This document, including the following discussion and analysis, contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company's financial condition or results of operations, including expected impacts from the ongoing novel coronavirus ("COVID-19") pandemic and related public health measures, the Company's strategy and strategic initiatives and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those related to COVID-19. More information regarding these risks and uncertainties (many of which may be amplified by COVID-19) and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading "Risk Factors" in Part I, Item 1A. inNews Corporation's Annual Report on Form 10-K for the fiscal year endedJune 30, 2020 , as filed with theSecurities and Exchange Commission (the "SEC") onAugust 11, 2020 (the "2020 Form 10-K"), and as may be updated in this and other subsequent Quarterly Reports on Form 10-Q. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with theSEC . This section should be read together with the unaudited consolidated financial statements ofNews Corporation and related notes set forth elsewhere herein and the audited consolidated financial statements ofNews Corporation and related notes set forth in the 2020 Form 10-K. INTRODUCTIONNews 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: digital real estate services, subscription video services inAustralia , news and information services and book publishing. During the fourth quarter of fiscal 2020, in connection with the Company's sale of its News America Marketing reporting unit and its annual review of its reportable segments, the Company determined to disaggregate itsDow Jones operating segment as a separate reportable segment in accordance with Accounting Standard Codification ("ASC") 280, "Segment Reporting." Previously, the financial information for this operating segment was aggregated with the businesses within the News Media operating segment and, together, formed the News and Information Services reportable segment. Following the sale of its News America Marketing business in the fourth quarter of fiscal 2020 and in conjunction with the Company's annual budgeting process, the Company determined that aggregation was no longer appropriate as certain of the remaining businesses no longer shared similar economic characteristics. As a result, the Company has revised its historical disclosures for the prior period to reflect the newDow Jones and News Media reportable segments. Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation. Specifically, the Company reclassified certain costs at the Other segment that were previously included within Selling, general and administrative to Operating expenses. For the three months endedSeptember 30, 2019 , these reclassifications increased Operating expenses by$1 million . The unaudited consolidated financial statements are referred to herein as the "Consolidated Financial Statements." The consolidated statements of operations are referred to herein as the "Statements of Operations." The consolidated balance sheets are referred to herein as the "Balance Sheets." The consolidated statements of cash flows are referred to herein as the "Statements of Cash Flows." The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). Management's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company's financial condition, changes in financial condition and results of operations. This discussion is organized as follows: •Overview of the Company's Businesses-This section provides a general description of the Company's businesses, as well as developments that occurred to date during fiscal 2021 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends. 24 -------------------------------------------------------------------------------- Table of Contents •Results of Operations-This section provides an analysis of the Company's results of operations for the three months endedSeptember 30, 2020 and 2019. This analysis is presented on both a consolidated basis and a segment basis. Supplemental revenue information is also included for reporting units within certain segments and is presented on a gross basis, before eliminations in consolidation. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed. •Liquidity and Capital Resources-This section provides an analysis of the Company's cash flows for the three months endedSeptember 30, 2020 and 2019, as well as a discussion of the Company's financial arrangements and outstanding commitments, both firm and contingent, that existed as ofSeptember 30, 2020 . OVERVIEW OF THE COMPANY'S BUSINESSES The Company manages and reports its businesses in the following six segments: •Digital Real Estate Services-The Digital Real Estate Services segment consists of the Company's 61.6% interest in REA Group and 80% interest in Move. The remaining 20% interest in Move is held by REA Group. REA Group is a market-leading digital media business specializing in property and is listed on theAustralian Securities Exchange ("ASX") (ASX: REA). REA Group advertises property and property-related services on its websites and mobile apps acrossAustralia andAsia , includingAustralia's leading residential, commercial and share property websites, realestate.com.au, realcommercial.com.au and Flatmates.com.au, and property portals inAsia . In addition, REA Group provides property-related data to the financial sector and financial services through an end-to-end digital property search and financing experience and a mortgage broking offering. Move is a leading provider of digital real estate services in theU.S. and primarily operates realtor.com®, a premier real estate information and services marketplace. Move offers real estate advertising solutions to agents and brokers, including its ConnectionsSM Plus and AdvantageSM Pro products as well as its referral-based services. Move also offers a number of professional software and services products, including Top Producer® and ListHub™. •Subscription Video Services-The Company's Subscription Video Services segment provides video sports, entertainment and news services to pay-TV subscribers and other commercial licensees, primarily via cable, satellite and internet distribution, and consists of (i) the Company's 65% interest inFoxtel (with the remaining 35% interest inFoxtel held by Telstra, an ASX-listed telecommunications company) and (ii)Australian News Channel ("ANC").Foxtel is the largest pay-TV provider inAustralia , with nearly 200 channels covering sports, general entertainment, movies, documentaries, music, children's programming and news.Foxtel offers the leading sports programming content inAustralia , with broadcast rights to live sporting events including:National Rugby League ,Australian Football League ,Cricket Australia , the domestic football league, theAustralian Rugby Union and various motorsports programming.Foxtel also operates Foxtel Now, an over-the-top, or OTT, service that provides access acrossFoxtel's live and on-demand content, Kayo, its sports OTT service, and Binge, its recently launched on-demand entertainment OTT service. ANC operates the SKY NEWS network,Australia's 24-hour multi-channel, multi-platform news service. ANC channels are distributed throughoutAustralia and New Zealand and available onFoxtel and Sky Network Television NZ. ANC also owns and operates the international Australia Channel IPTV service and offers content across a variety of digital media platforms, including web, mobile and third party providers. •Dow Jones-TheDow Jones segment consists ofDow Jones , a global provider of news and business information, which distributes its content and data through a variety of media channels including newspapers, newswires, websites, applications, or apps, for mobile devices, tablets and e-book readers, newsletters, magazines, proprietary databases, live journalism, video and podcasts.Dow Jones's products, which target individual consumer and enterprise customers, includeThe Wall Street Journal , Factiva, Dow Jones Risk & Compliance, Dow Jones Newswires, Barron's and MarketWatch. •Book Publishing-The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with operations in 17 countries and particular strengths in general fiction, nonfiction, children's and religious publishing. HarperCollins owns more than 120 branded publishing imprints, including Harper,William Morrow ,HarperCollins Children's Books , Avon, Harlequin and Christian publishersZondervan andThomas Nelson , and publishes works by well-known authors such asHarper Lee , Chip andJoanna Gaines ,David Walliams ,Angie Thomas ,Sarah Young andAgatha Christie and popular titles such as The Hobbit, Goodnight Moon, To Kill a Mockingbird, Jesus Calling and The Hate U Give. 25 -------------------------------------------------------------------------------- Table of Contents •News Media-The News Media segment consists primarily of News Corp Australia, NewsUK and theNew York Post and includes, among other publications, The Australian,The Daily Telegraph ,Herald Sun ,The Courier Mail and The Advertiser inAustralia and TheTimes , The Sunday Times,The Sun andThe Sun on Sunday in theU.K. This segment also includesWireless Group , operator of talkSPORT, the leading sports radio network in theU.K. , andStoryful , a social media content agency. The segment included News America Marketing until the completion of the sale of the business onMay 5, 2020 . •Other-The Other segment consists primarily of general corporate overhead expenses, the corporateStrategy Group , costs related to theU.K. Newspaper Matters (as defined in Note 9-Commitments and Contingencies to the Consolidated Financial Statements) and transformation costs associated with the Company's global shared services program. Other Business Developments COVID-19 Impact The impact of COVID-19 and measures to prevent its spread have continued to create significant economic volatility, uncertainty and disruption and have affected the Company's businesses in a number of ways. During the three months endedSeptember 30, 2020 and through the date of this filing, the Company observed the following effects on its businesses: The real estate markets inAustralia ,Asia and theU.S. have been, and may continue to be, negatively impacted as a result of social distancing measures, business closures and economic uncertainty resulting from COVID-19, which has negatively impacted theDigital Real Estate Services segment. While real estate listings inAustralia continued to be negatively impacted by government restrictions during the quarter, primarily inMelbourne , the overall decline in national new listings eased relative to last quarter and traffic to realestate.com.au remained strong. In October, national residential listings inAustralia were down 1% compared to the prior year with improvement in both theSydney andMelbourne markets. Inthe United States , the Company has seen stronger consumer traffic and higher leads in the quarter at Move driven by the easing of government imposed restrictions and increased buyer demand. At its news and information services businesses, COVID-19 continued to exacerbate print advertising market weakness and negatively impact print volumes due to increased economic uncertainty and lower demand for single-copy and amenity newspapers driven by decreased foot traffic resulting from remote working, social distancing measures and other government restrictions. However, the Company has seen increases in digital paid subscribers as well as digital audience gains at online versions of many of its news properties. Sports programming rights costs at the Subscription Video Services segment were negatively impacted by the deferral of costs from fiscal 2020 into fiscal 2021 due to the postponement of sporting events. The Company estimates that approximately$36 million of additional sports programming rights and production costs were recognized in the first quarter of fiscal 2021 due to such deferrals. In addition, the ongoing disruption in the operations of pubs and clubs and lower occupancy at hotels throughoutAustralia have continued to adversely impact commercial subscription revenues; however the Company has seen the gradual recovery of commercial subscribers which remains dependent on the easing of government restrictions and social distancing measures. The ultimate impact of COVID-19, including the extent of adverse impacts on the Company's business, results of operations, cash flows and financial condition, will depend on, among other things, the severity, duration, spread and any reoccurrence of COVID-19, the impact of governmental actions and business and consumer behavior in response to COVID-19, the effectiveness of actions taken to contain or mitigate the outbreak and prevent or limit any reoccurrence, the resulting global economic conditions and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted. For additional information regarding risks related to COVID-19, please see "The ongoing novel coronavirus (COVID-19) pandemic and other similar epidemics, pandemics or widespread health crises could have a material adverse effect on the Company's business, results of operations, cash flows and financial position." in Part I, Item 1A. of the 2020 Form 10-K. Regional and community newspapers inAustralia During the fourth quarter of fiscal 2020, the Company decommissioned the print operations for its regional and community newspapers inAustralia . These initiatives will result in a revenue decrease at News Corp Australia of approximately$111 million and have an immaterial impact on Segment EBITDA during fiscal 2021. 26 -------------------------------------------------------------------------------- Table of Contents Elara InOctober 2020 , REA Group entered into a binding agreement to increase its ownership interest inElara Technologies Pte. Ltd. ("Elara"). REA Group currently holds a 13.5% interest and on completion, is expected to have a shareholding of between 47.2% and 61.1% and hold five of nine seats onElara's Board of Directors. Upon completion of the transaction, REA Group will consolidateElara's financial results. The total consideration for the transaction at the REA Group level is expected to be between$50 million to$70 million , with$34.5 million to be paid in cash and the remainder in newly-issued REA Group shares. In connection with the transaction,News Corp will also increase its interest inElara to 38.9% for a cash payment of$34.5 million . On a consolidated basis,News Corp is expected to hold an 86.1% to 100% combined interest inElara upon completion. The transaction, which remains subject to confirmatory due diligence and the renegotiation of key management employment contracts, is anticipated to be completed in the second quarter of fiscal 2021. RESULTS OF OPERATIONS Results of Operations-For the three months endedSeptember 30, 2020 versus the three months endedSeptember 30, 2019 The following table sets forth the Company's operating results for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Circulation and subscription$ 1,002 $ 995 $ 7 1 % Advertising 332 608 (276) (45) % Consumer 441 387 54 14 % Real estate 235 218 17 8 % Other 107 132 (25) (19) % Total Revenues 2,117 2,340 (223) (10) % Operating expenses (1,164) (1,338) 174 13 % Selling, general and administrative (685) (781) 96 12 % Depreciation and amortization (164) (162) (2) (1) % Impairment and restructuring charges (40) (297) 257 87 % Equity losses of affiliates (1) (2) 1 50 % Interest (expense) income, net (8) 4 (12) ** Other, net 17 4 13 ** Income (loss) before income tax (expense) benefit 72 (232) 304 ** Income tax (expense) benefit (25) 21 (46) ** Net income (loss) 47 (211) 258 ** Less: Net income attributable to noncontrolling interests (13) (16) 3 19 % Net income (loss) attributable toNews Corporation stockholders$ 34 $ (227) $ 261 ** ** not meaningful Revenues- Revenues decreased$223 million , or 10%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020, primarily driven by the$200 million impact from the sale of News America Marketing in the fourth quarter of fiscal 2020 and lower print advertising revenue in the News Media segment. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$50 million , or 2%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. The Company calculates the impact of foreign currency fluctuations for businesses reporting in currencies other than theU.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. Operating expenses- Operating expenses decreased$174 million , or 13%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020, primarily driven by the sale of News America Marketing in the fourth quarter of fiscal 2020 as well as lower costs relating to the closure or transition to digital of certain regional and community 27 -------------------------------------------------------------------------------- Table of Contents newspapers inAustralia . The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in an Operating expense increase of$26 million , or 2%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Selling, general and administrative-Selling, general and administrative decreased$96 million , or 12%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020, primarily driven by cost savings initiatives, the sale of News America Marketing in the fourth quarter of fiscal 2020 and the impact from the sale of Unruly in the third quarter of fiscal 2020. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a Selling, general and administrative increase of$16 million , or 2%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Depreciation and amortization- Depreciation and amortization expense increased$2 million , or 1%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020, primarily due to the impact of foreign currency fluctuations of theU.S. dollar against local currencies, which resulted in a depreciation and amortization expense increase of$4 million , or 2%. Impairment and restructuring charges-During the three months endedSeptember 30, 2019 , the Company recognized non-cash impairment charges of$273 million primarily related to the impairment of goodwill and indefinite-lived intangible assets at the News America Marketing reporting unit. During the three months endedSeptember 30, 2020 and 2019, the Company recorded restructuring charges of$40 million and$24 million , respectively. See Note 3-Restructuring Programs in the accompanying Consolidated Financial Statements. Equity losses of affiliates- Equity losses of affiliates decreased by$1 million for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. See Note 4-Investments in the accompanying Consolidated Financial Statements. Interest (expense) income, net- Interest expense, net was$8 million for the three months endedSeptember 30, 2020 as compared to interest income, net of$4 million in the corresponding period of fiscal 2020, primarily due to the absence of the impact from the settlement of cash flow hedges related to debt maturities in the first quarter of fiscal 2020. Other, net- Other, net increased by$13 million for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. See Note 12-Additional Financial Information in the accompanying Consolidated Financial Statements. Income tax (expense) benefit-For the three months endedSeptember 30, 2020 , the Company recorded income tax expense of$25 million on pre-tax income of$72 million , resulting in an effective tax rate that was higher than theU.S. statutory tax rate. The higher tax rate was primarily driven by the Company's jurisdictional income (loss) mix which includes the impact of foreign operations which are subject to higher taxes. For the three months endedSeptember 30, 2019 , the Company recorded an income tax benefit of$21 million on a pre-tax loss of$232 million , resulting in an effective tax rate that was lower than theU.S. statutory tax rate. The lower tax rate was primarily due to the lower tax benefit recorded on the impairment of News America Marketing's goodwill and indefinite-lived intangible assets and by valuation allowances being recorded against tax benefits in certain foreign jurisdictions with operating losses. Management assesses available evidence to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Based on management's assessment of available evidence, it has been determined that it is more likely than not that deferred tax assets inU.S. federal, state and foreign jurisdictions may not be realized and therefore, a valuation allowance has been established against those tax assets. The changing and volatile macro-economic conditions connected with COVID-19 may cause fluctuations in forecasted earnings before income taxes. As such, the Company's effective tax rate could be subject to volatility as forecasted earnings before income taxes are impacted by events which are highly uncertain and cannot be predicted. Net income (loss)-Net income was$47 million for the three months endedSeptember 30, 2020 as compared to a net loss of$211 million in the corresponding period of fiscal 2020, an improvement of$258 million , primarily driven by the decrease in non-cash impairment charges discussed above. 28 -------------------------------------------------------------------------------- Table of Contents Net income attributable to noncontrolling interests-Net income attributable to noncontrolling interests decreased by$3 million , or 19%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Segment Analysis 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 (expense) income, net, other, net and income tax (expense) benefit. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of Segment EBITDA. Segment EBITDA is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources within the Company's businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the Company's business segments and its enterprise value against historical data and competitors' data, although historical results may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences). Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company's financial performance. The Company believes that the presentation of Total Segment EBITDA provides useful information regarding the Company's operations and other factors that affect the Company's reported results. Specifically, the Company believes that by excluding certain one-time or non-cash items such as impairment and restructuring charges and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures and changes in tax positions or regimes, the Company provides users of its consolidated financial statements with insight into both its core operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its core business. As a result, users of the Company's consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. The following table reconciles Net income (loss) to Total Segment EBITDA for the three months endedSeptember 30, 2020 and 2019: For the three months ended September 30, 2020 2019 (in millions) Net income (loss)$ 47 $ (211) Add: Income tax expense (benefit) 25 (21) Other, net (17) (4) Interest expense (income), net 8 (4) Equity losses of affiliates 1 2 Impairment and restructuring charges 40 297 Depreciation and amortization 164 162 Total Segment EBITDA$ 268 $ 221 29
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The following table sets forth the Company's Revenues and Segment EBITDA by
segment for the three months ended
For the three months ended September 30, 2020 2019 Segment Segment (in millions) Revenues EBITDA Revenues EBITDA Digital Real Estate Services$ 290 $ 119 $ 272 $ 82 Subscription Video Services 496 78 514 81 Dow Jones 386 72 382 49 Book Publishing 458 71 405 49 News Media 487 (22) 767 7 Other - (50) - (47) Total$ 2,117 $ 268 $ 2,340 $ 221
For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Circulation and subscription$ 8 $ 10 $ (2) (20) % Advertising 28 27 1 4 % Real estate 235 218 17 8 % Other 19 17 2 12 % Total Revenues 290 272 18 7 % Operating expenses (43) (45) 2 4 % Selling, general and administrative (128) (145) 17 12 % Segment EBITDA$ 119 $ 82 $ 37 45 % For the three months endedSeptember 30, 2020 , revenues at theDigital Real Estate Services segment increased$18 million , or 7%, as compared to the corresponding period of fiscal 2020. Revenues at Move increased$15 million , or 12%, to$138 million for the three months endedSeptember 30, 2020 from$123 million in the corresponding period of fiscal 2020, primarily driven by higher real estate revenues from the referral model, which benefited from higher lead volumes and higher average home values. Revenues from the referral model represented approximately 30% of total Move revenues. At REA Group, revenues increased$3 million , or 2%, to$152 million for the three months endedSeptember 30, 2020 from$149 million in the corresponding period of fiscal 2020, primarily due to the$6 million positive impact of foreign currency fluctuations. For the three months endedSeptember 30, 2020 , Segment EBITDA at theDigital Real Estate Services segment increased$37 million , or 45%, as compared to the corresponding period of fiscal 2020. The increase in Segment EBITDA was primarily driven by the$28 million higher contribution from Move resulting from the higher revenues discussed above and the impact of cost savings initiatives implemented in response to COVID-19 and the deferral of marketing costs atMove and REA Group. 30 -------------------------------------------------------------------------------- Table of Contents Subscription Video Services (23% and 22% of the Company's consolidated revenues in the three months endedSeptember 30, 2020 and 2019, respectively) For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Circulation and subscription$ 437 $ 451 $ (14) (3) % Advertising 50 51 (1) (2) % Other 9 12 (3) (25) % Total Revenues 496 514 (18) (4) % Operating expenses (333) (344) 11 3 % Selling, general and administrative (85) (89) 4 4 % Segment EBITDA$ 78 $ 81 $ (3) (4) % For the three months endedSeptember 30, 2020 , revenues at the Subscription Video Services segment decreased$18 million , or 4%, as compared to the corresponding period of fiscal 2020. The revenue decrease was primarily due to lower subscription revenues resulting from fewer residential broadcast subscribers and the$14 million decline in commercial subscription revenues due to ongoing restrictions on pubs, clubs and other commercial venues due to COVID-19. The decreases in revenues were partially offset by the positive impact of foreign currency fluctuations and$9 million of higher revenues from OTT products, primarily Kayo and Binge. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$20 million , or 3%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. For the three months endedSeptember 30, 2020 , Segment EBITDA decreased$3 million , or 4%, as compared to the corresponding period of fiscal 2020. The Segment EBITDA decrease was primarily due to the lower revenues discussed above, partially offset by cost savings primarily due to lower entertainment programming, employee and transmission costs, as savings from renegotiated sports rights were more than offset by the recognition of sports programming rights and production costs deferred from the fourth quarter of fiscal 2020. The following tables provide information regarding certain key performance indicators forFoxtel , the primary reporting unit within the Subscription Video Services segment, as of and for the three months endedSeptember 30, 2020 and 2019 (see the Company's 2020 Form 10-K for further detail regarding these performance indicators): As of September 30, 2020 2019 (in 000's) Broadcast Subscribers Residential(a) 1,850 2,059 Commercial(b) 205 267 OTT Subscribers (Total (Paid)) Foxtel Now(c) 310 (298 paid) 385 (375 paid) Kayo(d) 681 (644 paid) 430 (364 paid) Binge(e) 321 (290 paid) - Total Paid Subscribers 3,287 3,065 For the three months ended September 30, 2020 2019 Broadcast ARPU(f)A$79 (US$56 )A$78 (US$53 ) Broadcast Subscriber Churn(g) 14.6%
14.4%
(a) Subscribing households throughoutAustralia as ofSeptember 30, 2020 and 2019. (b) Commercial subscribers throughoutAustralia as ofSeptember 30, 2020 and 2019. Commercial subscribers are calculated as residential equivalent business units and are derived by dividing total recurring revenue from these subscribers by an estimated average Broadcast ARPU which is held constant through the year. 31 -------------------------------------------------------------------------------- Table of Contents (c) Total and Paid Foxtel Now subscribers as ofSeptember 30, 2020 and 2019. Paid Foxtel Now subscribers excludes customers receiving service for no charge under certain new subscriber promotions. (d) Total and Paid Kayo subscribers as ofSeptember 30, 2020 and 2019. Paid Kayo subscribers excludes customers receiving service for no charge under certain new subscriber promotions. (e) Total and Paid Binge subscribers as ofSeptember 30, 2020 . Binge was launched onMay 25, 2020 . Paid Binge subscribers excludes customers receiving service for no charge under certain new subscriber promotions. (f) Average monthly broadcast residential subscription revenue per user (excludingOptus ) (Broadcast ARPU) for the three months endedSeptember 30, 2020 and 2019. (g) Broadcast residential subscriber churn rate (excludingOptus ) (Broadcast Subscriber Churn) for the three months endedSeptember 30, 2020 and 2019. Broadcast subscriber churn represents the number of cable and satellite residential subscribers whose service is disconnected, expressed as a percentage of the average total number of cable and satellite residential subscribers, presented on an annual basis.Dow Jones (18% and 16% of the Company's consolidated revenues in the three months endedSeptember 30, 2020 and 2019, respectively) For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Circulation and subscription$ 311 $ 289 $ 22 8 % Advertising 70 84 (14) (17) % Other 5 9 (4) (44) % Total Revenues 386 382 4 1 % Operating expenses (185) (187) 2 1 % Selling, general and administrative (129) (146) 17 12 % Segment EBITDA$ 72 $ 49 $ 23 47 % For the three months endedSeptember 30, 2020 , revenues at theDow Jones segment increased$4 million , or 1%, as compared to the corresponding period of fiscal 2020 driven by growth in circulation and subscription revenues, partially offset by a decline in print advertising revenues. Digital revenues at theDow Jones segment represented 73% of total revenues for the three months endedSeptember 30, 2020 , as compared to 65% in the corresponding period of fiscal 2020. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$1 million for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Circulation and subscription revenues For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Circulation and subscription revenues: Circulation and other$ 198 $ 178 $ 20 11 % Professional information business 113 111 2 2 % Total circulation and subscription revenues$ 311 $ 289 $ 22 8 % Circulation and subscription revenues increased$22 million , or 8%, during the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Circulation and other revenues increased$20 million , or 11%, primarily driven by growth in digital-only subscriptions atThe Wall Street Journal and a$7 million increase in content licensing revenues, partially offset by print volume declines. During the three months endedSeptember 30, 2020 , average daily digital-only subscriptions atThe Wall Street Journal increased 27% to 2.4 million as compared to the corresponding period of fiscal 2020, and digital revenues represented 63% of circulation revenue for the three months endedSeptember 30, 2020 , as compared to 56% in the corresponding period of fiscal 2020. Professional information business revenues increased$2 million , or 2%, as growth of$6 million in Risk & Compliance revenues was mostly offset by lower revenues from other professional information business products. 32 -------------------------------------------------------------------------------- Table of Contents The following table summarizes average daily consumer subscriptions during the three months endedSeptember 30, 2020 and 2019 for select publications and for all consumer subscription products.(a)(b)
For the three months ended
2020 2019 Change % Change (in thousands, except %) Better/(Worse)The Wall Street Journal Digital-only subscriptions(c) 2,354 1,854 500 27 % Total subscriptions 3,104 2,618 486 19 %
Barron's
Digital-only subscriptions(c) 458 321 137 43 % Total subscriptions 667 587 80 14 % Total Consumer(d) Digital-only subscriptions(c) 2,914 2,259 655 29 % Total subscriptions 3,877 3,296 581 18 %
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(a)Based on internal data for the periods fromJune 29, 2020 toSeptember 27, 2020 andJuly 1, 2019 throughSeptember 29, 2019 , respectively, with independent assurance over global total sales and subscriptions provided by PricewaterhouseCoopers LLPUK . (b)Subscriptions include individual consumer subscriptions, as well as subscriptions purchased by companies, schools, businesses and associations for use by their respective employees, students, customers or members. Subscriptions exclude single-copy sales and copies purchased by hotels, airlines and other businesses for limited distribution or access to customers. (c)For some publications, including The Wall Street Journal and Barron's,Dow Jones sells bundled print and digital products. For bundles that provide access to both print and digital products every day of the week, only one unit is reported each day and is designated as a print subscription. For bundled products that provide access to the print product only on specified days and full digital access, one print subscription is reported for each day that a print copy is served and one digital subscription is reported for each remaining day of the week. (d)Total Consumer consists ofThe Wall Street Journal , Barron's, MarketWatch newsletters andFinancial News , includingPrivate Equity News . Advertising revenues Advertising revenues decreased$14 million , or 17%, during the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020, primarily driven by the$19 million decrease in print advertising revenues resulting from general market weakness and lower volume acrossThe Wall Street Journal and Barron's due to COVID-19, partially offset by a$5 million increase in digital advertising revenue, which represented 57% of advertising revenue for the three months endedSeptember 30, 2020 , as compared to 42% in the corresponding period of fiscal 2020. Segment EBITDA For the three months endedSeptember 30, 2020 , Segment EBITDA at theDow Jones segment increased$23 million , or 47%, as compared to the corresponding period of fiscal 2020. The increase was mainly due to lower newsprint, production and distribution costs, driven by lower print volumes, lower travel and entertainment costs due to COVID-19 and the increase in revenues discussed above. 33 -------------------------------------------------------------------------------- Table of ContentsBook Publishing (22% and 17% of the Company's consolidated revenues in the three months endedSeptember 30, 2020 and 2019, respectively) For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Consumer$ 441 $ 387 $ 54 14 % Other 17 18 (1) (6) % Total Revenues 458 405 53 13 % Operating expenses (304) (279) (25) (9) % Selling, general and administrative (83) (77) (6) (8) % Segment EBITDA$ 71 $ 49 $ 22 45 % For the three months endedSeptember 30, 2020 , revenues at theBook Publishing segment increased$53 million , or 13%, as compared to the corresponding period of fiscal 2020. The increase for the three months endedSeptember 30, 2020 was primarily driven by the strong performance of titles in theGeneral Books category such as The Order byDaniel Silva , The Guest List byLucy Foley and How to Destroy America in Three Easy Steps byBen Shapiro , as well as higher backlist sales of children's titles and the$9 million impact from the acquisition of a book publisher inEurope in the fourth quarter of fiscal 2020. Digital sales increased by 20% as compared to the corresponding period of fiscal 2020, primarily due to growth in both e-books and downloadable audiobooks. Digital sales represented approximately 23% of consumer revenues during the three months endedSeptember 30, 2020 . The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$4 million , or 1%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. For the three months endedSeptember 30, 2020 , Segment EBITDA at theBook Publishing segment increased$22 million , or 45%, as compared to the corresponding period of fiscal 2020. The increase was primarily due to the higher revenues discussed above and the mix of titles. News Media (23% and 33% of the Company's consolidated revenues in the three months endedSeptember 30, 2020 and 2019, respectively) For the three months ended September 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues: Circulation and subscription$ 246 $ 245 $ 1 - % Advertising 184 446 (262) (59) % Other 57 76 (19) (25) % Total Revenues 487 767 (280) (37) % Operating expenses (299) (483) 184 38 % Selling, general and administrative (210) (277) 67 24 % Segment EBITDA$ (22) $ 7 $ (29) ** ** not meaningful Revenues at the News Media segment decreased$280 million , or 37%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. The revenue decrease was primarily due to lower advertising revenues of$262 million , driven by the sale of News America Marketing in the fourth quarter of fiscal 2020, which contributed$200 million to the decline, continued weakness in the print advertising market exacerbated by COVID-19 and the$29 million impact from the closure or transition to digital of regional and community newspapers inAustralia . Other revenues for the three months endedSeptember 30, 2020 decreased$19 million as compared to the corresponding period of fiscal 2020, primarily due to the$10 million impact from the sale of Unruly inJanuary 2020 . Circulation and subscription revenues increased$1 million as compared to the corresponding period of fiscal 2020 primarily due to digital subscriber growth across key mastheads, the$10 million positive impact of foreign currency fluctuations and price increases, partially offset by declines in print volume. The 34 -------------------------------------------------------------------------------- Table of Contents impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$19 million , or 2%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. Segment EBITDA at the News Media segment declined$29 million for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. The decrease was due to the net$12 million impact from the sales of News America Marketing and Unruly in fiscal 2020 and to lower contributions from News Corp Australia and NewsUK of$13 million and$9 million , respectively, primarily driven by lower revenues, partially offset by cost savings initiatives. News Corp Australia Revenues were$221 million for the three months endedSeptember 30, 2020 , a decrease of$55 million , or 20%, compared to revenues of$276 million in the corresponding period of fiscal 2020. The closure or transition to digital of regional and community newspapers inAustralia resulted in a revenue decrease of$35 million . Advertising revenues decreased$52 million , primarily due to the closure or transition to digital of regional and community newspapers and continued weakness in the print advertising market exacerbated by COVID-19. Circulation and subscription revenues increased$5 million , primarily driven by digital subscriber growth and the positive impact from foreign currency fluctuations, which were mostly offset by print volume declines resulting from the closure or transition to digital of regional and community newspapers. The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$9 million , or 3%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. News UK Revenues were$206 million for the three months endedSeptember 30, 2020 , a decrease of$17 million , or 8%, as compared to revenues of$223 million in the corresponding period of fiscal 2020. Advertising revenues decreased$13 million , primarily due to continued weakness in the print advertising market exacerbated by COVID-19. Circulation and subscription revenues decreased$1 million , primarily driven by single-copy volume declines atThe Sun , partially offset by the$6 million positive impact of foreign currency fluctuations, digital subscriber growth, mainly at TheTimes , and cover price increases, mainly atThe Sun . The impact of foreign currency fluctuations of theU.S. dollar against local currencies resulted in a revenue increase of$9 million , or 4%, for the three months endedSeptember 30, 2020 as compared to the corresponding period of fiscal 2020. LIQUIDITY AND CAPITAL RESOURCES Current Financial Condition The Company's principal source of liquidity is internally generated funds and cash and cash equivalents on hand. As ofSeptember 30, 2020 , the Company's cash and cash equivalents were$1.5 billion . The Company also has available borrowing capacity under the 2019 News Corp Credit Facility (as defined below) and certain other facilities, as described below, and expects to have access to the worldwide credit and capital markets, subject to market conditions, in order to issue additional debt if needed or desired. The Company currently expects these elements of liquidity will enable it to meet its liquidity needs for at least the next 12 months, including repayment of indebtedness. However, the Company will continue to review its liquidity needs in light of the business and economic impacts resulting from COVID-19 and has taken various steps to offset the impact of COVID-19, including reducing variable costs and implementing cost savings initiatives across its businesses. Although the Company believes that its cash on hand and future cash from operations, together with its access to the credit and capital markets, will provide adequate resources to fund its operating and financing needs for at least the next 12 months, its access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) the financial and operational performance of the Company and/or its operating subsidiaries, as applicable, (ii) the Company's credit ratings and/or the credit rating of its operating subsidiaries, as applicable, (iii) the provisions of any relevant debt instruments, credit agreements, indentures and similar or associated documents, (iv) the liquidity of the overall credit and capital markets and (v) the state of the economy. Some of these factors may be adversely impacted by the COVID-19 pandemic and there can be no assurances that the Company will continue to have access to the credit and capital markets on acceptable terms. See Part I, "Item 1A. Risk Factors" in the 2020 Form 10-K for further discussion. As ofSeptember 30, 2020 , the Company's consolidated assets included$778 million in cash and cash equivalents that were held by its foreign subsidiaries. Of this amount,$132 million is cash not readily accessible by the Company as it is held by REA Group, a majority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Group's cash balance. The Company earns income outside theU.S. , which is deemed to be permanently reinvested in certain foreign jurisdictions. The Company does not currently intend to repatriate these earnings. Should the Company require more capital in theU.S. than is generated by and/or available to its domestic operations, the Company could elect to transfer funds held in foreign jurisdictions. The transfer of funds from foreign jurisdictions may be 35 -------------------------------------------------------------------------------- Table of Contents cumbersome due to local regulations, foreign exchange controls and taxes. Additionally, the transfer of funds from foreign jurisdictions may result in higher effective tax rates and higher cash paid for income taxes for the Company. The principal uses of cash that affect the Company's liquidity position include the following: operational expenditures including employee costs and paper purchases; capital expenditures; income tax payments; investments in associated entities; acquisitions; and the repayment of debt and related interest. In addition to the acquisitions and dispositions disclosed elsewhere, the Company has evaluated, and expects to continue to evaluate, possible future acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of the Company's securities or the assumption of indebtedness. Issuer Purchases ofEquity Securities The Company did not purchase any of its Class A Common Stock or ClassB Common Stock during the three months endedSeptember 30, 2020 and 2019. Dividends InAugust 2020 , the Company's Board of Directors ("the Board of Directors") declared a semi-annual cash dividend of$0.10 per share for Class A Common Stock and Class B Common Stock. This dividend was paid onOctober 14, 2020 to stockholders of record as ofSeptember 16, 2020 . The timing, declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the Board of Directors. The Board of Directors' decisions regarding the payment of future dividends will depend on many factors, including the Company's financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the Board of Directors deems relevant. Sources and Uses of Cash-For the three months endedSeptember 30, 2020 versus the three months endedSeptember 30, 2019 Net cash provided by operating activities for the three months endedSeptember 30, 2020 and 2019 was as follows (in millions): For the three months ended September 30, 2020 2019 Net cash provided by operating activities$ 155 $ 27 Net cash provided by operating activities increased by$128 million for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . The increase was primarily due to higher Total Segment EBITDA and lower working capital. Net cash used in investing activities for the three months endedSeptember 30, 2020 and 2019 was as follows (in millions): For the three months ended September 30, 2020 2019 Net cash used in investing activities$ (96) $ (118) Net cash used in investing activities decreased by$22 million for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 . During the three months endedSeptember 30, 2020 , the Company used$93 million of cash for capital expenditures, of which$51 million related toFoxtel . During the three months endedSeptember 30, 2019 , the Company used$117 million of cash for capital expenditures, of which$66 million related toFoxtel . Net cash used in financing activities for the three months endedSeptember 30, 2020 and 2019 was as follows (in millions): For the three months ended September 30, 2020 2019 Net cash used in financing activities$ (50) $ (95) Net cash used in financing activities decreased by$45 million for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 . During the three months endedSeptember 30, 2020 , the Company repaid$119 million of borrowings related toFoxtel and made dividend payments of$20 million to REA Group minority stockholders. The net cash used in financing activities was partially offset by new borrowings related toFoxtel of$123 million . 36 -------------------------------------------------------------------------------- Table of Contents During the three months endedSeptember 30, 2019 , the Company repaid$290 million of borrowings related toFoxtel and made dividend payments of$22 million to REA Group minority stockholders. The net cash used in financing activities for the three months endedSeptember 30, 2019 was partially offset by new borrowings related toFoxtel of$199 million and the net settlement of hedges of$57 million . Reconciliation of Free Cash Flow Available toNews Corporation Free cash flow available toNews Corporation is a non-GAAP financial measure defined as net cash provided by 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 toNews Corporation should be considered in addition to, not as a substitute for, cash flows from operations and other measures of financial performance reported in accordance with GAAP. Free cash flow available toNews Corporation may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of free cash flow. The Company considers free cash flow available toNews 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 inAustralia 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 toNews 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 toNews 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 toNews Corporation by also relying on the net change in cash and cash equivalents as presented in the Statements of Cash Flows prepared in accordance with GAAP which incorporate all cash movements during the period. The following table presents a reconciliation of net cash provided by operating activities to free cash flow available toNews Corporation : For the three months ended September 30, 2020 2019 (in millions) Net cash provided by operating activities $ 155$ 27 Less: Capital expenditures (93) (117) 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
Free cash flow available toNews Corporation increased by$148 million in the three months endedSeptember 30, 2020 to$65 million from$(83) million in the corresponding period of fiscal 2020, primarily due to higher net cash provided by operating activities as discussed above and lower capital expenditures. Borrowings As ofSeptember 30, 2020 , the Company had total borrowings of$1.3 billion , including the current portion and finance lease liabilities. The Company's borrowings as of such date primarily consisted of (i)$1,000 million of outstanding debt incurred by certain subsidiaries ofNXE Australia Pty Limited ("Foxtel" and together with such subsidiaries, the "Foxtel Debt Group ") and (ii)$169 million of outstanding debt incurred by REA Group and certain of its subsidiaries (REA Group and such subsidiaries, the "REA Debt Group "). BothFoxtel and REA Group are consolidated but non wholly-owned subsidiaries ofNews Corp , and their indebtedness is only guaranteed by members of theFoxtel Debt Group andREA Debt Group and certain of their subsidiaries, respectively, and is non-recourse toNews Corp. 37
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Table of Contents REA Group has access to anA$20 million overdraft facility (the "2020 Overdraft Facility"). The 2020 Overdraft Facility is an uncommitted facility that will be reviewed annually by the lender and bears interest at a rate based on the lender's benchmark borrowing rate less a discount of 4.22%. The 2020 Overdraft Facility carries an annual facility fee of 0.15% of theA$20 million overdraft limit. As ofSeptember 30, 2020 , REA Group had not borrowed any funds under the 2020 Overdraft Facility. InOctober 2020 , REA Group amended certain terms of its credit facilities to, among other things, require REA Group to maintain a net leverage ratio of not more than 3.50 to 1.0 subsequent toDecember 31, 2020 . The Company has access to an unsecured$750 million revolving credit facility (the "2019 News Corp Credit Facility") that can be used for general corporate purposes. The 2019 News Corp Credit Facility has a sublimit of$100 million available for issuances of letters of credit. The Company may request increases in the amount of the facility up to a maximum amount of$1 billion . The lenders' commitments to make the 2019 News Corp Credit Facility available terminate onDecember 12, 2024 , and the Company may request that the commitments be extended under certain circumstances for up to two additional one-year periods. As ofSeptember 30, 2020 , the Company has not borrowed any funds under the 2019 News Corp Credit Facility. All of the Company's borrowings contain customary representations, covenants and events of default. The Company was in compliance with all such covenants atSeptember 30, 2020 . See Note 5-Borrowings in the accompanying Consolidated Financial Statements for further details regarding the Company's outstanding debt, including certain information about interest rates and maturities related to such debt arrangements. Commitments The Company has commitments under certain firm contractual arrangements ("firm commitments") to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The Company's commitments as ofSeptember 30, 2020 have not changed significantly from the disclosures included in the 2020 Form 10-K. Contingencies The Company routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed in Note 9 to the Consolidated Financial Statements. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution of these matters. Fees, expenses, fines, penalties, judgments or settlement costs which might be incurred by the Company in connection with the various proceedings could adversely affect its results of operations and financial condition. The Company establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings are expensed as incurred. The Company recognizes gain contingencies when the gain becomes realized or realizable. See Note 9-Commitments and Contingencies in the accompanying Consolidated Financial Statements. The Company's tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in the Company's tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid. However, these liabilities may need to be adjusted as new information becomes known and as tax examinations continue to progress, or as settlements or litigations occur.
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