64 ) - - - 33
Other   (49 )   -     -     -     3   (46 )
Total Segment EBITDA $ 312   $ (66 ) $ -   $ (1 ) $ 3 $ 248  
 
     
For the three months ended June 30, 2017

As
Reported

 

Impact of
Divestitures

 

Net Impact
of U.K.
Newspaper
Matters

 

As
Adjusted

(in millions)
 
Revenues:
News and Information Services $ 1,281 $ (3 ) $ - $ 1,278
Book Publishing 407 - - 407
Digital Real Estate Services 251 - - 251
Subscription Video Services 140 - - 140
Other   1     -     -   1  
Total Revenues $ 2,080   $ (3 ) $ - $ 2,077  
 
Segment EBITDA:
News and Information Services $ 103 $ - $ - $ 103
Book Publishing 39 - - 39
Digital Real Estate Services 87 - - 87
Subscription Video Services 24 - - 24
Other   (38 )   -     4   (34 )
Total Segment EBITDA $ 215   $ -   $ 4 $ 219  
 

The following tables reconcile reported revenues and Segment EBITDA by
segment to Adjusted Revenues and Adjusted Segment EBITDA by segment for
the fiscal years ended June 30, 2018 and 2017.

     
For the fiscal year ended June 30, 2018

As
Reported

 

Impact of
Acquisitions

 

Impact of
Divestitures

 

Impact of
Foreign
Currency
Fluctuations

 

Net Impact
of U.K.
Newspaper
Matters

 

As
Adjusted

(in millions)
 
Revenues:
News and Information Services $ 5,119 $ (87 ) $ (8 ) $ (119 ) $ - $ 4,905
Book Publishing 1,758 - - (25 ) - 1,733
Digital Real Estate Services 1,141 (57 ) - (18 ) - 1,066
Subscription Video Services 1,004 (480 ) - (10 ) - 514
Other   2     -     -     -     -     2  
Total Revenues $ 9,024   $ (624 ) $ (8 ) $ (172 ) $ -   $ 8,220  
 
Segment EBITDA:
News and Information Services $ 392 $ (6 ) $ 1 $ (4 ) $ - $ 383
Book Publishing 244 - - (1 ) - 243
Digital Real Estate Services 401 (6 ) - (9 ) - 386
Subscription Video Services 173 (54 ) - (2 ) - 117
Other   (138 )   -     -     -     (35 )   (173 )
Total Segment EBITDA $ 1,072   $ (66 ) $ 1   $ (16 ) $ (35 ) $ 956  
 
     
For the fiscal year ended June 30, 2017

As
Reported

 

Impact of
Acquisitions

 

Impact of
Divestitures

 

Net Impact
of U.K.
Newspaper
Matters

 

As
Adjusted

(in millions)
 
Revenues:
News and Information Services $ 5,069 $ - $ (33 ) $ - $ 5,036
Book Publishing 1,636 - - - 1,636
Digital Real Estate Services 938 - (24 ) - 914
Subscription Video Services 494 - - - 494
Other   2     -   -     -   2  
Total Revenues $ 8,139   $ - $ (57 ) $ - $ 8,082  
 
Segment EBITDA:
News and Information Services $ 414 $ 5 $ 3 $ - $ 422
Book Publishing 199 - - - 199
Digital Real Estate Services 324 - (2 ) - 322
Subscription Video Services 123 - - - 123
Other   (175 )   -   -     10   (165 )
Total Segment EBITDA $ 885   $ 5 $ 1   $ 10 $ 901  
 

NOTE 2 – TOTAL SEGMENT EBITDA

Segment EBITDA is defined as revenues less operating expenses and
selling, general and administrative expenses. Segment EBITDA does not
include: Depreciation and amortization, impairment and restructuring
charges, equity losses of affiliates, interest, net, other, net, income
tax (expense) benefit and net income attributable to noncontrolling
interests. Management believes that Segment EBITDA is an appropriate
measure for evaluating the operating performance of the Company's
business segments because it 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).

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 tables reconcile net
loss to Total Segment EBITDA.

 
For the three months ended June 30
2018   2017   Change   % Change
(in millions)
 
Net loss $ (355 ) $ (424 ) $ 69 16 %
Add:
Income tax expense 63 16 47 **
Other, net 331 (5 ) 336 **
Interest, net 16 (9 ) 25 **
Equity losses of affiliates 4 19 (15 ) (79 ) %
Impairment and restructuring charges 78 518 (440 ) (85 ) %
Depreciation and amortization   175     100     75   75   %
Total Segment EBITDA $ 312   $ 215   $ 97   45   %
 
** - Not meaningful
For the fiscal years ended June 30
2018 2017 Change % Change
(in millions)
 
Net loss $ (1,444 ) $ (643 ) $ (801 ) **
Add:
Income tax expense 355 28 327 **
Other, net 325 (132 ) 457 **
Interest, net 7 (39 ) 46 **
Equity losses of affiliates 1,006 295 711 **
Impairment and restructuring charges 351 927 (576 ) (62 ) %
Depreciation and amortization   472     449     23   5   %
Total Segment EBITDA $ 1,072   $ 885   $ 187   21   %
 
** - Not meaningful
 

NOTE 3 – ADJUSTED NET INCOME AVAILABLE TO NEWS CORPORATION
STOCKHOLDERS AND ADJUSTED EPS

The Company uses net income (loss) available to News Corporation
stockholders and diluted earnings per share ("EPS") excluding expenses
related to U.K. Newspaper Matters, impairment and restructuring charges
and "Other, net", net of tax, recognized by the Company or its equity
method investees, as well as the settlement of certain pre-Separation
tax matters and the impact of the Tax Act ("adjusted net income (loss)
available to News Corporation stockholders" and "adjusted EPS,"
respectively), to evaluate the performance of the Company's operations
exclusive of certain items that impact the comparability of results from
period to period. The calculation of adjusted net income (loss)
available to News Corporation stockholders and adjusted EPS may not be
comparable to similarly titled measures reported by other companies,
since companies and investors may differ as to what type of events
warrant adjustment. Adjusted net income (loss) available to News
Corporation stockholders and adjusted EPS are not measures of
performance under generally accepted accounting principles and should
not be construed as substitutes for consolidated net income (loss)
available to News Corporation stockholders and net income (loss) per
share as determined under GAAP as a measure of performance.

However, management uses these measures in comparing the Company's
historical performance and believes that they provide meaningful and
comparable information to investors to assist in their analysis of our
performance relative to prior periods and our competitors.

The following tables reconcile reported net loss available to News
Corporation stockholders and reported diluted EPS to adjusted net income
available to News Corporation stockholders and adjusted EPS for the
three months and fiscal years ended June 30, 2018 and 2017.

   
For the three months ended For the three months ended
June 30, 2018 June 30, 2017

Net (loss)
income
available to
stockholders

  EPS

Net (loss)
income
available to
stockholders

  EPS
(in millions, except per share data)
     
Net loss $ (355 ) $ (424 )
 
Less: Net income attributable to noncontrolling interests (16 ) (5 )
 
Less: Redeemable preferred stock dividends   (1 )       (1 )    
 
Loss available to News Corporation stockholders $ (372 ) $ (0.64 ) $ (430 ) $ (0.74 )
 
U.K. Newspaper Matters 3 0.01 4 0.01
 
Impairment and restructuring charges (a) 78 0.13 518 0.88
 
Other, net (b) 331 0.57 (5 ) (0.01 )
 
Equity losses of affiliates - - 12 0.02
 
Tax impact on items above (c) (7 ) (0.01 ) (123 ) (0.21 )
 
Impact of tax settlement (d) (49 ) (0.08 ) 103 0.18
 
Impact of Tax Act(e) 63 0.11 - -
 
Impact of noncontrolling interest on items included in Other, net
above
(2 ) (0.01 ) (14 ) (0.02 )
                     
As adjusted $ 45   $ 0.08   $ 65   $ 0.11  
 
(a)   Impairment and restructuring charges for the three months ended June
30, 2018 included non-cash impairment charges of approximately $55
million. Impairment and restructuring charges for the three months
ended June 30, 2017 included non-cash impairment charges of
approximately $464 million, of which approximately $360 million was
related to the write-down of fixed assets at the U.K. newspapers.
(b) During the three months ended June 30, 2018, the Company recognized
a loss of approximately $337 million related to the Transaction,
primarily related to the write-off of the FSA channel distribution
agreement intangible asset.
(c) Tax impact on items above for the three months ended June 30, 2017
included a tax benefit for the non-cash impairment charges.
(d) In the three months ended June 30, 2018, the Company recorded a $49
million adjustment related to the settlement of certain
pre-Separation tax matters with the IRS. In the three months ended
June 30, 2017, the Company reached an agreement with a foreign tax
authority to settle certain pre-Separation tax matters. As a result
of the settlement, the Company recorded current income tax expense
of $20 million, deferred tax expense of $43 million and a valuation
allowance of $40 million.
(e) During the three months ended June 30, 2018, the Company recorded a
$63 million adjustment to its provisional charge related to the Tax
Act.
 
  For the fiscal year ended   For the fiscal year ended
June 30, 2018 June 30, 2017

Net (loss)
income
available to
stockholders

  EPS

Net (loss)
income
available to
stockholders

  EPS
(in millions, except per share data)
     
Net loss $ (1,444 ) $ (643 )
 
Less: Net income attributable to noncontrolling interests (70 ) (95 )
 
Less: Redeemable preferred stock dividends   (2 )       (2 )    
 
Loss available to News Corporation stockholders $ (1,516 ) $ (2.60 ) $ (740 ) $ (1.27 )
 
U.K. Newspaper Matters(a) (35 ) (0.06 ) 10 0.02
 
Impairment and restructuring charges (b) 351 0.60 927 1.58
 
Other, net (c) 325 0.56 (132 ) (0.23 )
 
Equity losses of affiliates (d) 970 1.66 260 0.45
 
Tax impact on items above (e) (15 ) (0.03 ) (247 ) (0.42 )
 
Impact of tax settlement (f) (49 ) (0.08 ) 103 0.18
 
Impact of Tax Act(g) 237 0.41 - -
 
Impact of noncontrolling interest on items included in Other, net
above
(10 ) (0.02 ) 27 0.05
                     
As adjusted $ 258   $ 0.44   $ 208   $ 0.36  
 
(a)   During the fiscal year ended June 30, 2018, the Company recorded a
$46 million benefit from the reversal of certain previously accrued
net liabilities for the U.K. Newspaper Matters as a result of an
agreement reached with the relevant tax authority related to certain
employment taxes.
(b) Impairment and restructuring charges for the fiscal year ended June
30, 2018 included non-cash impairment charges of approximately $280
million, primarily related to the non-cash impairment charges at
News America Marketing and FOX SPORTS Australia. Impairment and
restructuring charges for the fiscal year ended June 30, 2017
included non-cash impairment charges of approximately $785 million,
of which approximately $360 million and approximately $310 million
were primarily related to the write-down of fixed assets at the U.K.
and Australian newspapers, respectively.
(c) Other, net for the fiscal year ended June 30, 2018 reflects a loss
of approximately $337 million related to the Transaction, primarily
related to the write-off of the FSA channel distribution agreement
intangible asset. Other, net for the fiscal year ended June 30, 2017
included a pre-tax gain of $107 million resulting from the sale of
REA Group's European business.
(d) During the fiscal year ended June 30, 2018, the Company recognized a
$957 million non-cash write-down of its investment in Foxtel as well
as $13 million in non-cash write-downs of certain equity method
investments' carrying values. During the fiscal year ended June 30,
2017, the Company recognized a $227 million non-cash write-down of
the carrying value of its investment in Foxtel. Foxtel's net income
in the fiscal year ended June 30, 2017 included a $48 million loss
resulting from Foxtel management's decision to cease Presto
operations in January 2017. Equity losses of affiliates were
negatively affected by $24 million, which represents the Company's
share of that loss.
(e) Tax impact on items above for the fiscal year ended June 30, 2017
included a tax benefit of $211 million for the non-cash impairment
charge and non-cash write-down noted above.
(f) In the fiscal year ended June 30, 2018, the Company recorded a $49
million adjustment related to the settlement of certain
pre-Separation tax matters with the IRS. In the fiscal year ended
June 30, 2017, the Company reached an agreement with a foreign tax
authority to settle certain pre-Separation tax matters. As a result
of the settlement, the Company recorded current income tax expense
of $20 million, deferred tax expense of $43 million and a valuation
allowance of $40 million.
(g) During the fiscal year ended June 30, 2018, the Company recorded a
$237 million charge as a result of the Tax Act.
 

NOTE 4 – PRO FORMA

The following supplemental unaudited pro forma information for the three
months and fiscal years ended June 30, 2018 and 2017 reflect the
Company's results of operations as if the Transaction had occurred on
July 1, 2016. The Company believes that the presentation of this
supplemental information enhances comparability across the reporting
periods. The information was prepared in accordance with Article 11 of
Regulation S-X and based on historical results of operations of News
Corp and Foxtel, adjusted for the effect of any Transaction-related
accounting adjustments, as described below. Pro forma adjustments were
based on available information and assumptions regarding impacts that
are directly attributable to the Transaction, are factually supportable,
and are expected to have a continuing impact on the combined results.
However these adjustments are subject to change as valuations are
finalized. In addition, the pro forma information is provided for
supplemental and informational purposes only, and is not necessarily
indicative of what the Company's results of operations would have been,
or the Company's future results of operations, had the Transaction
actually occurred on the date indicated. The unaudited pro forma
information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well
as "Selected Financial Data" and our audited consolidated financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2018 that will be filed
with the Securities and Exchange Commission.

The following tables set forth the Company's unaudited pro forma results
of operations for the three months and fiscal years ended June 30, 2018
and 2017.

   
Pro Forma (unaudited)
For the three months ended June 30,
2018   2017   Change   % Change
(in millions) Better/(Worse)
 
Revenues:
Advertising $ 740 $ 785 $ (45 ) (6 ) %
Circulation and subscription 1,074 1,072 2 -
Consumer 444 390 54 14 %
Real estate 225 171 54 32 %
Other   210   165     45   27   %
Total Revenues 2,693 2,583 110 4 %
 
Operating expenses (1,464 ) (1,389 ) (75 ) (5 ) %
Selling, general and administrative (905 ) (825 ) (80 ) (10 ) %
Depreciation and amortization (175 ) (165 ) (10 ) (6 ) %
Impairment and restructuring charges (78 ) (528 ) 450 85 %
Equity losses of affiliates (4 ) (35 ) 31 89 %
Interest, net (16 ) (34 ) 18 53 %
Other, net   6   9     (3 ) (33 ) %
Income (Loss) before income tax expense 57 (384 ) 441 **
Income tax expense   (73 )   (16 )   (57 ) **  
Net loss (16 ) (400 ) 384 96 %
Less: Net income attributable to noncontrolling interests   (16 )   (15 )   (1 ) (7 ) %
Net loss attributable to News Corporation $ (32 ) $ (415 ) $ 383   92   %
 
** - Not meaningful
 
   
Pro Forma (unaudited)
For the fiscal years ended June 30,
2018   2017   Change   % Change
(in millions) Better/(Worse)
 
Revenues:
Advertising $ 2,940 $ 3,056 $ (116 ) (4 ) %
Circulation and subscription 4,381 4,267 114 3 %
Consumer 1,664 1,573 91 6 %
Real estate 858 696 162 23 %
Other   721   599     122   20   %
Total Revenues 10,564 10,191 373 4 %
 
Operating expenses (5,748 ) (5,544 ) (204 ) (4 ) %
Selling, general and administrative (3,372 ) (3,186 ) (186 ) (6 ) %
Depreciation and amortization (676 ) (711 ) 35 5 %
Impairment and restructuring charges (1,313 ) (1,217 ) (96 ) (8 ) %
Equity losses of affiliates (27 ) (82 ) 55 67 %
Interest, net (83 ) (122 ) 39 32 %
Other, net   10   132     (122 ) (92 ) %
Loss before income tax expense (645 ) (539 ) (106 ) (20 ) %
Income tax expense   (373 )   (31 )   (342 ) **  
Net loss (1,018 ) (570 ) (448 ) (79 ) %
Less: Net income attributable to noncontrolling interests   (96 )   (125 )   29   23   %
Net loss attributable to News Corporation $ (1,114 ) $ (695 ) $ (419 ) (60 ) %
 
** - Not meaningful
 
   
Pro Forma (unaudited)
For the three months ended June 30, 2018

News Corp
Historical(a)

 

Foxtel
Historical(b)

 

Transaction
Adjustments

  Pro Forma
(in millions, except per share amounts)
 
Revenues:
Advertising $ 740 $ - $ - $ 740
Circulation and subscription 1,074 - - 1,074
Consumer 444 - - 444
Real estate 225 - - 225
Other   210     -   -     210  
Total Revenues 2,693 - - 2,693
 
Operating expenses (1,464 ) - - (1,464 )
Selling, general and administrative (917 ) - 12 (f) (905 )
Depreciation and amortization (175 ) - - (175 )
Impairment and restructuring charges (78 ) - - (78 )
Equity losses of affiliates (4 ) - - (4 )
Interest, net (16 ) - - (16 )
Other, net   (331 )   -   337   (k)   6  
(Loss) Income before income tax expense (292 ) - 349 57
Income tax expense   (63 )   -   (10 ) (l)   (73 )
Net loss (355 ) - 339 (16 )
Less: Net income attributable to noncontrolling interests   (16 )   -   -     (16 )
Net (loss) income attributable to News Corporation $ (371 ) $ - $ 339   $ (32 )
 
Basic and diluted (loss) income per share:
Net loss available to News Corporation stockholders per share $ (0.64 ) $ (0.06 )
 
   
Pro Forma (unaudited)
For the three months ended June 30, 2017

News Corp
Historical(a)

 

Foxtel
Historical(b)

 

Transaction
Adjustments

    Pro Forma
(in millions, except per share amounts)
 
Revenues:
Advertising $ 737 $ 48 $ - $ 785
Circulation and subscription 636 533 (97 ) (c)(d) 1,072
Consumer 390 - - 390
Real estate 171 - - 171
Other   146     19     -     165  
Total Revenues 2,080 600 (97 ) 2,583
 
Operating expenses (1,145 ) (345 ) 101 (c)(e) (1,389 )
Selling, general and administrative (720 ) (105 ) - (825 )
Depreciation and amortization (100 ) (60 ) (5 )

(g)(h)(i)

(165 )
Impairment and restructuring charges (518 ) (10 ) - (528 )
Equity (losses) earnings of affiliates (19 ) (21 ) 5

(j)

(35 )
Interest, net 9 (43 ) - (34 )
Other, net   5     4     -     9  
(Loss) Income before income tax expense (408 ) 20 4 (384 )
Income tax expense   (16 )   (1 )   1   (l)   (16 )
Net (loss) income (424 ) 19 5 (400 )
Less: Net income attributable to noncontrolling interests   (5 )   -     (10 )

((m))

 

  (15 )
Net (loss) income attributable to News Corporation $ (429 ) $ 19   $ (5 ) $ (415 )
 
Basic and diluted (loss) income per share:
Net (loss) income available to News Corporation stockholders per
share
$ (0.74 ) $ (0.71 )
 
   
Pro Forma (unaudited)
For the fiscal year ended June 30, 2018

News Corp
Historical(a)

 

Foxtel
Historical(b)

 

Transaction
Adjustments

    Pro Forma
(in millions, except per share amounts)
 
Revenues:
Advertising $ 2,799 $ 141 $ - $ 2,940
Circulation and subscription 3,021 1,638 (278 ) (c)(d) 4,381
Consumer 1,664 - - 1,664
Real estate 858 - - 858
Other   682     39     -     721  
Total Revenues 9,024 1,818 (278 ) 10,564
 
Operating expenses (4,903 ) (1,136 ) 291 (c)(e) (5,748 )
Selling, general and administrative (3,049 ) (340 ) 17 (f) (3,372 )
Depreciation and amortization (472 ) (187 ) (17 ) (g)(h)(i) (676 )
Impairment and restructuring charges (351 ) (5 ) (957 ) (j) (1,313 )
Equity (losses) earnings of affiliates (1,006 ) 5 974 (j) (27 )
Interest, net (7 ) (76 ) - (83 )
Other, net   (325 )   (2 )   337   (k)   10  
(Loss) Income before income tax expense (1,089 ) 77 367 (645 )
Income tax expense   (355 )   (13 )   (5 ) (l)   (373 )
Net (loss) income (1,444 ) 64 362 (1,018 )
Less: Net income (loss) attributable to noncontrolling interests   (70 )   1     (27 )

((m))

 

  (96 )
Net (loss) income attributable to News Corporation $ (1,514 ) $ 65   $ 335   $ (1,114 )
 
Basic and diluted (loss) income per share:
Net loss available to News Corporation stockholders per share $ (2.60 ) $ (1.92 )
 
   
Pro Forma (unaudited)
For the fiscal year ended June 30, 2017

News Corp
Historical(a)

 

Foxtel
Historical(b)

 

Transaction
Adjustments

    Pro Forma
(in millions, except per share amounts)
 
Revenues:
Advertising $ 2,860 $ 196 $ - $ 3,056
Circulation and subscription 2,470 2,156 (359 ) (c)(d) 4,267
Consumer 1,573 - - 1,573
Real estate 696 - - 696
Other   540     59     -     599  
Total Revenues 8,139 2,411 (359 ) 10,191
 
Operating expenses (4,529 ) (1,382 ) 367 (c)(e) (5,544 )
Selling, general and administrative (2,725 ) (461 ) - (3,186 )
Depreciation and amortization (449 ) (215 ) (47 ) (g)(h)(i) (711 )
Impairment and restructuring charges (927 ) (63 ) (227 ) (j) (1,217 )
Equity losses of affiliates (295 ) (52 ) 265 (j) (82 )
Interest, net 39 (161 ) - (122 )
Other, net   132     -     -     132  
(Loss) Income before income tax expense (615 ) 77 (1 ) (539 )
Income tax expense   (28 )   (18 )   15   (l)   (31 )
Net (loss) income (643 ) 59 14 (570 )
Less: Net income (loss) attributable to noncontrolling interests   (95 )   1     (31 )

((m))

 

  (125 )
Net (loss) income attributable to News Corporation $ (738 ) $ 60   $ (17 ) $ (695 )
 
Basic and diluted (loss) income per share:
Net loss available to News Corporation stockholders per share $ (1.27 ) $ (1.20 )
 
(a)   Reflects the historical results of operations of News Corporation.
As the acquisition of a controlling interest in Foxtel was completed
on April 3, 2018, Foxtel is reflected in our historical Statement of
Operations from April 3, 2018 onwards.
(b) Reflects the historical results of operations of Foxtel to the date
of the Transaction. From April 3, 2018 onwards, Foxtel is included
in the historical results of operations of News Corporation. The
Statements of Operations of Foxtel are derived from its historical
financial statements for the nine months ended March 31, 2018 and
the three months and fiscal year ended June 30, 2017. These
Statements of Operations for the nine months ended March 31, 2018
and the three months and fiscal year ended June 30, 2017 reflect
Foxtel's Statements of Operations on a U.S. GAAP basis and
translated from Australian dollars to U.S. dollars, the reporting
currency of the combined group, using the quarterly average rates
for each period presented. Additionally, certain balances within
Foxtel's historical financial information were reclassified to be
consistent with the Company's presentation.
(c) Represents the impact of eliminating transactions between Foxtel and
the consolidated subsidiaries of News Corporation, which would be
eliminated upon consolidation as a result of the Transaction.
(d) Reflects the reversal of revenue recognized in Foxtel's historical
Statements of Operations resulting from the fair value adjustment of
Foxtel's historical deferred installation revenue in the preliminary
purchase price allocation for the Transaction.
(e) Reflects the adjustment to amortization of program inventory
recognized in Foxtel's historical Statements of Operations related
to the fair value adjustment of Foxtel's historical program
inventory in the preliminary purchase price allocation.
(f) Reflects the removal of transaction expenses directly related to the
Transaction that are included in News Corp's historical Statements
of Operations for the three months and fiscal year ended June 30,
2018. These costs are considered to be non-recurring in nature, and
as such, have been excluded from the pro forma Statement of
Operations.
(g) Reflects the adjustment to amortization expense resulting from the
recognition of amortizable intangible assets in the preliminary
purchase price allocation.
(h) Reflects the adjustment to depreciation and amortization expense
resulting from the fair value adjustment to Foxtel's historical
fixed assets in the preliminary purchase price allocation, which
resulted in a step-up in the value of such assets.
(i) Reflects the reversal of amortization expense included in News
Corp's historical Statements of Operations from the Company's
settlement of its pre-existing contractual arrangement between
Foxtel and FOX SPORTS Australia, which resulted in a write-off of
its channel distribution agreement intangible asset at the time of
the Transaction.
(j) Represents the impact to equity losses of affiliates as a result of
the Transaction, as if the Transaction occurred on July 1, 2016.
Historically News Corp accounted for its investment in Foxtel under
the equity method of accounting. As a result of the Transaction,
Foxtel became a majority-owned subsidiary of the Company, and
therefore, the impact of Foxtel on the Company's historical equity
losses of affiliates was eliminated. In addition, News Corp
previously recorded certain impairments to its investment in Foxtel
within equity losses of affiliates which are reflected in News
Corp's historical results. As these impairments are non-recurring in
nature and are not directly attributable to the Transaction, such
amounts have not been eliminated and have been reclassified in the
pro forma Statement of Operations from equity losses of affiliates
into impairment and restructuring charges.
(k) Represents the write-off recorded as a result of the effective
settlement of the channel distribution agreement between FOX SPORTS
Australia and Foxtel as a result of the Transaction as well as other
costs directly attributable to the Transaction. The write-off of the
intangible asset related to this agreement and other associated
costs are considered transaction costs directly attributable to the
Transaction that were incurred in the three months and fiscal year
ended June 30, 2018.
(l) In determining the tax rate to apply to our pro forma adjustments we
used the Australian statutory rate of 30%, which is the jurisdiction
in which the business operates. However, in certain instances, the
effective tax rate applied to certain adjustments differs from the
statutory rate primarily as a result of certain valuation allowances
on deferred tax assets, based on the Company's historical tax
profile in Australia.
(m) Represents the adjustment, as a result of the Transaction, to
reflect the non-controlling interest of the combined company on a
pro forma basis.
 

Pro Forma Segment Analysis

The following table reconciles Pro Forma Net loss to Pro Forma Total
Segment EBITDA for the three months and fiscal years ended June 30, 2018
and 2017:

   
Pro Forma Pro Forma
For the three months ended

June 30,

For the fiscal years ended

June 30,

2018   2017 2018   2017
(in millions)
 
Pro forma net loss $ (16 ) $ (400 ) $ (1,018 ) $ (570 )
Add:
Income tax expense 73 16 373 31
Other, net (6 ) (9 ) (10 ) (132 )
Interest, net 16 34 83 122
Equity losses of affiliates 4 35 27 82
Impairment and restructuring charges 78 528 1,313 1,217
Depreciation and amortization   175     165     676     711  
Pro forma Total Segment EBITDA $ 324   $ 369   $ 1,444   $ 1,461  
 
 
Pro Forma
For the three months ended June 30,
2018   2017
  Segment   Segment
Revenues EBITDA Revenues EBITDA
(in millions)
 
News and Information Services $ 1,294 $ 94 $ 1,281 $ 103
Book Publishing 490 71 407 39
Digital Real Estate Services 299 99 251 87
Subscription Video Services 610 109 643 178
Other   -   (49 )   1   (38 )
Total $ 2,693 $ 324   $ 2,583 $ 369  
 
 
Pro Forma
For the fiscal year ended June 30,
2018   2017
  Segment   Segment
Revenues EBITDA Revenues EBITDA
(in millions)
 
News and Information Services $ 5,119 $ 392 $ 5,069 $ 414
Book Publishing 1,758 244 1,636 199
Digital Real Estate Services 1,141 401 938 324
Subscription Video Services 2,544 545 2,546 699
Other   2   (138 )   2   (175 )
Total $ 10,564 $ 1,444   $ 10,191 $ 1,461  
 

Subscription Video Services (Pro Forma)

     
Pro Forma Pro Forma
For the three months ended June 30, For the fiscal years ended June 30,
2018   2017     % Change 2018   2017     % Change
(in millions) Better/

(Worse)

(in millions) Better/

(Worse)

 
Revenues:
Advertising $ 67 $ 76 (12 ) % $ 268 $ 282 (5 ) %
Circulation and subscription 523 547 (4 ) % 2,210 2,199 1 %
Other   20     20   -   %   66     65   2   %
Total Revenues 610 643 (5 ) % 2,544 2,546 - %
Operating expenses (370 ) (351 ) (5 ) % (1,499 ) (1,356 ) (11 ) %
Selling, general and administrative   (131 )   (114 ) (15 ) %   (500 )   (491 ) (2 ) %
Segment EBITDA $ 109   $ 178   (39 ) % $ 545   $ 699   (22 ) %
 

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