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Press release content from BusinessWire. The AP news staff was not involved in its creation.

News Corporation Reports Third Quarter Results for Fiscal 2018

May 10, 2018

NEW YORK--(BUSINESS WIRE)--May 10, 2018--News Corporation (“News Corp” or the “Company”) (NASDAQ:NWS)(NASDAQ:NWSA)(ASX:NWS)(ASX:NWSLV) today reported financial results for the three months ended March 31, 2018.

Commenting on the results, Chief Executive Robert Thomson said:

“We finished the fiscal third quarter with strong revenue growth, led by outstanding performances at our Digital Real Estate Services and Book Publishing segments. Revenues this quarter improved by 6 percent and are up 4 percent for the first nine months of this fiscal year.

We welcome Foxtel to our corporate family. We believe the company is uniquely positioned, given its potential in a rapidly expanding OTT market, with unrivaled sports offerings and premium entertainment and news content. From the fourth quarter, the combination of digital real estate services and pay-TV businesses will account for more than half of our profits and significantly increase recurring subscription-based revenues.

The third quarter once again highlighted the strength of our global digital real estate platform. The segment posted robust 27 percent growth in revenues, as both REA Group and realtor.com ® benefited from product innovation and higher yields while becoming more holistic sites for home buyers and sellers.

At our mastheads, digital audience expanded at a time when premium news has become more important to readers and advertisers. The Wall Street Journal, The Times and Sunday Times, and The Australian reported average growth in digital subscriptions of more than 20 percent for the quarter, a testament to the success of their digital transformation.

Reported earnings in the third quarter were affected by a non-cash write-down of our investment in Foxtel, as we previously disclosed in March, and non-cash impairment charges, mostly related to News America Marketing.

The digital eco-system is clearly evolving and regulators in many countries are grappling with the profound impact of unprecedently powerful digital platforms. There is no doubt that governments should create an Algorithm Review Board to oversee these historically influential digital platforms and ensure that there is no algorithmic abuse or censorship, commercially or politically.”

THIRD QUARTER RESULTS

The Company reported fiscal 2018 third quarter total revenues of $2.10 billion, a 6% increase compared to $1.98 billion in the prior year period, reflecting strong growth in the Digital Real Estate Services and Book Publishing segments and a $70 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 (which exclude the foreign currency impact and acquisitions and divestitures as defined in Note 1) increased 2%.

Net loss for the quarter was ($1.1) billion as compared to nil in the prior year. The loss was primarily driven by non-cash write-downs of $998 million related to Foxtel and FOX SPORTS Australia, as well as a non-cash impairment charge of $165 million at News America Marketing.

The Company reported third quarter Total Segment EBITDA of $182 million, a 15% decline compared to $215 million in the prior year, driven by an increase in expenses at the Cable Network Programming segment as a result of the timing of programming amortization related to the launch of a dedicated National Rugby League (“NRL”) channel and higher NRL sports programming rights costs, higher expenses at News UK and the absence of the prior period’s adjustment to the deferred consideration accrual related to the Unruly acquisition. Adjusted Total Segment EBITDA (as defined in Note 1) decreased 18%.

Loss per share available to News Corporation stockholders was ($1.94) as compared to ($0.01) in the prior year.

Adjusted EPS (as defined in Note 3) were $0.06 compared to $0.07 in the prior year.

News and Information Services

Revenues in the quarter increased $23 million, or 2%, compared to the prior year. Within the segment, News UK and Dow Jones revenues grew 10% and 4%, respectively, while revenues at News America Marketing and News Corp Australia declined 5% and 3%, respectively. Adjusted Revenues for the segment were 2% lower compared to the prior year.

Advertising revenues declined 3% compared to the prior year. The decline was driven by weakness in the print advertising market, mainly in Australia and the U.S., lower revenues at News America Marketing 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 positive impact from foreign currency fluctuations, a modest increase in digital advertising revenues at News Corp Australia and Dow Jones and a slight increase in advertising revenues at News UK.

Circulation and subscription revenues increased 7%, primarily due to a healthy contribution from Dow Jones, which again saw a 10% increase in its circulation revenues, reflecting continued digital subscriber growth at The Wall Street Journal, and strong growth in its professional information business, as well as the positive impact from foreign currency fluctuations. Cover and subscription price increases also contributed to the revenue improvement. These increases were partially offset by lower newsstand volume at News UK.

Segment EBITDA declined $38 million in the quarter, or 31%, as compared to the prior year, primarily due to higher expenses at News UK, as well as the absence of the prior year period’s $12 million adjustment to the deferred consideration accrual related to the Unruly acquisition.

Digital revenues represented 29% of News and Information Services segment revenues in the quarter, compared to 24% 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 52% 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 March 31, 2018 were 1,490,000, compared to 1,198,000 in the prior year (Source: Internal data) Closing digital subscribers at News Corp Australia’s mastheads as of March 31, 2018 were 409,000, compared to 333,400 in the prior year (Source: Internal data) The Times and Sunday Times closing digital subscribers as of March 31, 2018 were 230,000, compared to 185,000 in the prior year (Source: Internal data) The Sun ’s digital offering reached approximately 84 million global monthly unique users in March 2018, compared to more than 80 million in the prior year, based on ABCe (Source: Omniture)

Book Publishing

Revenues in the quarter increased $24 million, or 6%, compared to the prior year, primarily due to higher sales in general and Christian publishing, including the success of frontlist titles such as The Woman in the Window by A. J. Finn and The Rock, the Road, and the Rabbi by Kathie Lee Gifford, and the continued strength of backlist titles such as The Subtle Art of Not Giving a F*ck by Mark Manson, as well as the $10 million positive impact from foreign currency fluctuations. Digital sales increased 5% compared to the prior year and represented 22% of Consumer revenues for the quarter, driven by the growth in downloadable audiobook sales. Segment EBITDA for the quarter increased $6 million, or 16%, from the prior year due to the higher revenues noted above and the mix of titles. Adjusted Revenues increased 4% and Adjusted Segment EBITDA (as defined in Note 1) increased 16%.

Digital Real Estate Services

Revenues in the quarter increased $60 million, or 27%, compared to the prior year, primarily due to the continued strong growth at REA Group and Move. Segment EBITDA in the quarter increased $13 million, or 17%, compared to the prior year, primarily due to the higher revenues discussed above, partially offset by higher costs associated with higher revenues and higher marketing costs, primarily at Move. Adjusted Revenues and Adjusted Segment EBITDA increased 18% and 12%, respectively.

In the quarter, revenues at REA Group increased 35% to $158 million from $117 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 15% to $115 million from $100 million in the prior year, primarily due to the continued growth in its Connections℠ 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 third quarter grew 10% year-over-year to approximately 61 million, with mobile representing more than half of all unique users.

Cable Network Programming

Revenues in the quarter increased $7 million, or 6%, compared to the prior year, primarily due to the positive impact from foreign currency fluctuations and higher affiliate revenues at FOX SPORTS Australia and Australian News Channel. Segment EBITDA in the quarter decreased $18 million, or 53%, compared with the prior year, primarily due to the timing of programming amortization related to the launch of a dedicated NRL channel at FOX SPORTS Australia and higher NRL programming rights costs. Adjusted Revenues and Adjusted Segment EBITDA increased 2% and declined 56%, respectively.

REVIEW OF EQUITY LOSSES OF AFFILIATES’ RESULTS

Equity losses of affiliates for the third quarter were ($974) million compared to ($23) million in the prior year.

On a U.S. GAAP basis, Foxtel revenues for the third quarter declined $4 million, or 1%, to $587 million from $591 million in the prior year period. In local currency, Foxtel revenues decreased 4% due to subscriber mix and lower advertising revenues. Foxtel’s total closing subscribers were approximately 2.8 million as of March 31, 2018, which was higher than the prior year, primarily due to the launch of Foxtel Now. In the third quarter, cable and satellite churn was 15.4% compared to 16.1% in the prior year. Broadcast residential ARPU for the third quarter declined 1% compared to the prior year.

Foxtel’s net income of $8 million increased from nil in the prior year period, primarily due to the absence of the losses associated with Foxtel management’s decision to cease Presto operations in January 2017 and the losses resulting from the change in the fair value of Foxtel’s investment in Ten Network Holdings, lower interest expense, as well as lower non-programming expenses, partially offset by planned increases in sports rights costs. Equity losses of affiliates for Foxtel of ($970) million and ($16) million for the three months ended March 31, 2018 and 2017, respectively, reflect the Company’s share of Foxtel’s net income, less the Company’s amortization of $17 million and $16 million, respectively, related to the Company’s excess cost over its share of Foxtel’s finite-lived intangible assets, as well as the $957 million non-cash write-down of the carrying value of Foxtel in the quarter.

During the three months ended March 31, 2018, the Company recognized a $957 million non-cash write-down of the carrying value of its investment in Foxtel. In the third quarter of fiscal 2018, as part of the Company’s long range planning process and in preparation for a potential transaction with Telstra Corporation Limited to combine Foxtel and FOX SPORTS Australia (the “Transaction”), the Company assessed the long-term prospects for Foxtel, on both a stand-alone and combined basis. As a result of lower-than-expected revenues from certain new products and broadcast subscribers at Foxtel, the Company revised its outlook for Foxtel, which resulted in a reduction in expected future cash flows. Based on the revised projections, the Company concluded that the fair value of its investment in Foxtel declined below its carrying value.

Foxtel EBITDA declined $27 million, or 21%, to $104 million from $131 million in the prior year. In local currency, Foxtel EBITDA decreased 24% due to the lower revenues discussed above and planned increases in sports programming costs of $18 million, primarily related to the Australian Football League rights, partially offset by lower non-programming costs. Foxtel operating income declined to $35 million from $79 million in the prior year, primarily as a result of the increased programming spend noted above. Operating income includes higher depreciation and amortization of $69 million compared to $52 million in the prior 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:

Net cash provided by continuing operating activities improved $241 million for the nine months ended March 31, 2018 as compared to the prior year period, primarily due to the absence of the NAM Group’s settlement payments of $256 million, lower restructuring payments of $29 million and higher Total Segment EBITDA, partially offset by increased working capital primarily due to 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 $22 million.

Free cash flow available to News Corporation in the nine months ended March 31, 2018 was $184 million compared to ($19) 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.

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.

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