News Corp Earnings 2019-03-31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)    

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

For the quarterly period ended March 31, 2019

or

 

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

For the transition period from                  to                 

Commission File Number: 001-35769

 

 

 

NEWS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		46-2950970
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1211 Avenue of the Americas, New York, New York		10036
(Address of principal executive offices)		(Zip Code)

(212) 416-3400

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

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

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share		NWSA		The Nasdaq Global Select Market
Class B Common Stock, par value $0.01 per share		NWS		The Nasdaq Global Select Market
Class A Preferred Stock Purchase Rights		N/A		The Nasdaq Global Select Market
Class B Preferred Stock Purchase Rights		N/A		The Nasdaq Global Select Market

As of May 3, 2019, 385,531,724 shares of Class A Common Stock and 199,630,240 shares of Class B Common Stock were outstanding.

 

 

 

NEWS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

Part I. Financial Information			Page
Item 1. Financial Statements
Consolidated Statements of Operations for the three and nine months ended March 31, 2019 and 2018 (unaudited)			2
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, 2019 and 2018 (unaudited)			3
Consolidated Balance Sheets as of March  31, 2019 (unaudited) and June 30, 2018 (audited)			4
Consolidated Statements of Cash Flows for the nine months ended March  31, 2019 and 2018 (unaudited)			5
Notes to the Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3. Quantitative and Qualitative Disclosures About Market Risk			64
Item 4. Controls and Procedures			64
Part II. Other Information
Item 1. Legal Proceedings			65
Item 1A. Risk Factors			65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 3. Defaults Upon Senior Securities			65
Item 4. Mine Safety Disclosures			65
Item 5. Other Information			65
Item 6. Exhibits			66
Signature			67

PART I

ITEM 1. FINANCIAL STATEMENTS

NEWS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; millions, except per share amounts)

 

						For the three months ended								For the nine months ended
						March 31,								March 31,
		Notes				2019				2018				2019				2018
Revenues:
Circulation and subscription						$	1,025			$	659			$	3,088			$	1,947
Advertising							670				702				2,052				2,101
Consumer							403				381				1,281				1,220
Real estate							218				208				693				633
Other							141				143				494				430
Total Revenues			2				2,457				2,093				7,608				6,331
Operating expenses							(1,400	)			(1,151	)			(4,224	)			(3,439	)
Selling, general and administrative							(810	)			(761	)			(2,409	)			(2,135	)
Depreciation and amortization							(168	)			(100	)			(494	)			(297	)
Impairment and restructuring charges			4				(34	)			(246	)			(71	)			(273	)
Equity losses of affiliates			5				(4	)			(974	)			(13	)			(1,002	)
Interest (expense) income, net							(14	)			2				(45	)			9
Other, net			14				3				30				30				9
Income (loss) before income tax expense							30				(1,107	)			382				(797	)
Income tax expense			12				(7	)			(3	)			(112	)			(292	)
Net income (loss)							23				(1,110	)			270				(1,089	)
Less: Net income attributable to noncontrolling interests							(13	)			(18	)			(64	)			(54	)
Net income (loss) attributable to News Corporation stockholders						$	10			$	(1,128	)		$	206			$	(1,143	)
Basic and diluted earnings (loss) per share:			10
Net income (loss) available to News Corporation stockholders per share						$	0.02			$	(1.94	)		$	0.35			$	(1.96	)

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

 

2

NEWS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; millions)

 

		For the three months ended								For the nine months ended
		March 31,								March 31,
		2019				2018				2019				2018
Net income (loss)		$	23			$	(1,110	)		$	270			$	(1,089	)
Other comprehensive income (loss):
Foreign currency translation adjustments			75				10				(182	)			144
Net change in the fair value of cash flow hedges(a)			(5	)			—				2				—
Unrealized holding gains on securities, net(b)			—				—				—				5
Benefit plan adjustments, net(c)			(3	)			(9	)			10				(14	)
Share of other comprehensive income from equity affiliates, net(d)			—				—				—				1
Other comprehensive income (loss)			67				1				(170	)			136
Comprehensive income (loss)			90				(1,109	)			100				(953	)
Less: Net income attributable to noncontrolling interests			(13	)			(18	)			(64	)			(54	)
Less: Other comprehensive (income) loss attributable to noncontrolling interests			(10	)			2				46				(1	)
Comprehensive income (loss) attributable to News Corporation stockholders		$	67			$	(1,125	)		$	82			$	(1,008	)

 

(a)	Net of income tax expense of nil and $1 million for the three and nine months ended March 31, 2019, respectively.

(b)	Net of income tax expense of $1 million and $3 million for the three and nine months ended March 31, 2018, respectively.

(c)	Net of income tax benefit of $1 million and $2 million for the three months ended March 31, 2019 and 2018, respectively, and income tax expense (benefit) of $2 million and ($4) million for the nine months ended March 31, 2019 and 2018, respectively.

(d)	Net of income tax expense of nil for the three and nine months ended March 31, 2019 and 2018, respectively.

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

 

3

NEWS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Millions, except share and per share amounts)

 

						As of				As of
		Notes				March 31, 2019				June 30, 2018
						(unaudited)				(audited)
Assets:
Current assets:
Cash and cash equivalents						$	1,648			$	2,034
Receivables, net			14				1,631				1,612
Inventory, net							404				376
Other current assets							564				372
Total current assets							4,247				4,394
Non-current assets:
Investments			5				347				393
Property, plant and equipment, net							2,557				2,560
Intangible assets, net							2,514				2,671
Goodwill							5,223				5,218
Deferred income tax assets			12				257				279
Other non-current assets			14				913				831
Total assets						$	16,058			$	16,346
Liabilities and Equity:
Current liabilities:
Accounts payable						$	432			$	605
Accrued expenses							1,364				1,340
Deferred revenue			2				460				516
Current borrowings			6				678				462
Other current liabilities			14				745				372
Total current liabilities							3,679				3,295
Non-current liabilities:
Borrowings			6				868				1,490
Retirement benefit obligations							237				245
Deferred income tax liabilities			12				321				389
Other non-current liabilities							495				430
Commitments and contingencies			11
Redeemable preferred stock			7				—				20
Class A common stock(a)							4				4
Class B common stock(b)							2				2
Additional paid-in capital							12,229				12,322
Accumulated deficit							(1,927	)			(2,163	)
Accumulated other comprehensive loss							(1,019	)			(874	)
Total News Corporation stockholders’ equity							9,289				9,291
Noncontrolling interests							1,169				1,186
Total equity			8				10,458				10,477
Total liabilities and equity						$	16,058			$	16,346

 

(a)	Class A common stock, $0.01 par value per share (“Class A Common Stock”), 1,500,000,000 shares authorized, 385,444,822 and 383,385,353 shares issued and outstanding, net of 27,368,413 treasury shares at par at March 31, 2019 and June 30, 2018, respectively.

(b)	Class B common stock, $0.01 par value per share (“Class B Common Stock”), 750,000,000 shares authorized, 199,630,240 shares issued and outstanding, net of 78,430,424 treasury shares at par at March 31, 2019 and June 30, 2018.

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

 

4

NEWS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; millions)

 

						For the nine months ended
						March 31,
		Notes				2019				2018
Operating activities:
Net income (loss)						$	270			$	(1,089	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization							494				297
Equity losses of affiliates			5				13				1,002
Cash distributions received from affiliates							30				2
Impairment charges			4				9				225
Other, net			14				(30	)			(9	)
Deferred income taxes and taxes payable			12				22				182
Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets							37				(86	)
Inventories, net							(74	)			(14	)
Accounts payable and other liabilities							(110	)			(45	)
Net cash provided by operating activities							661				465
Investing activities:
Capital expenditures							(417	)			(200	)
Acquisitions, net of cash acquired							(187	)			(62	)
Investments in equity affiliates and other							(36	)			(42	)
Proceeds from property, plant and equipment and other asset dispositions							99				137
Other, net							18				23
Net cash used in investing activities							(523	)			(144	)
Financing activities:
Borrowings			6				450				—
Repayment of borrowings			6				(801	)			(93	)
Dividends paid							(102	)			(99	)
Other, net							(48	)			(42	)
Net cash used in financing activities							(501	)			(234	)
Net change in cash and cash equivalents							(363	)			87
Cash and cash equivalents, beginning of period							2,034				2,016
Exchange movement on opening cash balance							(23	)			9
Cash and cash equivalents, end of period						$	1,648			$	2,112

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

 

5

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

In April 2018, News Corp and Telstra Corporation Limited (“Telstra”) combined their respective 50% interests in Foxtel and News Corp’s 100% interest in FOX SPORTS Australia into a new company, which the Company refers to as “new Foxtel” (the “Transaction”). Following the completion of the Transaction, News Corp owns a 65% interest in the combined business, with Telstra owning the remaining 35%. Consequently, the Company began consolidating Foxtel in the fourth quarter of fiscal 2018. See Note 3—Acquisitions, Disposals and Other Transactions; Note 5—Investments; Note 6—Borrowings; and Note 9—Financial Instruments and Fair Value Measurements.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company, which are referred to herein as the “Consolidated Financial Statements,” have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these Consolidated Financial Statements. Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. The preparation of the Company’s Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Consolidated Financial Statements and accompanying disclosures. Actual results could differ from those estimates.

Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method. In accordance with ASU 2016-01, investments in which the Company is not able to exercise significant influence over the investee are measured at fair value, if the fair value is readily determinable. If an investment’s fair value is not readily determinable, the Company will measure the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

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

The accompanying Consolidated Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 as filed with the Securities and Exchange Commission (the “SEC”) on August 15, 2018 (the “2018 Form 10-K”).

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation. Specifically, in the first quarter of fiscal 2019, the Company reclassified Conference Sponsorship revenues at its Dow Jones reporting unit and Merchandising revenues at News America Marketing from Other revenues to Advertising revenues as the Company believes that the reclassification more accurately reflects the nature of those revenue streams. These revenue reclassifications totaled $15 million and $42 million for the three and nine months ended March 31, 2018, respectively, and $57 million for the fiscal year ended June 30, 2018.

The Company’s fiscal year ends on the Sunday closest to June 30. Fiscal 2019 and fiscal 2018 include 52 weeks. All references to the three and nine months ended March 31, 2019 and 2018 relate to the three and nine months ended March 31, 2019 and April 1, 2018, respectively. For convenience purposes, the Company continues to date its Consolidated Financial Statements as of March 31.

 

6

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Recently Issued Accounting Pronouncements

Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amended the FASB Accounting Standards Codification by creating Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). ASU 2014-09 removes inconsistencies and differences in revenue recognition requirements between GAAP and International Financial Reporting Standards and requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on a modified retrospective basis as of July 1, 2018. As a result, the Company recorded a $20 million decrease to Accumulated deficit as of July 1, 2018 to reflect the cumulative impact of its adoption of ASC 606. See Note 2—Revenues.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company adopted the guidance on a cumulative-effect basis for its investments with readily determinable fair values effective July 1, 2018. In accordance with ASU 2016-01, the cumulative net unrealized gains (losses) for these investments contained within Accumulated other comprehensive loss were reclassified through Accumulated deficit as of July 1, 2018, and the Company recorded a $22 million decrease to Accumulated deficit. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. There was no financial statement impact upon adoption for these investments. See Note 5—Investments and Note 14—Additional Financial Information.

In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). The amendments in ASU 2017-07 require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost (income) as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU 2017-07 allows for a practical expedient that permits a company to use the amounts disclosed in its pension and other postretirement benefit plans note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. ASU 2017-07 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company adopted ASU 2017-07 utilizing the practical expedient. The other components of net periodic benefit cost (income) are included in Other, net in the Statements of Operations. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). The amendments in ASU 2018-07 expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. As permitted by ASU 2018-07, the Company early-adopted this standard and the adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2018-15”). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). As permitted by ASU 2018-15, the Company early-adopted this standard on a prospective basis. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

 

7

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Issued

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in ASU 2016-02 require lessees to recognize all leases on the balance sheet by recording a right-of-use asset and a lease liability, and lessor accounting has been updated to align with the new requirements for lessees. The new standard also provides changes to the existing sale-leaseback guidance. ASU 2016-02 is effective for the Company for annual and interim reporting periods beginning July 1, 2019. The FASB has also issued additional standards which provide additional clarification and implementation guidance on the previously issued ASU 2016-02 and have the same effective date as the original standard. The Company plans to apply this guidance on a modified retrospective basis at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings, with no restatement of prior periods. The Company has selected its lease management system and is in the process of completing its inventory of its lease contracts and implementing processes and controls to enable the preparation of the required financial information for this standard. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements.

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

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The amendments in ASU 2017-12 more closely align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments address specific limitations in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. ASU 2017-12 is effective for the Company for annual and interim reporting periods beginning July 1, 2019. The Company is currently evaluating the impact ASU 2017-12 will have on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). The amendments in ASU 2018-02 provide a reclassification from Accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act (as defined below). See Note 12— Income Taxes. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company for annual and interim reporting periods beginning July 1, 2019. The Company is currently evaluating the impact ASU 2018-02 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). The amendments in ASU 2018-14 modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 eliminates the disclosures for amounts in Accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost (income) and the effect of a percentage change in health care cost trend rate. ASU 2018-14 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. The Company will comply with the new disclosure requirements in ASU 2018-14 beginning with its Annual Report on Form 10-K for the fiscal year ending June 30, 2019.

 

8

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. REVENUES

On July 1, 2018, the Company adopted ASC 606 on a modified retrospective basis for all contracts which were not completed as of the adoption date. Results for reporting periods beginning after July 1, 2018 are presented under ASC 606 while prior periods have not been restated. Under ASC 606, revenue is recognized when or as the Company satisfies its respective performance obligations under each contract. The Company recorded a $20 million decrease to Accumulated deficit as of July 1, 2018 to reflect the cumulative impact of its adoption of ASC 606.

When implementing ASC 606, the Company applied the practical expedient to reflect the aggregate effect of all contract modifications occurring before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

The adoption of ASC 606 primarily resulted in the following changes related to the Company’s revenue recognition policies:

 

•

Reclassification of certain payments to customers

For certain revenue streams within the Subscription Video Services, Book Publishing and News and Information Services segments, the Company previously recorded certain marketing and sales incentive payments to customers within Operating expenses and Selling, general and administrative expenses. In accordance with ASC 606, such payments are now recorded as a reduction of revenue. For the three and nine months ended March 31, 2019, revenues were $22 million and $84 million lower, respectively, as a result of this reclassification, with no impact on the Company’s net income.

 

•

Deferred installation revenues in the Subscription Video Services segment

Under ASC 606, each customer subscription sold is accounted for as a distinct performance obligation. Installation services are not accounted for as a distinct performance obligation and are instead included within the overall services being provided. Therefore, installation revenues are deferred and recognized over the respective customer contract term. Historically, installation revenues were deferred and recognized over the estimated customer life. For the three and nine months ended March 31, 2019, revenues were $5 million and $18 million higher, respectively, as a result of the adoption of ASC 606.

 

•

Acceleration of revenue associated with REA Group’s financial services business

The Company has historically delayed the recognition of trailing commission revenue associated with REA Group’s financial services business until such amounts became fixed or determinable. Under ASC 606, trailing commission revenue is recognized when the related mortgage loan is established. As a result, the Company established a commission receivable of $121 million and a broker commission payable of $94 million as of July 1, 2018. The current portion of the commission receivable and broker commission payable are classified in Receivables, net and Other current liabilities, respectively, with the non-current portion of each classified within Other non-current assets and liabilities, respectively, in the Balance Sheets. The change in accounting for trailing commission revenue did not have a material impact on the Statement of Operations.

 

9

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s revenues and expenses for the three and nine months ended March 31, 2019 and the opening balance sheet as of July 1, 2018 under both ASC 606 and the prior standard, ASC 605 are as follows:

 

		For the three months ended March 31, 2019
		ASC 605				Effects of Adoption				ASC 606
		(in millions)
Revenue:
Circulation and subscription		$	1,019			$	6			$	1,025
Advertising			673				(3	)			670
Consumer			420				(17	)			403
Real estate			218				—				218
Other			144				(3	)			141
Total Revenues		$	2,474			$	(17	)		$	2,457
Operating expenses and Selling, general and administrative		$	(2,228	)		$	18			$	(2,210	)
Net income		$	22			$	1			$	23
		For the nine months ended March 31, 2019
		ASC 605				Effects of Adoption				ASC 606
		(in millions)
Revenue:
Circulation and subscription		$	3,076			$	12			$	3,088
Advertising			2,055				(3	)			2,052
Consumer			1,328				(47	)			1,281
Real estate			693				—				693
Other			510				(16	)			494
Total Revenues		$	7,662			$	(54	)		$	7,608
Operating expenses and Selling, general and administrative		$	(6,706	)		$	73			$	(6,633	)
Net income		$	256			$	14			$	270

 

10

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

		As of July 1, 2018
		ASC 605				Effects of Adoption				ASC 606
		(in millions)
Assets:
Receivables, net		$	1,612			$	200			$	1,812
Other current assets			372				(4	)			368
Deferred income tax assets			279				2				281
Other non-current assets			831				92				923
Liabilities and Equity:
Deferred revenue		$	516			$	(6	)		$	510
Other current liabilities			372				194				566
Deferred income tax liabilities			389				11				400
Other non-current liabilities			430				71				501
Accumulated deficit			(2,163	)			20				(2,143	)

Disaggregated revenue

The following table presents revenue by type and segment for the three and nine months ended March 31, 2019:

 

		For the three months ended March 31, 2019
		News and Information Services				Subscription Video Services				Book Publishing				Digital Real Estate Services				Other				Total Revenues
		(in millions)
Revenues:
Circulation and subscription		$	538			$	474			$	—			$	12			$	1			$	1,025
Advertising			593				50				—				27				—				670
Consumer			—				—				403				—				—				403
Real estate			—				—				—				218				—				218
Other			93				15				18				15				—				141
Total Revenues		$	1,224			$	539			$	421			$	272			$	1			$	2,457

 

11

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

		For the nine months ended March 31, 2019
		News and Information Services				Subscription Video Services				Book Publishing				Digital Real Estate Services				Other				Total Revenues
		(in millions)
Revenues:
Circulation and subscription		$	1,593			$	1,455			$	—			$	39			$	1			$	3,088
Advertising			1,801				162				—				89				—				2,052
Consumer			—				—				1,281				—				—				1,281
Real estate			—				—				—				693				—				693
Other			335				49				54				55				1				494
Total Revenues		$	3,729			$	1,666			$	1,335			$	876			$	2			$	7,608

Disclosures regarding the nature, timing and uncertainty of the Company’s revenue streams across its segments are as follows:

Circulation and subscription revenues

Circulation and subscription revenues include single-copy newspaper, newspaper subscription, information services subscription and pay television broadcast subscription revenues. Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy sales) and/or digital subscriptions sold, and the associated rates charged to the customers. Single-copy revenue is recognized at a point in time on the date the newspapers are sold to distribution outlets, net of provisions for related returns.

Revenues from home delivery and digital subscriptions are recognized over the subscription term as the newspapers and/or digital subscriptions are delivered. Information services subscription revenues are recognized over time as the subscriptions are delivered. Payments from subscribers are generally due at the beginning of the month and are recorded as deferred revenue. Such amounts are recognized as revenue as the associated subscription is delivered.

Revenue generated from subscriptions to receive pay television broadcast services, broadband and home phone services for residential and commercial subscribers is recognized over time on a monthly basis as the services are provided. Payment is generally received monthly in advance of providing services, and is deferred upon receipt. Such amounts are recognized as revenue as the related services are provided.

Advertising revenues

Revenue from print advertising is recognized at the point in time the print advertisement is circulated. Broadcast advertising revenue is recognized over the time that the broadcast advertisement is aired. For impressions-based digital advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or discounts.

Advertising revenues earned from integrated marketing services are recognized at the point in time when free-standing inserts are published. Revenues earned from in-store marketing services are partially recognized upon installation, with the remaining revenue recognized over the in-store campaign.

Billings to clients and payments received in advance of performance of services or delivery of products are recorded as deferred revenue until the services are performed or the product is delivered. Payment for advertising services is typically due shortly after the Company has satisfied its performance obligation to print, broadcast or place the advertising specified in the contract. For advertising campaigns that extend beyond one month, the Company generally invoices the advertiser in arrears based on the number of advertisements that were printed, broadcast or placed, or impressions delivered during the month.

 

12

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Consumer revenues

Revenue from the sale of physical books and electronic books (“e-books”) is recognized at the point in time of physical receipt by the customer or electronic delivery. Such amounts are recorded net of provisions for returns and payments to customers when a distinct good or service is not received. If the Company prohibits its customer from selling a physical book until a future date, it recognizes revenue when that restriction lapses.

Revenue is recognized net of any amounts billed to customers for taxes remitted to government authorities. Payments for the sale of physical books and e-books are generally collected within one to three months of sale or delivery and are based on the number of physical books or e-books sold.

Real Estate revenues

Real estate revenues are derived from the sale of online real estate listing products and advanced client management and reporting products, as well as services to agents, brokers and developers. Revenue is typically recognized over the contractual period during which the services are provided. Payments are generally due monthly over the subscription term.

Other revenues

Other revenues are recognized when the related services are performed or the product has been delivered.

Areas of judgment

Contracts with multiple performance obligations

The Company has certain revenue contracts which contain multiple performance obligations such as print and digital advertising bundles and bundled video service subscriptions. Revenues derived from sales contracts that contain multiple products and services are allocated based on the relative standalone selling price of each performance obligation to be delivered. Standalone selling price is typically determined based on prices charged to customers for the same or similar goods or services on a standalone basis. If observable standalone prices are not available, the Company estimates standalone selling price by maximizing the use of observable inputs to most accurately reflect the price of each individual performance obligation. Revenue is recognized as each performance obligation included in the contract is satisfied.

Identification of a customer and gross versus net revenue recognition

In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When the intermediary or agent is determined to be the Company’s customer, the Company records revenue based on the amount it expects to receive from the agent or intermediary.

In other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods or services prior to being transferred to the ultimate customer.

Sales returns

Certain of the Company’s products, such as books and newspapers, are sold with the right of return. The Company records the estimated impact of such returns as a reduction of revenue. To estimate product sales that will be returned and the related products that are expected to be placed back into inventory, the Company analyzes historical returns, current economic trends, changes in customer demand and acceptance of the Company’s products. Based on this information, the Company reserves a percentage of each dollar of product sales that provide the customer with the right of return. As a result of the adoption of ASC 606, the Company reclassified its sales returns reserve from Receivables, net to Other current liabilities.

 

13

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Contract liabilities and assets

The Company’s deferred revenue balance primarily relates to amounts received from customers for subscriptions paid in advance of the services being provided. The following table presents changes in the deferred revenue balance for the three and nine months ended March 31, 2019:

 

		For the three months ended March 31, 2019				For the nine months ended March 31, 2019
		(in millions)				(in millions)
Balance, beginning of period		$	430			$	510
Deferral of revenue			934				2,271
Recognition of deferred revenue(a)			(883	)			(2,300	)
Other			(21	)			(21	)
Balance, end of period		$	460			$	460

 

(a)	For the three and nine months ended March 31, 2019, the Company recognized approximately $241 million and $461 million, respectively, of revenue which was included in the opening deferred revenue balance for each of the respective periods.

Contract assets were immaterial for disclosure as of March 31, 2019.

Practical expedients and other revenue disclosures

The Company typically expenses sales commissions incurred to obtain a customer contract as those amounts are incurred as the amortization period is twelve months or less. These costs are recorded within Selling, general and administrative in the Statements of Operations. The Company also applies the practical expedient for significant financing components when the transfer of the good or service is paid within twelve months or less, or the receipt of consideration is received within twelve months or less of the transfer of the good or service.

During the three and nine months ended March 31, 2019, the Company recognized approximately $75 million and $227 million, respectively, in revenues related to performance obligations that were satisfied or partially satisfied in a prior reporting period. The remaining transaction price related to unsatisfied performance obligations as of March 31, 2019 was approximately $297 million, of which approximately $39 million is expected to be recognized over the remainder of fiscal 2019, approximately $133 million is expected to be recognized in fiscal 2020, $98 million is expected to be recognized in fiscal 2021, with the remainder to be recognized thereafter. These amounts do not include (i) contracts with an expected duration of one year or less, (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage and (iii) variable consideration allocated to performance obligations accounted for under the series guidance that meets the allocation objective under ASC 606.

NOTE 3. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS

Opcity

In October 2018, the Company acquired Opcity Inc. (“Opcity”), a market-leading real estate technology platform that matches qualified home buyers and sellers with real estate professionals in real time. The total transaction value was approximately $210 million, consisting of approximately $182 million in cash, net of $7 million of cash acquired, and approximately $28 million in deferred payments and restricted stock unit awards for Opcity’s founders and qualifying

 

14

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

employees, which is being recognized as compensation expense over the three years following the closing. Included in the cash amount was approximately $20 million that is being held back for approximately 18 months after closing. The acquisition broadens realtor.com^®’s lead generation product portfolio, allowing real estate professionals to choose between traditional lead products or a concierge-based model that provides highly vetted, transaction-ready leads. Opcity is a subsidiary of Move, and its results are included within the Digital Real Estate Services segment.

Under the acquisition method of accounting, the total consideration was first allocated to net tangible assets and identifiable intangible assets based upon their fair values as of the date of completion of the acquisition. As a result of the acquisition, the Company recorded approximately $73 million of assets, of which $49 million primarily related to the Opcity technology and data platform with a weighted average useful life of 12 years and $24 million primarily related to intangible assets resulting from previously acquired leads and customer relationships with a weighted average useful life of 9 years. In accordance with ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”) the excess of the total consideration over the fair values of the net tangible and intangible assets of approximately $124 million was recorded as goodwill on the transaction.

New Foxtel

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. Following the completion of the Transaction, News Corp owns a 65% interest in the combined business, with Telstra owning the remaining 35%. Consequently, the Company began consolidating Foxtel in the fourth quarter of fiscal 2018. The combination allows Foxtel and FOX SPORTS Australia to leverage their media platforms and content to improve services for consumers and advertisers. The results of new Foxtel are reported within the Subscription Video Services segment (formerly the Cable Network Programming segment), and new Foxtel is considered a separate reporting unit for purposes of the Company’s annual goodwill impairment review.

The Transaction was accounted for in accordance with ASC 805 “Business Combinations” (“ASC 805”) which requires the Company to re-measure its previously held equity interest in Foxtel at its Transaction completion date fair value. The carrying amount of the Company’s previously held equity interest in Foxtel was equal to its fair value as of the Transaction completion date, as the Company wrote its investment in Foxtel down to fair value during the third quarter of fiscal 2018. In accordance with ASC 805, as the Company did not relinquish control of its investment in FOX SPORTS Australia, the reduction in the Company’s ownership interest to 65% was accounted for as a common control transaction on a carryover basis. See Note 5—Investments.

The total aggregate purchase price associated with the Transaction at the completion date is set forth below (in millions):

 

Consideration transferred(a)		$	331
Fair value of News Corp previously held equity interest in Foxtel			631
Fair value of noncontrolling interest(b)			578
Fair value of net assets		$	1,540

 

a)	Primarily represents the fair value of 35% of FOX SPORTS Australia exchanged as consideration in the Transaction and has been included in noncontrolling interest.

b)	Primarily represents the fair value of 35% of Foxtel, which includes the impact of certain market participant synergies.

 

15

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Under the acquisition method of accounting, the aggregate purchase price, based on a valuation of 100% of Foxtel, was allocated to net tangible and intangible assets based upon their fair value as of the date of completion of the Transaction. The excess of the aggregate purchase price over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The allocation is as follows (in millions):

 

Assets acquired:
Cash		$	78
Current assets			492
Property, plant and equipment			967
Intangible assets			861
Goodwill			1,559
Other non-current assets			268
Total assets acquired		$	4,225
Liabilities assumed:
Current liabilities		$	611
Long-term borrowings			1,751
Other non-current liabilities			323
Total liabilities assumed			2,685
Net assets acquired		$	1,540

As a result of the Transaction, the Company recorded net tangible assets of approximately $871 million, excluding long-term borrowings, primarily consisting of property, plant and equipment, which mainly relate to digital set top units and installations and technical equipment, as well as accounts receivable, inventory, accounts payable and accruals at their estimated fair values at the completion date of the Transaction. The Company recorded outstanding borrowings of approximately $1.8 billion as a result of the Transaction. See Note 6—Borrowings.

In addition, the Company recorded approximately $0.9 billion of intangible assets of which $468 million has been allocated to subscriber relationships with a weighted-average useful life of 10 years, $270 million has been allocated to the tradenames which have an indefinite life and approximately $123 million has been allocated to advertiser relationships with a weighted-average useful life of 15 years. In accordance with ASC 350, the excess of the purchase price over the fair values of the net tangible and intangible assets of approximately $1.6 billion was recorded as goodwill on the transaction.

As a result of the Transaction, the Company recognized a $337 million loss in Other, net in the fourth quarter of fiscal 2018, primarily related to the Company’s settlement of its pre-existing contractual arrangement between Foxtel and FOX SPORTS Australia which resulted in a $317 million write-off of its channel distribution agreement intangible asset at the time of the Transaction.

NOTE 4. IMPAIRMENT AND RESTRUCTURING CHARGES

Fiscal 2019

During the three and nine months ended March 31, 2019, the Company recorded restructuring charges of $25 million and $62 million, respectively, of which $23 million and $55 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in fiscal 2019 were for employee termination benefits.

 

16

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Fiscal 2018

During the three and nine months ended March 31, 2018, the Company recorded restructuring charges of $21 million and $48 million, respectively, of which $13 million and $38 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in fiscal 2018 were primarily for employee termination benefits.

During the three and nine months ended March 31, 2018, the Company recognized non-cash impairment charges of $225 million primarily related to the impairment of goodwill and intangible assets at the News America Marketing reporting unit and impairment of goodwill at the FOX SPORTS Australia reporting unit.

The Company recognized a $165 million non-cash impairment of goodwill and indefinite-lived intangible assets at its News America Marketing reporting unit. Due to the impact of adverse trends on the future expected performance of the business, the Company revised its future outlook which resulted in a reduction in expected future cash flows. Based on the revised projections, the Company determined that the fair value of the reporting unit was less than its carrying value. The assumptions utilized in the income approach valuation method were discount rates (ranging from 12.5%-14%), long-term growth rates (ranging from (1.9%)-0.9%) and a royalty rate of 2.5%.

The Company recognized a $41 million non-cash impairment of goodwill at its FOX SPORTS Australia reporting unit. As a result of lower-than-expected revenues at Foxtel, the Company revised its future outlook for FOX SPORTS Australia whose revenues are heavily predicated on Foxtel subscribers. Based on the revised projections, the Company determined that the fair value of the reporting unit was less than its carrying value. The assumptions utilized in the income approach valuation method were a discount rate of 9.5% and a long-term growth rate of 2.0%. See Note 5—Investments.

Changes in restructuring program liabilities were as follows:

 

		For the three months ended March 31,
		2019																2018
		One time																One time
		employee				Facility												employee				Facility
		termination				related												termination				related
		benefits				costs				Other costs				Total				benefits				costs				Other costs				Total
		(in millions)
Balance, beginning of period		$	20			$	2			$	11			$	33			$	22			$	4			$	10			$	36
Additions			25				—				—				25				21				—				—				21
Payments			(17	)			—				(1	)			(18	)			(22	)			—				—				(22	)
Other			—				—				—				—				3				—				—				3
Balance, end of period		$	28			$	2			$	10			$	40			$	24			$	4			$	10			$	38
		For the nine months ended March 31,
		2019																2018
		One time																One time
		employee				Facility												employee				Facility
		termination				related												termination				related
		benefits				costs				Other costs				Total				benefits				costs				Other costs				Total
		(in millions)
Balance, beginning of period		$	29			$	2			$	11			$	42			$	33			$	6			$	10			$	49
Additions			62				—				—				62				47				—				1				48
Payments			(61	)			—				(2	)			(63	)			(60	)			(1	)			(1	)			(62	)
Other			(2	)			—				1				(1	)			4				(1	)			—				3
Balance, end of period		$	28			$	2			$	10			$	40			$	24			$	4			$	10			$	38

 

17

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

As of March 31, 2019, restructuring liabilities of approximately $30 million were included in the Balance Sheets in Other current liabilities and $10 million were included in Other non-current liabilities.

NOTE 5. INVESTMENTS

The Company’s investments were comprised of the following:

 

		Ownership
		Percentage				As of				As of
		as of March 31,				March 31,				June 30,
		2019				2019				2018
						(in millions)
Equity method investments(a)			various			$	160			$	173
Equity securities(b)			various				187				220
Total Investments						$	347			$	393

 

(a)	Equity method investments are primarily comprised of new Foxtel’s investment in Nickelodeon Australia Joint Venture and Elara Technologies Pte. Ltd., which operates PropTiger.com, Makaan.com. and Housing.com.

(b)	Equity securities are primarily comprised of certain investments in China and the Company’s investment in HT&E Limited, which operates a portfolio of Australian radio and outdoor media assets.

The Company has equity securities with quoted prices in active markets as well as equity securities without readily determinable fair market values. Equity securities without readily determinable fair market values are valued at cost, less any impairment, plus or minus changes in fair value resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The components comprising total gains and losses on equity securities are set forth below:

 

		For the three months ended March 31,								For the nine months ended March 31,
		2019				2018				2019				2018
		(in millions)								(in millions)
Total gains (losses) recognized on equity securities		$	6			$	30			$	(23	)		$	13
Less: Net gains recognized on equity securities sold or impaired			—				29				—				5
Unrealized gains (losses) recognized on equity securities held at end of period		$	6			$	1			$	(23	)		$	8

 

18

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Equity Losses of Affiliates

The Company’s share of the losses of its equity affiliates was as follows:

 

		For the three months ended March 31,								For the nine months ended March 31,
		2019				2018				2019				2018
		(in millions)								(in millions)
Foxtel(a)		$	—			$	(970	)		$	—			$	(974	)
Other equity affiliates, net(b)			(4	)			(4	)			(13	)			(28	)
Total Equity losses of affiliates		$	(4	)		$	(974	)		$	(13	)		$	(1,002	)

 

(a)	Following completion of the Transaction in April 2018, News Corp ceased accounting for Foxtel as an equity method investment and began consolidating its results in the fourth quarter of fiscal 2018. See Note 3— Acquisitions, Disposals and Other Transactions.

During the three and nine 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, 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 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. The assumptions utilized in the income approach valuation method were a discount rate of 10.25% and a long-term growth rate of 2.0%. The write-down was reflected in Equity losses of affiliates in the Statements of Operations for the three and nine months ended March 31, 2018.

In accordance with ASC 350, the Company amortized $17 million 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 and nine months ended March 31, 2018, respectively. Such amortization was reflected in Equity losses of affiliates in the Statement of Operations.

 

(b)

Other equity affiliates, net for the three and nine months ended March 31, 2019 include losses primarily from the Company’s interest in Elara. During the nine months ended March 31, 2018, the Company recognized $13 million in non-cash write-downs of certain equity method investments’ carrying values. The write-downs were reflected in Equity losses of affiliates in the Statements of Operations for the nine months ended March 31, 2018.

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

 

		For the nine months ended March 31,
		2018
		(in millions)
Revenues		$	1,818
Operating income(a)			155
Net income			64

 

(a)	Includes Depreciation and amortization of $187 million for the nine months ended March 31, 2018. Operating income before depreciation and amortization was $342 million for the nine months ended March 31, 2018.

 

19

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6. BORROWINGS

The Company’s total borrowings consist of the following:

 

		Interest rate at March 31, 2019				Due date at March 31, 2019				As of March 31, 2019				As of June 30, 2018
										(in millions)
Foxtel Group
Credit facility 2013(a)(b)			3.55	%			Apr 7, 2019			$	—			$	222
Credit facility 2014 — tranche 1(a)			3.55	%			May 30, 2019				142				148
Credit facility 2014 — tranche 2(a)			3.65	%			Jan 31, 2020				142				148
Credit facility 2015(a)			3.70	%			Jul 31, 2020				284				296
Credit facility 2016(a)(c)			4.25	%			Sept 11, 2021				53				108
Working capital facility 2017(a)(c)			3.85	%			Jul 3, 2020				57				59
US private placement 2009 — tranche 3			6.20	%			Sept 24, 2019				74				75
US private placement 2012 — USD portion — tranche 1(d)			3.68	%			Jul 25, 2019				150				150
US private placement 2012 — USD portion — tranche 2(d)			4.27	%			Jul 25, 2022				198				196
US private placement 2012 — USD portion — tranche 3(d)			4.42	%			Jul 25, 2024				148				146
US private placement 2012 — AUD portion			7.04	%			Jul 25, 2022				78				83
REA Group
Credit facility 2016 — tranche 2(e)(f)			—				Dec 31, 2018				—				89
Credit facility 2016 — tranche 3(e)(f)			3.01	%			Dec 31, 2019				170				178
Credit facility 2018(e)			2.71	%			Apr 27, 2021				50				54
Total borrowings											1,546				1,952
Less: current portion(g)											(678	)			(462	)
Long-term borrowings										$	868			$	1,490

 

(a)	Borrowings under these facilities bear interest at a floating rate of Australian BBSY plus an applicable margin of between 1.10% and 2.70% per annum payable quarterly.

(b)	During the three and nine months ended March 31, 2019, the Foxtel Group repaid its A$300 million (approximately $216 million) facility maturing in April 2019 using A$300 million of shareholder loans provided by the Company.

(c)	As of March 31, 2019, the Foxtel Group has undrawn commitments of $241 million under these facilities for which it pays a commitment fee in the range of 40% to 45% of the applicable margin.

(d)	The carrying value of the borrowings include any fair value adjustments related to the Company’s fair value hedges. See Note 9 —Financial Instruments and Fair Value Measurements.

(e)	Borrowings under these facilities bear interest at a floating rate of the Australian BBSY plus a margin of between 0.85% and 1.45% depending on REA Group’s net leverage ratio. As of March 31, 2019, REA Group was paying a margin of between 0.85% and 1.05%.

(f)	During the nine months ended March 31, 2019, REA Group repaid A$120 million (approximately $87 million) of the A$480 million revolving loan facility. Remaining borrowings under the facility of A$240 million (approximately $170 million) will mature in fiscal 2020.

(g)	The Company classifies the current portion of long term debt as non-current liabilities on the Balance Sheets when it has the intent and ability to refinance the obligation on a long-term basis, in accordance with ASC 470-50 “Debt.”

 

20

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. REDEEMABLE PREFERRED STOCK

In connection with the Company’s separation of its businesses (the “Separation”) from Twenty-First Century Fox, Inc. (“21st Century Fox”) on June 28, 2013 (the “Distribution Date”), 21st Century Fox sold 4,000 shares of cumulative redeemable preferred stock with a par value of $5,000 per share of a newly formed U.S. subsidiary of the Company. The preferred stock paid dividends at a rate of 9.5% per annum, payable quarterly, in arrears. The preferred stock was callable by the Company at any time after the fifth year and puttable at the option of the holder after 10 years. In July 2018, the Company exercised its call option and redeemed 100% of the outstanding redeemable preferred stock.

 

21

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8. EQUITY

The following tables summarize changes in equity for the three and nine months ended March 31, 2019 and 2018:

 

		For the three months ended March 31, 2019
																										Accumulated
		Class A								Class B								Additional								Other				Total News
		Common Stock								Common Stock								Paid-in				Accumulated				Comprehensive				Corporation				Noncontrolling				Total
		Shares				Amount				Shares				Amount				Capital				Deficit				Loss				Equity				Interests				Equity
		(in millions)
Balance, December 31, 2018			385			$	4				200			$	2			$	12,271			$	(1,937	)		$	(1,076	)		$	9,264			$	1,170			$	10,434
Net income			—				—				—				—				—				10				—				10				13				23
Other comprehensive income			—				—				—				—				—				—				57				57				10				67
Dividends			—				—				—				—				(58	)			—				—				(58	)			(20	)			(78	)
Other			—				—				—				—				16				—				—				16				(4	)			12
Balance, March 31, 2019			385			$	4				200			$	2			$	12,229			$	(1,927	)		$	(1,019	)		$	9,289			$	1,169			$	10,458
		For the three months ended March 31, 2018
																										Accumulated
		Class A								Class B								Additional								Other				Total News
		Common Stock								Common Stock								Paid-in				Accumulated				Comprehensive				Corporation				Noncontrolling				Total
		Shares				Amount				Shares				Amount				Capital				Deficit				Loss				Equity				Interests				Equity
		(in millions)
Balance, December 31, 2017			383			$	4				200			$	2			$	12,350			$	(664	)		$	(832	)		$	10,860			$	298			$	11,158
Net (loss) income			—				—				—				—				—				(1,128	)			—				(1,128	)			18				(1,110	)
Other comprehensive income (loss)			—				—				—				—				—				—				3				3				(2	)			1
Dividends			—				—				—				—				(59	)			—				—				(59	)			(19	)			(78	)
Other			—				—				—				—				19				—				—				19				1				20
Balance, March 31, 2018			383			$	4				200			$	2			$	12,310			$	(1,792	)		$	(829	)		$	9,695			$	296			$	9,991

 

22