News (NWSA) - 2021 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 FY2021 vs Q1 FY2020, detailing operations, balance sheets, cash flows, and notes on segment changes Consolidated Statement of Operations (Unaudited) | (In millions) | Three months ended Sep 30, 2020 | Three months ended Sep 30, 2019 | | :--- | :--- | :--- | | Total Revenues | $2,117 | $2,340 | | Operating expenses | $(1,164) | $(1,338) | | Selling, general and administrative | $(685) | $(781) | | Impairment and restructuring charges | $(40) | $(297) | | Income (loss) before income tax | $72 | $(232) | | Net income (loss) | $47 | $(211) | | Net income (loss) attributable to News Corporation stockholders | $34 | $(227) | Consolidated Balance Sheet Highlights | (In millions) | As of Sep 30, 2020 (unaudited) | As of June 30, 2020 (audited) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,539 | $1,517 | | Total Assets | $14,400 | $14,261 | | Total current liabilities | $2,738 | $2,682 | | Total borrowings | $1,284 | $1,259 | | Total Liabilities | $5,946 | $5,872 | | Total Equity | $8,454 | $8,389 | Consolidated Statement of Cash Flows (Unaudited) | (In millions) | Three months ended Sep 30, 2020 | Three months ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $155 | $27 | | Net cash used in investing activities | $(96) | $(118) | | Net cash used in financing activities | $(50) | $(95) | | Net change in cash and cash equivalents | $9 | $(186) | - In the fourth quarter of fiscal 2020, the Company disaggregated its Dow Jones operating segment as a separate reportable segment, revising historical disclosures to reflect this change[20] Note 2. Revenues Total revenues decreased to $2.117 billion in Q1 FY2021, mainly due to News Media advertising decline, with growth in Book Publishing and Digital Real Estate Services Revenues by Segment (Three months ended Sep 30, 2020 vs 2019) | Segment | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Digital Real Estate Services | $290 | $272 | | Subscription Video Services | $496 | $514 | | Dow Jones | $386 | $382 | | Book Publishing | $458 | $405 | | News Media | $487 | $767 | | Total Revenues | $2,117 | $2,340 | Note 3. Restructuring Programs Restructuring charges of $40 million were recorded in Q1 FY2021, mainly for exit costs related to the planned Bronx print plant closure - Restructuring charges of $40 million were recorded in Q1 FY2021, with $31 million related to the News Media segment, primarily for exit costs associated with the planned closure of the Bronx print plant in Q3 FY2021[39] Note 5. Borrowings Total borrowings were $1.284 billion as of September 30, 2020, mainly non-recourse debt of subsidiaries, supplemented by an undrawn $750 million revolving credit facility - Outstanding borrowings are primarily incurred by the Foxtel Debt Group and REA Group, with this debt being non-recourse to News Corp[47] - The Company has access to an unsecured $750 million revolving credit facility, which was undrawn as of September 30, 2020[47] Note 9. Commitments and Contingencies The company faces legal proceedings, including retained liabilities from News America Marketing sale and U.K. Newspaper Matters, with a $54 million accrual for U.K. matters indemnified by FOX - The Company retained liabilities from the sale of its News America Marketing business, including ongoing antitrust lawsuits with Insignia Systems, Inc. and Valassis Communications, Inc.[79][80][82] - For the U.K. Newspaper Matters, the Company is indemnified by FOX for payments related to civil claims, with an accrued liability of approximately $54 million and a corresponding receivable from FOX of approximately $61 million as of September 30, 2020[85][86] Note 11. Segment Information Details performance of six reporting segments, highlighting strong Segment EBITDA growth in Digital Real Estate Services, Dow Jones, and Book Publishing, despite a News Media loss Segment EBITDA (Three months ended Sep 30) | Segment (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Digital Real Estate Services | $119 | $82 | | Subscription Video Services | $78 | $81 | | Dow Jones | $72 | $49 | | Book Publishing | $71 | $49 | | News Media | $(22) | $7 | | Other | $(50) | $(47) | | Total Segment EBITDA | $268 | $221 | Note 13. Subsequent Events In October 2020, REA Group and News Corp agreed to increase their ownership in Elara Technologies, resulting in a combined controlling interest upon completion - In October 2020, REA Group agreed to increase its ownership in Elara, with News Corp also increasing its interest for $34.5 million, leading to a consolidated combined interest of 86.1% to 100% in Elara[117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 10% revenue decrease to $2.12 billion, improved net income to $47 million, and 21% Segment EBITDA growth to $268 million, highlighting segment performance, COVID-19 impacts, and liquidity Overview of the Company's Businesses Outlines the company's six segments and key developments, focusing on COVID-19's mixed impact on real estate and advertising versus digital subscriptions, and notes increased investment in Elara - The COVID-19 pandemic negatively impacted real estate markets and print advertising volumes, but also led to increases in digital paid subscribers and audience gains for online news properties[128][129] - Sports programming costs in the Subscription Video Services segment were negatively impacted by the deferral of approximately $36 million in costs from fiscal 2020 into Q1 FY2021 due to postponed sporting events[130] Results of Operations Consolidated revenues fell 10% to $2.117 billion in Q1 FY2021, net income swung to a $47 million profit, and Total Segment EBITDA increased 21% to $268 million, driven by strong segment performance Segment Performance (Q1 FY2021 vs Q1 FY2020) | Segment (in millions) | Revenues 2020 | Revenues 2019 | Segment EBITDA 2020 | Segment EBITDA 2019 | | :--- | :--- | :--- | :--- | :--- | | Digital Real Estate Services | $290 | $272 | $119 | $82 | | Subscription Video Services | $496 | $514 | $78 | $81 | | Dow Jones | $386 | $382 | $72 | $49 | | Book Publishing | $458 | $405 | $71 | $49 | | News Media | $487 | $767 | $(22) | $7 | | Total | $2,117 | $2,340 | $268 | $221 | - Digital revenues at the Dow Jones segment represented 73% of its total revenues for the quarter, up from 65% in the prior year[157] Dow Jones Digital-Only Subscriptions (Average Daily) | Publication | Q1 FY2021 (thousands) | Q1 FY2020 (thousands) | % Change | | :--- | :--- | :--- | :--- | | The Wall Street Journal | 2,354 | 1,854 | +27% | | Barron's | 458 | 321 | +43% | | Total Consumer | 2,914 | 2,259 | +29% | - The News Media segment's revenue decline of $280 million was primarily driven by a $200 million impact from the sale of News America Marketing[166] Liquidity and Capital Resources The company ended the quarter with $1.5 billion in cash, with net cash from operating activities increasing to $155 million, and free cash flow available to News Corp improving to $65 million, ensuring sufficient liquidity - The company's principal source of liquidity is internally generated funds and cash on hand, which stood at $1.5 billion as of September 30, 2020[170] Reconciliation of Free Cash Flow Available to News Corporation | (in millions) | Three months ended Sep 30, 2020 | Three months ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $155 | $27 | | Less: Capital expenditures | $(93) | $(117) | | Free cash flow | $62 | $(90) | | Less: REA Group free cash flow | $(29) | $(28) | | Plus: Cash dividends received from REA Group | $32 | $35 | | Free cash flow available to News Corporation | $65 | $(83) | - In August 2020, the Board of Directors declared a semi-annual cash dividend of $0.10 per share, paid in October 2020[174] Quantitative and Qualitative Disclosures About Market Risk No material change in the company's sensitivity to market risk has been reported since the fiscal year ended June 30, 2020 - There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation in the 2020 Form 10-K[189] Controls and Procedures Management, including CEO and CFO, deemed disclosure controls and procedures effective as of September 30, 2020, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[191] - No changes in the Company's internal control over financial reporting occurred during the first quarter of fiscal 2021 that materially affected, or are reasonably likely to materially affect, these controls[192] Part II - Other Information Legal Proceedings This section refers readers to Note 9—Commitments and Contingencies of the Consolidated Financial Statements for details on the company's legal proceedings - For details on legal proceedings, the report refers to Note 9—Commitments and Contingencies in the financial statements[194] Risk Factors Updates risk factors, noting that FCC rules and the agreement with FOX may restrict the company's ability to acquire certain U.S. media assets, particularly where FOX owns broadcast stations - FCC's Broadcast Ownership Rules and Program Access Rules, combined with the Murdoch Family Trust's ownership in both News Corp and FOX, may restrict the Company from acquiring certain U.S. media assets, such as a newspaper in a market where FOX owns a television station[196][197] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[198] Defaults Upon Senior Securities This section is not applicable - Not applicable[198] Mine Safety Disclosures This section is not applicable - Not applicable[198] Other Information This section is not applicable - Not applicable[198] Exhibits Lists exhibits filed with the quarterly report, including CEO and CFO certifications and financial data in Inline XBRL format - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1) and financial statements in Inline XBRL format (101, 104)[200]