UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
or
Commission file number 001-32352
NEWS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Registrant's telephone number, including area code (212) 852-7000
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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of
1934). Yes
No
As of November 2, 2009, 1,821,495,259 shares of Class A Common Stock, par value $0.01 per share, and 798,520,953 shares of
Class B Common Stock, par value $0.01 per share, were outstanding.
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 2009
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from to
Delaware
26-0075658
(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)
NEWS CORPORATION
FORM 10-Q
TABLE OF CONTENTS
2
Page
Part I. Financial Information
Item 1.
Financial Statements
Unaudited Consolidated Statements of Operations for the three months ended September 30, 2009 and 2008
3
Unaudited Consolidated Balance Sheets at September 30, 2009 and June 30, 2009
4
Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2009 and 2008
5
Notes to the Unaudited Consolidated Financial Statements
6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
45
Item 4.
Controls and Procedures
46
Part II. Other Information
Item 1.
Legal Proceedings
46
Item 1A.
Risk Factors
46
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
48
Item 3.
Defaults Upon Senior Securities
48
Item 4.
Submission of Matters to a Vote of Security Holders
48
Item 5.
Other Information
48
Item 6.
Exhibits
49
Signature
50
NEWS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
For the three months
ended September 30,
2009
2008
Revenues
$ 7,199
$ 7,509
Expenses:
Operating
4,405
4,571
Selling, general and administrative
1,435
1,681
Depreciation and amortization
297
296
Other operating charges
20
8
Operating income
1,042
953
Other income (expense):
Equity earnings (losses) of affiliates
32
(359)
Interest expense, net
(245)
(221)
Interest income
25
40
Other, net
(12)
304
Income before income tax expense
842
717
Income tax expense
(245)
(181)
Net income
597
536
Less: Net income attributable to noncontrolling interests
(26)
(21)
Net income attributable to News Corporation stockholders
$
571
$
515
Dividend declared per share
$
0.06
$
0.06
Weighted average shares:
Basic
2,616
2,611
Diluted
2,617
2,613
Net income attributable to News Corporation stockholders per share - basic and diluted
$
0.22
$
0.20
NEWS CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
At
September 30,
2009
At
June 30,
2009
Assets:
Current assets:
Cash and cash equivalents
$
7,832
$ 6,540
Receivables, net
6,208
6,287
Inventories, net
2,783
2,477
Other
602
532
Total current assets
17,425
15,836
Non-current assets:
Receivables
244
282
Investments
3,105
2,957
Inventories, net
3,511
3,178
Property, plant and equipment, net
6,248
6,245
Intangible assets, net
8,947
8,925
Goodwill
14,492
14,382
Other non-current assets
1,344
1,316
Total assets
$
55,316
$53,121
Liabilities and Equity:
Current liabilities:
Borrowings
$
2,071
$ 2,085
Accounts payable, accrued expenses and other current liabilities
5,577
5,279
Participations, residuals and royalties payable
1,376
1,388
Program rights payable
1,180
1,115
Deferred revenue
786
772
Total current liabilities
10,990
10,639
Non-current liabilities:
Borrowings
13,182
12,204
Other liabilities
2,997
3,027
Deferred income taxes
3,326
3,276
Redeemable noncontrolling interests
342
343
Commitments and contingencies
Equity:
Class A common stock
18
18
Class B common stock
8
8
Additional paid-in capital
17,329
17,354
Retained earnings and accumulated other comprehensive income
6,698
5,844
Total News Corporation stockholders' equity
24,053
23,224
Noncontrolling interests
426
408
Total equity
24,479
23,632
Total liabilities and equity
$
55,316
$53,121
Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,821,481,910 shares and 1,815,449,495
shares issued and outstanding, net of 1,776,865,641 and 1,776,865,809 treasury shares at par at September 30, 2009 and June 30,
2009, respectively.
Class B common stock, $0.01 par value per share, 3,000,000,000 shares authorized, 798,520,953 shares issued and outstanding,
net of 313,721,702 treasury shares at par at September 30, 2009 and June 30, 2009.
(1)
(2)
(1)
(2)
NEWS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
For the three months
ended September 30,
2009
2008
Operating activities:
Net income
$
597
$
536
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
297
296
Amortization of cable distribution investments
23
23
Equity (earnings) losses of affiliates
(32)
359
Cash distributions received from affiliates
16
30
Other, net
12
(304)
Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets
120
(199)
Inventories, net
(623)
(442)
Accounts payable and other liabilities
270
(59)
Net cash provided by operating activities
680
240
Investing activities:
Property, plant and equipment, net of acquisitions
(130)
(213)
Acquisitions, net of cash acquired
(71)
(65)
Investments in equity affiliates
(114)
(15)
Other investments
(51)
(16)
Proceeds from sale of investments, other non-current assets and business disposals
4
1,010
Net cash (used in) provided by investing activities
(362)
701
Financing activities:
Borrowings
1,006
38
Repayment of borrowings
(73)
(33)
Issuance of shares
21
3
Dividends paid
(13)
(7)
Other, net
1
18
Net cash provided by financing activities
942
19
Net increase in cash and cash equivalents
1,260
960
Cash and cash equivalents, beginning of period
6,540
4,662
Exchange movement of opening cash balance
32
(122)
Cash and cash equivalents, end of period
$ 7,832
$ 5,500
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
News Corporation, a Delaware corporation, with its subsidiaries (together "News Corporation" or the "Company"), is a
diversified global media company, which manages and reports its businesses in eight segments: Filmed Entertainment, Television,
Cable Network Programming (which now includes STAR Group Limited ("STAR") see Note 15--Segment Information), Direct
Broadcast Satellite Television ("DBS"), Integrated Marketing Services (formerly Magazines and Inserts, see Note 15 Segment
Information), Newspapers and Information Services, Book Publishing and Other.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles ("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 unaudited consolidated financial statements. Operating results for the
interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010.
These interim unaudited 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, 2009 as filed with the Securities and Exchange Commission ("SEC") on August 12, 2009 (the "2009 Form 10-K").
The consolidated financial statements include the accounts of News Corporation and its subsidiaries. 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. Investments in which the Company is not able to
exercise significant influence over the investee are designated as available-for-sale if readily determinable fair values are available. If
an investment's fair value is not readily determinable, the Company accounts for its investment under the cost method.
The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
Certain fiscal 2009 amounts have been reclassified to conform to the fiscal 2010 presentation.
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to each reporting date. As such, all references to
September 30, 2009 and September 30, 2008 relate to the three month periods ended September 27, 2009 and September 28, 2008,
respectively. For convenience purposes, the Company continues to date its financial statements as of September 30.
In accordance with Accounting Standards Codification ("ASC") 220 "Comprehensive Income," total comprehensive income
(loss) for the Company consisted of the following:
6
For the three months
ended September 30,
2009
2008
(in millions)
Net income, as reported
$
597
$
536
Other comprehensive income:
Foreign currency translation adjustments
392
(1,145)
Unrealized holding gains (losses) on securities, net of tax
44
(18)
Benefit plan adjustments
9
2
Total comprehensive income (loss)
1,042
(625)
Less: net income attributable to noncontrolling interests
(26)
(21)
Less: foreign currency translation adjustments attributable to noncontrolling interests
(5)
13
Comprehensive income (loss) attributable to News Corporation stockholders
$ 1,011
$ (633)
Includes amounts relating to noncontrolling interests classified as equity and redeemable noncontrolling interests classified as
temporary equity.
(1)
(1)
(1)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
On July 1, 2009, the Company adopted the provisions of ASC 805 "Business Combinations" ("ASC 805"), which significantly
changed the Company's accounting for business combinations on a prospective basis in a number of areas, including the treatment of
contingent consideration, preacquisition contingencies, transaction costs and restructuring costs. In addition, under ASC 805, changes
in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense.
On July 1, 2009, the Company adopted the new provisions of ASC 810 "Consolidation" ("ASC 810"), which changed the
accounting and reporting for minority interests. As a result of the adoption of these provisions, minority interests have been
recharacterized as noncontrolling interests and classified as a component of equity, with the exception of redeemable noncontrolling
interests. In accordance with ASC 810, the presentation and disclosure requirements for existing noncontrolling interests were applied
retrospectively. All other requirements of these provisions were applied prospectively.
The following table summarizes changes in equity (in millions):
On July 1, 2009, the Company adopted the new provisions of ASC 350 "Intangibles - Goodwill and Other" ("ASC 350"), which
set forth the factors to be considered in developing renewal or extension assumptions used to determine the useful life of a
recognizable intangible asset and is intended to improve the consistency between the useful life of a recognizable intangible asset and
the period of expected cash flows used to measure the fair value of that asset. This adoption changed the Company's determination of
useful lives for intangible assets on a prospective basis.
On July 1, 2009, the Company adopted the additional provisions of ASC 820 "Fair Value Measurement and Disclosure" ("ASC
820"), which apply to non-recurring fair value measurements of non-financial assets and liabilities, such as measurement of potential
impairments of goodwill, other intangible assets, other long-lived assets and non-financial assets held by a pension plan. These
additional provisions also apply to the fair value measurements of non-financial assets acquired and liabilities assumed in business
combinations. The Company's adoption of the additional provisions of ASC 820 did not have a material effect on the Company's
consolidated financial statements.
In August 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2009-
05 "Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value" ("ASU 2009-05"). ASU 2009-05
amends Subtopic 820-10 "Fair Value Measurements and Disclosures - Overall" and provides clarification on the methods to be used
in circumstances in which a quoted price in an active market for the identical liability is not available.
7
For the three months ended September 30,
2009
2008
News Corporation
Stockholders
Noncontrolling
Interests
Total
Equity
News Corporation
Stockholders
Noncontrolling
Interests
Total
Equity
Balance, beginning of period
$
23,224
$
408
$23,632
$
28,623
$
631
$29,254
Net income
571
23
594
515
19
534
Other comprehensive
income (loss)
440
5
445
(1,148)
(8)
(1,156)
Issuance of shares
69
--
69
66
--
66
Dividends declared
(157)
--
(157)
(157)
--
(157)
Other
(94)
(10)
(104)
(79)
--
(79)
Balance, end of period
$
24,053
$
426
$24,479
$
27,820
$
642
$28,462
Net income attributable to noncontrolling interests excludes $3 million and $2 million relating to redeemable noncontrolling
interests which is reflected in temporary equity for the three months ended September 30, 2009 and 2008, respectively. Other
comprehensive income (loss) attributable to noncontrolling interests excludes nil and $(5) million relating to redeemable
noncontrolling interests for the three months ended September 30, 2009 and 2008, respectively.
Other activity attributable to noncontrolling interests excludes $(4) million and $14 million relating to redeemable
noncontrolling interests for the three months ended September 30, 2009 and 2008, respectively.
(a)
(a)
(a)
(a)
(b)
(b)
(a)
(b)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In June 2010, the Company will adopt the new provisions of ASC 715 "Compensation Retirement Benefits," which expand
the disclosure requirements of defined benefit plans. The expanded disclosure requirements include: (i) investment policies and
strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect
of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and
(v) significant concentrations of risk within plan assets.
Note 2--Acquisitions, Disposals and Other Transactions
Fiscal 2009 Transactions
Acquisitions
In October 2008, the Company purchased VeriSign Inc.'s minority share of the Jamba joint venture for approximately $193
million in cash, increasing the Company's interest to 100%.
In January 2009, the Company and Asianet TV Holdings Private Limited ("Asianet") formed a venture ("Star Jupiter") to
provide general entertainment channels in southern India. The Company paid approximately $235 million in cash and assumed net
debt of approximately $20 million for a controlling interest in four of Asianet's channels which were combined with one of the
Company's existing channels. The Company has a majority interest in this new venture and, accordingly, began consolidating the
results in January 2009.
The aforementioned acquisitions were all accounted for in accordance with ASC 805. The excess purchase price that has been
allocated or has been preliminarily allocated to goodwill is not being amortized for all of the acquisitions noted above in accordance
with ASC 350. Where the allocation of the excess purchase price is not final, the amount allocated to goodwill is subject to change
upon completion of final valuations of certain assets and liabilities. A future reduction in goodwill for additional value to be assigned
to identifiable finite-lived intangible assets or tangible assets could reduce future earnings as a result of additional amortization.
Disposals
In July 2008, the Company completed the sale of eight of its owned-and-operated FOX network affiliated television stations (the
"Stations") for approximately $1 billion in cash. The Stations included: WJW in Cleveland, OH; KDVR in Denver, CO; KTVI in St.
Louis, MO; WDAF in Kansas City, MO; WITI in Milwaukee, WI; KSTU in Salt Lake City, UT; WBRC in Birmingham, AL; and
WGHP in Greensboro, NC. In connection with the transaction, the Stations entered into new affiliation agreements with the Company
to receive network programming and assumed existing contracts with the Company for syndicated programming. In addition, the
Company recorded a gain of approximately $232 million in Other, net in the consolidated statements of operations during the three
months ended September 30, 2008.
Other transactions
In February 2009, the Company, two newly incorporated subsidiaries of funds advised by Permira Advisers LLP (the "Permira
Newcos") and the Company's then majority-owned, publicly-held subsidiary, NDS Group plc ("NDS"), completed a transaction
pursuant to which all issued and outstanding NDS Series A ordinary shares, including those represented by American Depositary
Shares traded on The NASDAQ Stock Market, were acquired for per-share consideration of $63 in cash (the "NDS Transaction"). As
part of the transaction, approximately 67% of the NDS Series B ordinary shares held by the Company were exchanged for $63 per
share in a mix of approximately $1.5 billion in cash, which included $780 million of cash retained upon the deconsolidation of NDS,
and a $242 million vendor note. As a result of the transaction, NDS ceased to be a public company and the Permira Newcos and the
Company now own approximately 51% and 49% of NDS, respectively. The Company's remaining interest in NDS is accounted for
under the equity method of accounting. A gain of $1.2 billion was recognized on the sale of the Company's interest in NDS and was
included in Other, net in the consolidated statements of operations in the third quarter of fiscal 2009.
8
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 3--Receivables, net
Receivables, net consisted of:
Note 4--Restructuring Programs
In fiscal 2009, certain of the markets in which the Company's businesses operate experienced a weakening in the economic
climate which adversely affected advertising revenue and other consumer driven spending. As a result, a number of the Company's
businesses implemented a series of operational actions to address the Company's cost structure, including the Company's digital
media properties, which were restructured to align resources more closely with business priorities. This restructuring program
included significant job reductions, both domestically and internationally, to enable the businesses to operate on a more cost effective
basis. In conjunction with this project, the Company also eliminated excess facility requirements. Several other businesses of the
Company implemented similar plans in fiscal 2009, including its U.K. and Australian newspapers, HarperCollins, MyNetworkTV and
the Fox Television Stations. During the fiscal year ended June 30, 2009, the Company recorded restructuring charges in accordance
with ASC 420 "Exit or Disposal Cost Obligations" of approximately $312 million which were included in Other operating charges in
the consolidated statements of operations.
During the three months ended September 30, 2009, the Company recorded approximately $20 million of additional
restructuring charges in Other operating charges in the consolidated statements of operations, primarily due to a restructuring to
combine the sales and distribution operations of the STAR channels with those of the Company's other international cable businesses.
The restructuring charges during the three months ended September 30, 2009 reflect $18 million recorded at the Cable Network
Programming segment for STAR and $2 million recorded at the Other segment related to accretion on facility termination obligations.
Changes in the program liabilities were as follows:
The Company expects to record an additional $77 million of restructuring charges principally related to accretion on facility
termination obligations through fiscal 2021. At September 30, 2009, restructuring liabilities of approximately $68 million and $143
million were included in the consolidated balance sheets in other current liabilities and other liabilities, respectively. Facility related
costs of $143 million included in other liabilities and additional accretion are expected to be paid through fiscal 2021.
Dow Jones
As a result of the Dow Jones & Company, Inc. ("Dow Jones") acquisition in fiscal 2008, the Company established and approved
plans to integrate the acquired operations into the Newspapers and Information Services segment. The cost to implement these plans
consists of separation payments for certain Dow Jones executives under the change in control plan Dow Jones had established prior to
the acquisition, non-cancelable lease commitments and lease termination charges for leased facilities that have or will be exited and
other contract termination costs associated with the restructuring activities.
9
At September 30,
2009
At June 30,
2009
(in millions)
Total receivables
$
7,573
$
7,727
Allowances for returns and doubtful accounts
(1,121)
(1,158)
Total receivables, net
6,452
6,569
Less: current receivables, net
(6,208)
(6,287)
Non-current receivables, net
$
244
$
282
For the three months ended September 30, 2009
One time
termination
benefits
Facility
related costs
Other costs
Total
(in millions)
Beginning of period
$
65
$
164
$
8
$
237
Additions
13
7
--
20
Payments
(41)
(5)
--
(46)
End of period
$
37
$
166
$
8
$
211
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the plan liabilities were as follows (in millions):
Note 5--Inventories, net
The Company's inventories were comprised of the following:
10
For the three months
ended September 30,
2009
2008
Beginning of period
$ 126
$ 180
Additions
--
15
Payments
(19)
(27)
End of period
$ 107
$ 168
At September 30,
2009
At June 30,
2009
(in millions)
Programming rights
$
3,322
$
3,038
Books, DVDs, paper and other merchandise
420
361
Filmed entertainment costs:
Films:
Released (including acquired film libraries)
513
533
Completed, not released
44
137
In production
960
664
In development or preproduction
64
73
1,581
1,407
Television productions:
Released (including acquired libraries)
621
589
Completed, not released
--
--
In production
344
256
In development or preproduction
6
4
971
849
Total filmed entertainment costs, less accumulated amortization
2,552
2,256
Total inventories, net
6,294
5,655
Less: current portion of inventory, net
(2,783)
(2,477)
Total noncurrent inventories, net
$
3,511
$
3,178
Does not include $483 million and $491 million of net intangible film library costs as of September 30, 2009 and June 30, 2009,
respectively, which are included in intangible assets subject to amortization in the consolidated balance sheets.
Current inventory as of September 30, 2009 and June 30, 2009 was comprised of programming rights ($2,395 million and
$2,149 million, respectively), books, DVDs, paper and other merchandise.
(a)
(b)
(a)
(b)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 6--Investments
The Company's investments were comprised of the following:
The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:
Fiscal Year 2010 Transactions
During the first quarter of fiscal 2010, the Company acquired additional shares of Sky Deutschland, increasing its ownership
from approximately 38% at June 30, 2009 to approximately 40% at September 30, 2009.
Fiscal Year 2009 Transactions
Investments in Sky Deutschland
During fiscal 2008, the Company, through a series of transactions, acquired a 25% ownership interest in Sky Deutschland for
cash consideration of approximately $666 million. As of April 2008, the Company had acquired an interest in Sky Deutschland of
greater than 20% and exercised significant influence over Sky Deutschland and, accordingly, the Company began accounting for its
investment in Sky Deutschland under the equity method of accounting.
During fiscal 2009, the Company entered into an agreement with Sky Deutschland and the bank syndicate of Sky Deutschland to
provide Sky Deutschland with a new financing structure and additional capital through two equity capital increases. As a result of the
rights issues and other transactions, the Company invested an aggregate of approximately $300 million in shares of Sky Deutschland
during fiscal 2009 and, as of June 30, 2009, the Company had an approximate 38% ownership interest in Sky Deutschland.
11
Ownership
Percentage
At September 30,
2009
At June 30,
2009
(in millions)
Equity method investments:
British Sky Broadcasting Group plc
U.K. DBS operator
39%
$
955
$
877
Sky Deutschland AG
German pay-TV operator
40%
381
437
Sky Network Television Ltd.
New Zealand media company
44%
327
305
NDS
Digital technology company
49%
242
232
Other equity method investments
various
747
707
Fair value of available-for-sale investments
various
218
150
Other investments
various
235
249
$
3,105
$
2,957
The market value of the Company's investment in British Sky Broadcasting Group plc ("BSkyB"), Sky Deutschland AG ("Sky
Deutschland") and Sky Network Television Ltd. was $6,278 million, $1,009 million and $568 million at September 30, 2009,
respectively.
During the first quarter of fiscal 2010, the Company entered into a series of purchase transactions resulting in the Company
increasing its interest in Sky Deutschland. (See Fiscal Year 2010 Transactions below for further discussion)
At September 30,
2009
At June 30,
2009
(in millions)
Cost basis of available-for-sale investments
$
38
$
38
Accumulated gross unrealized gain
181
113
Accumulated gross unrealized loss
(1)
(1)
Fair value of available-for-sale investments
$
218
$
150
Deferred tax liability
$
63
$
39
(1)
(1)
(2)
(1)
(1)
(2)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Investments in Sky Deutschland
On October 2, 2008, Sky Deutschland announced guidance on its earnings before interest, taxes, depreciation and amortization
("EBITDA") indicating results substantially below prior guidance for calendar 2008. Sky Deutschland also announced that it had
adopted a new classification of subscribers at September 30, 2008. The day after this announcement, Sky Deutschland experienced a
significant decline in its market value. As a result of this decline, the Company's carrying value in Sky Deutschland exceeded its
market value based upon Sky Deutschland's closing share price of
4.38 on October 3, 2008. The Company believed that this decline
was not temporary based on the assessment described below and, accordingly, recorded an impairment charge of $422 million
representing the difference between the Company's carrying value and the market value. The impairment charge was included in
Equity earnings (losses) of affiliates in the Company's consolidated statements of operations during the three months ended
September 30, 2008.
In determining if the decline in Sky Deutschland's market value was other-than-temporary, the Company considered a number
of factors: (1) the financial condition, operating performance and near term prospects of Sky Deutschland; (2) the reason for the
decline in Sky Deutschland's fair value; (3) analysts' ratings and estimates of 12 month share price targets for Sky Deutschland; and
(4) the length of time and the extent to which Sky Deutschland's market value had been less than the carrying value of the Company's
investment.
Other
In August 2008, the Company entered into an agreement providing for the restructuring of the Company's content acquisition
agreements with Balaji Telefilms Ltd ("Balaji"). As part of this restructuring agreement, the Company no longer has representation on
Balaji's board of directors and does not have significant influence in management decisions; therefore, the Company believes that it
no longer has the ability to exercise significant influence over Balaji. Accordingly, the Company accounts for its investment in Balaji
under the cost method of accounting and the carrying value is adjusted to market value each reporting period as required under ASC
320 "Investments."
In February 2009, the NDS Transaction was completed, resulting in the Permira Newcos and the Company owning
approximately 51% and 49% of NDS, respectively. The Company's remaining interest in NDS is accounted for under the equity
method of accounting. (See Note 2--Acquisitions, Disposals and Other Transactions for further discussion)
Note 7--Fair Value
In accordance with ASC 820, fair value measurements are required to be disclosed using a three-tiered fair value hierarchy
which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets
("Level 1"); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets
or liabilities ("Level 2"); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions
("Level 3"). Additionally, in accordance with ASC 815 "Derivatives and Hedging" ("ASC 815"), the Company has included
additional disclosures about the Company's derivatives and hedging activities (Level 2).
12
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table below presents information about financial assets and liabilities carried at fair value on a recurring basis as of
September 30, 2009:
The fair value of the redeemable noncontrolling interest in the Company's RSN was determined by using a discounted EBITDA
valuation model, assuming a 9.5% discount rate.
The fair value of the redeemable noncontrolling interest in the majorityowned outdoor marketing subsidiary was determined
using a discounted cash flow analysis assuming a 5% terminal growth rate and a 15% discount rate.
The fair value of the redeemable noncontrolling interest in the Asian general entertainment television joint venture was
determined using discounted cash flow analysis assuming a multiple of eight times terminal year EBITDA.
13
Description
Total as of
September 30,
2009
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in millions)
Assets
Available-for-sale securities
$
218
$
218
$
--
$
--
Liabilities
Derivatives
(24)
--
(24)
--
Redeemable noncontrolling interests
(342)
--
--
(342)
Total
$
(148)
$
218
$
(24)
$
(342)
See Note 6 Investments
Represents derivatives associated with the Company's exchangeable securities and foreign exchange forward contracts
designated as hedges and other financial instruments. As of September 30, 2009, fair value of warrants related to TOPrS of
approximately $8 million were included in non-current liabilities. In addition to this amount was the fair value of the foreign
exchange forward contracts of approximately $16 million which are recorded in the underlying hedged balances. Cash flows
from the settlement of foreign exchange forward contracts (which generally occurs within 12 months from the inception of the
contracts) offset cash flows from the underlying hedged item and are included in operating activities in the consolidated
statements of cash flows. The Company uses financial instruments designated as cash flow hedges primarily to hedge its limited
exposures to foreign currency exchange risks associated with the cost for producing or acquiring films and television
programming abroad. The effective changes in fair value of derivatives designated as cash flow hedges are recorded in
accumulated other comprehensive income with foreign currency translation adjustments. Amounts are reclassified from
accumulated other comprehensive income when the underlying hedged item is recognized in earnings. If derivatives are not
designated as hedges, changes in fair value are recorded in earnings.
The Company accounts for redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A "Distinguishing
Liabilities from Equity" because their exercise is outside the control of the Company and, accordingly, has included the fair
value of the redeemable noncontrolling interests in the consolidated balance sheets. The redeemable noncontrolling interests
recorded at fair value include put arrangements held by the noncontrolling interests in one of the Company's majority-owned
regional sports networks ("RSN"), in a majority-owned outdoor marketing subsidiary of the Company and in one of the
Company's Asian general entertainment television joint ventures.
(1)
(2)
(3)
(1)
(2)
(3)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The changes in fair value of liabilities classified as Level 3 measurements during the three months ended September 30, 2009
were as follows:
Financial Instruments
The carrying value of the Company's financial instruments, including cash and cash equivalents, receivables, payables and cost
investments, approximate fair value.
The aggregate fair value of the Company's borrowing at September 30, 2009 was approximately $16.0 billion compared with a
carrying value of $15.3 billion and at June 30, 2009 was approximately $13.5 billion compared with a carrying value of $14.3 billion.
Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an
over-the-counter market.
Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount
of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial
institutions of reputable credit and, therefore, bear minimal credit risk.
The Company's receivables do not represent significant concentrations of credit risk at September 30, 2009 or June 30, 2009
due to the wide variety of customers, markets and geographic areas to which the Company's products and services are sold.
The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its
financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements.
At September 30, 2009, the Company did not anticipate nonperformance by the counterparties.
Note 8--Goodwill and Other Intangible Assets
During the three months ended September 30, 2009, the changes in the carrying value of goodwill and intangible assets were
primarily due to foreign currency translation adjustments.
Note 9--Borrowings
On August 25, 2009, News America Incorporated ("NAI"), an indirect wholly-owned subsidiary of the Company, entered into
an indenture, with the Company, as Guarantor, and The Bank of New York Mellon, as Trustee (the "Indenture"). The following notes
were sold pursuant to the Indenture:
Notes due 2020 and 2039
In August 2009, NAI issued $400 million of 5.65% Senior Notes due 2020 and $600 million of 6.90% Senior Notes due 2039.
The net proceeds received of approximately $989 million will be used for general corporate purposes. These notes were issued under
the Indenture.
Note 10--Equity
Dividends
During the three months ended September 30, 2009, the Company declared a dividend of $.06 per share on both its Class A
common stock, par value $0.01 per share ("Class A Common Stock") and its Class B common stock, par value $0.01 per share
("Class B Common Stock"), which was paid in October 2009 to stockholders of record on September 9, 2009. The related total
aggregate dividend paid to stockholders in October 2009 was approximately $157 million.
Note 11--Equity-Based Compensation
For the three
months ended
September 30, 2009
(in millions)
Beginning of period
$
(343)
Total gains (losses) included in Net income
(3)
Other
4
End of period
$
(342)
The following table summarizes the Company's equity-based compensation transactions:
14
For the three
months ended
September 30,
2009
2008
(in millions)
Equity-based compensation
$ 45
$ 49
Cash received from exercise of equity-based compensation
$ 21
$
3
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2009, the Company's total compensation cost related to non-vested stock options, restricted stock units
("RSUs") and stock appreciation rights not yet recognized for all equity-based compensation plans was approximately $227 million,
the majority of which is expected to be recognized over the next three fiscal years. Compensation expense on all equity-based awards
is generally recognized on a straight-line basis over the vesting period of the entire award.
Stock options exercised during the three months ended September 30, 2009 and 2008 resulted in the Company's issuance of
approximately 1.8 million and 0.2 million shares of Class A Common Stock, respectively. The intrinsic value of the shares exercised
during the three months ended September 30, 2009 and 2008 was not material.
During the three months ended September 30, 2009, the Company issued 5.4 million RSUs. These RSUs will be settled in shares
of Class A Common Stock upon vesting, except for approximately 0.9 million RSUs that will be settled in cash. RSUs granted to
executive directors and certain awards granted to employees in certain foreign locations are settled in cash. At September 30, 2009
and June 30, 2009, the liability for cash-settled RSUs was $36 million and $52 million, respectively.
During the three months ended September 30, 2009 and 2008, approximately 9.2 million and 7.8 million RSUs vested,
respectively, of which approximately 7.0 million and 6.2 million, respectively, were settled in Class A Common Stock, before
statutory tax withholdings, and the remaining RSUs were settled in cash.
The Company recognized a tax expense on vested RSUs and stock options exercised of $12 million and $5 million for the three
months ended September 30, 2009 and 2008, respectively.
Note 12--Commitments and Guarantees
Commitments
During the three months ended September 30, 2009, the Company renewed its rights to broadcast Italy's National League
Football matches through fiscal 2012. The Company expects to pay approximately $1.7 billion over the term of the agreement.
Other than as previously disclosed in these notes to the Company's unaudited consolidated financial statements, the Company's
commitments have not changed significantly from disclosures included in the 2009 Form 10-K.
Guarantees
The Company's guarantees have not changed significantly from disclosures included in the 2009 Form 10-K.
Note 13--Contingencies
Intermix
In November 2005, plaintiff in a derivative action captioned LeBoyer v. Greenspan et al. pending against various former
Intermix Media, Inc. ("Intermix") directors and officers in the United States District Court for the Central District of California filed a
First Amended Class and Derivative Complaint (the "Amended Complaint"). The Amended Complaint made various allegations and
purported class claims arising out of the transaction whereby Intermix was acquired by Fox Interactive Media, an indirect wholly-
owned subsidiary of the Company (the "FIM Transaction"), which was consummated on September 30, 2005. Plaintiff also named as
defendants all of the members of the Intermix board of directors incumbent at the time of the FIM Transaction, including
Mr. Rosenblatt, Intermix's former Chief Executive Officer, and certain entities affiliated with VantagePoint Venture Partners
("VantagePoint"), a former major Intermix shareholder. With respect to the FIM Transaction, the Amended Complaint alleged
violations of Section 14a of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and that defendants breached
their fiduciary duties to Intermix shareholders by, among other things, engaging in self-dealing and an unfair process for the sale of
Intermix resulting in an unfair price to shareholders. Direct and derivative claims were alleged. By order dated May 22, 2007, the
court granted defendants' motion to dismiss the derivative claims asserted in the Amended Complaint. As explained in the next
paragraph, the court subsequently consolidated this case with the Brown v. Brewer action also pending before the court. On July 11,
2007, plaintiff filed the consolidated first amended complaint under the Brown case title. See the discussion of Brown for the
subsequent developments in the consolidated case.
On June 14, 2006, a purported class action lawsuit, captioned Jim Brown v. Brett C. Brewer, et al., was filed against certain
former Intermix directors and officers in the United States District Court for the Central District of California. The plaintiff asserted
claims for alleged breaches of fiduciary duty and violations of Section 14a and Rule 14a-9 promulgated under the Exchange Act, as
well as
15
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
control person liability under Section 20a of the Exchange Act. The plaintiff alleged that certain defendants disseminated false and
misleading definitive proxy statements on two occasions: one on December 30, 2003 in connection with the shareholder vote on
January 29, 2004 on the election of directors and ratification of financing transactions with certain entities of VantagePoint, and
another on August 25, 2005 in connection with the shareholder vote on the FIM Transaction. The complaint named as defendants
certain VantagePoint related entities, the former general counsel of Intermix and the members of the Intermix board of directors who
were incumbent on the dates of the respective proxy statements. Intermix was not named as a defendant, but Intermix has certain
indemnity obligations to the former officer and director defendants in connection with these claims and allegations. On August 25,
2006, plaintiff amended his complaint to add certain investment banks (the "Investment Banks") as defendants. Intermix has certain
indemnity obligations to the Investment Banks as well. Plaintiff amended his complaint again on September 27, 2006, which
defendants moved to dismiss. On February 9, 2007, the case was transferred to Judge George H. King, the judge assigned to the
LeBoyer action. On June 11, 2007, Judge King ordered, among other things, the Brown case be consolidated with the LeBoyer action.
On July 11, 2007, plaintiffs filed the consolidated first amended complaint, which defendants moved to dismiss. By order dated
January 17, 2008, Judge King granted defendants' motion to dismiss the 2003 proxy claims (concerning VantagePoint transactions)
and the 2005 proxy claims (concerning the FIM Transaction), as well as a claim against the VantagePoint entities alleging unjust
enrichment. The court found it unnecessary to rule on dismissal of the remaining claims, which are related to the FIM Transaction,
because the dismissal disposed of those claims. On February 8, 2008, plaintiffs filed a consolidated second amended complaint, which
defendants moved to dismiss on February 28, 2008. By order dated July 15, 2008, the court granted in part and denied in part
defendants' motion to dismiss. The 2003 proxy claims and the claims against the Investment Banks were dismissed with prejudice.
Subsequently, plaintiff voluntarily dismissed the VantagePoint-related entities and Intermix's former general counsel. The
Section 14a and Section 20a claims, as well as the breach of fiduciary duty claims related to the FIM Transaction, remain against the
officer and director defendants. On June 22, 2009, the court granted plaintiff's motion for class certification, certifying a class of all
holders of Intermix common stock, from July 18, 2005 through consummation of the FIM Transaction, who were allegedly harmed
by defendants' improper conduct as set forth in the complaint. Fact and expert discovery have been completed. On October 19, 2009,
defendants filed a motion for summary judgment and plaintiff filed a motion for summary adjudication. No trial date has been set yet.
News America Marketing
On January 18, 2006, Valassis Communications, Inc. ("Valassis") filed a complaint against NAI, News America Marketing FSI,
LLC and News America Marketing Services, In-Store, LLC (collectively "News America") in the United States District Court for the
Eastern District of Michigan. Valassis alleges that News America possesses monopoly power in a claimed in-store advertising and
promotions market (the "in-store market") and has used that power to gain an unfair advantage over Valassis in a purported market
for coupons distributed by free-standing inserts ("FSIs"). Valassis alleges that News America is attempting to monopolize the
purported FSI market by leveraging its alleged monopoly power in the purported in-store market, thereby allegedly violating
Section 2 of the Sherman Antitrust Act of 1890, as amended (the "Sherman Act"). Valassis further alleges that News America has
unlawfully bundled the sale of in-store marketing products with the sale of FSIs and that such bundling constitutes unlawful tying in
violation of Sections 1 and 3 of the Sherman Act. Additionally, Valassis alleges that News America is predatorily pricing its FSI
products in violation of Section 2 of the Sherman Act. Valassis also asserts that News America violated various state antitrust statutes
and has tortuously interfered with Valassis' actual or expected business relationships. Valassis' complaint seeks injunctive relief,
damages, fees and costs. On April 20, 2006, News America moved to dismiss Valassis' complaint in its entirety for failure to state a
cause of action. On September 28, 2006, the magistrate judge issued a Report and Recommendation granting the motion. On
October 16, 2006, Valassis filed an amended complaint, alleging the same causes of action. On November 17, 2006, News America
answered the three federal antitrust claims and moved to dismiss the remaining nine state law claims. On March 23, 2007, the court
granted News America's motion and dismissed the nine state law claims. The parties engaged in discovery, which was combined with
the California and Michigan state cases discussed below, and is now completed. The parties exchanged expert reports and filed
summary judgment motions in the federal action, which were denied on September 4, 2009. The trial is scheduled to begin on
February 2, 2010.
On March 9, 2007, Valassis filed a two-count complaint in Michigan state court against News America. That complaint, which
was based on the same factual allegations as the federal complaint discussed above, alleged that News America tortuously interfered
with Valassis' business relationships and that News America unfairly competed with Valassis. The complaint sought injunctive relief,
damages, fees and costs. On May 4, 2007, News America filed a motion to dismiss or, in the alternative stay, that complaint. On
August 14, 2007, the court denied the motion. On July 7, 2008, Valassis filed an amended complaint alleging the same causes of
action, based on essentially the same factual allegations and seeking the same relief. News America moved to dismiss the Amended
Complaint and on October 10, 2008, the court denied the motion. The parties completed discovery, which was combined with the
federal case discussed above and the California state case discussed below The court denied News America's motion for summary
judgment in January 2009. Trial commenced on May 27, 2009. On July 23, 2009, a jury in the Michigan state court returned a verdict
16
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
in the amount of $300 million for Valassis. News America filed a motion for new trial on August 28, 2009. If that motion is denied,
News America intends to appeal and post a bond for $25 million, the maximum bond required under Michigan law. Based on the
Company's review of the record in this case, including discussion with and analysis by counsel of the bases for News America's
appeal, the Company has determined that News America has a number of strong arguments available on appeal and, although there
can be no assurance as to the ultimate outcome, the Company is confident that the judgment against News America will ultimately be
reversed, or remanded for a new trial in which, the Company believes, News America would prevail. As a result, the Company has
concluded that it is not probable that Valassis will ultimately prevail in this matter; therefore, the Company has not recorded any
liability for this judgment.
On March 12, 2007, Valassis filed a three-count complaint in California state court against News America. That complaint,
which is based on the same factual allegations as the federal complaint discussed above, alleges that News America has violated the
Cartwright Act (California's state antitrust law) by unlawfully tying its FSI products to its in-store products, has violated California's
Unfair Practices Act by predatorily pricing its FSI products, and has unfairly competed with Valassis. Valassis' California complaint
seeks injunctive relief, damages, fees and costs. On May 4, 2007, News America filed a motion to dismiss or, in the alternative stay,
that complaint. On June 28, 2007, the court issued a tentative ruling denying the motion and reassigned the case to the Complex
Litigation Program. On July 19, 2007, the court denied the motion. The California state court case was stayed pending the outcome of
Michigan state court trial and has been further stayed until December 2, 2009.
News America believes that all of the claims in each of the complaints filed by Valassis are without merit and it intends to
defend itself vigorously. As noted above, the Company is confident that the judgment against News America in the Michigan state
court litigation will ultimately be reversed, or remanded for a new trial in which, the Company believes, News America would
prevail.
Other
Other than as previously disclosed in the notes to the Company's unaudited consolidated financial statements, the Company is
party to several purchase and sale arrangements which become exercisable over the next ten years by the Company or the counter-
party to the agreement. In the next twelve months, none of these arrangements that become exercisable are material to the Company.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending
litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
The Company's operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the
Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the
expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will
have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
Note 14--Pension and Other Postretirement Benefits
The Company sponsors non-contributory pension plans and retiree health and life insurance benefit plans covering specific
groups of employees. As of January 1, 2008, the Company's major pension plans are closed to new participants (with the exception of
groups covered by collective bargaining agreements). The benefits payable for the Company's non-contributory pension plans are
based primarily on a formula factoring both an employee's years of service and pay near retirement. Participant employees are vested
in the pension plans after five years of service. The Company's policy for all pension plans is to fund amounts, at a minimum, in
accordance with statutory requirements. Plan assets consist principally of common stocks, marketable bonds and government
securities. The retiree health and life insurance benefit plans offer medical and/or life insurance to certain full-time employees and
eligible dependents that retire after fulfilling age and service requirements.
17
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic benefit costs were as follows:
Note 15--Segment Information
The Company is a diversified global media company, which manages and reports its businesses in eight segments. During the
first quarter of fiscal 2010, the Company reclassified STAR, which develops, produces and distributes television programming in
Asia, from the Television segment to the Cable Network Programming segment. This reclassification was the result of a restructuring
to combine the sales and distribution operations of the STAR channels with those of the Company's other international cable
businesses. In addition, the Magazines and Inserts segment has been renamed the Integrated Marketing Services segment. The
Company has revised its segment information for prior fiscal years to conform to the fiscal 2010 presentation. Beginning in fiscal
2010, the Company's eight segments are:
18
Pension Benefits
Postretirement Benefits
For the three months ended September 30,
2009
2008
2009
2008
(in millions)
Service cost benefits earned during the period
$ 18
$ 20
$
1
$
2
Interest costs on projected benefit obligations
43
43
5
5
Expected return on plan assets
(35)
(39)
--
--
Amortization of deferred losses
10
4
--
--
Other
1
--
(4)
(4)
Net periodic costs
$ 37
$ 28
$
2
$
3
Cash contributions
$ 14
$ 19
$
4
$
4
·
Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion
pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing
of television programming worldwide.
·
Television, which principally consists of the broadcasting of network programming in the United States and the operation
of 27 full power broadcast television stations, including nine duopolies, in the United States (of these stations, 17 are
affiliated with the FOX network and ten are affiliated with the MyNetworkTV network).
·
Cable Network Programming, which principally consists of the production and licensing of programming distributed
through cable television systems and direct broadcast satellite operators primarily in the United States, Latin America,
Europe and Asia.
·
Direct Broadcast Satellite Television, which consists of the distribution of basic and premium programming services via
satellite and broadband directly to subscribers in Italy.
·
Integrated Marketing Services, which principally consists of the publication of free-standing inserts, which are
promotional booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United
States, and the provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers
in the United States and Canada.
·
Newspapers and Information Services, which principally consists of the publication of four national newspapers in the
United Kingdom, the publication of approximately 146 newspapers in Australia, the publication of a metropolitan
newspaper and a national newspaper (with international editions) in the United States and the provision of information
services.
·
Book Publishing, which principally consists of the publication of English language books throughout the world.
·
Other, which principally consists of the Company's digital media properties and News Outdoor, an advertising business
which offers display advertising in outdoor locations primarily throughout Russia and Eastern Europe.
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company's operating segments have been determined in accordance with the Company's internal management structure,
which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the
primary financial measures are segment Operating income and operating income before depreciation and amortization.
Operating income (loss) before depreciation and amortization, defined as operating income (loss) plus depreciation and
amortization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of non-
cash depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as
well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against
revenues over the term of a carriage arrangement and, as such, it is excluded from Operating income (loss) before depreciation and
amortization. Operating income (loss) before depreciation and amortization is a non-GAAP measure and it should be considered in
addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of financial performance
reported in accordance with GAAP. Operating income (loss) before depreciation and amortization does not reflect cash available to
fund requirements, and the items excluded from Operating income (loss) before depreciation and amortization, such as depreciation
and amortization, are significant components in assessing the Company's financial performance.
Management believes that Operating income (loss) before depreciation and amortization is an appropriate measure for
evaluating the operating performance of the Company's business segments. Operating income (loss) before depreciation and
amortization provides management, investors and equity analysts a measure to analyze operating performance of each business
segment and enterprise value against historical and competitors' data, although historical results, including Operating income (loss)
before depreciation and amortization, may not be indicative of future results (as operating performance is highly contingent on many
factors, including customer tastes and preferences).
19
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Equity earnings (losses) of affiliates, Interest expense, net, Interest income, Other, net, Income tax expense and Net income
attributable to noncontrolling interests are not allocated to segments as they are not under the control of segment management.
Intersegment revenues, generated primarily by the Filmed Entertainment segment, of approximately $140 million and $170
million for the three months ended September 30, 2009 and 2008, respectively, have been eliminated within the Filmed Entertainment
segment. Intersegment operating (loss) profit generated primarily by the Filmed Entertainment segment of approximately $(5) million
and $2 million for the three months ended September 30, 2009 and 2008, respectively, have been eliminated within the Filmed
Entertainment segment.
20
For the three months
ended September 30,
2009
2008
(in millions)
Revenues:
Filmed Entertainment
$ 1,521
$ 1,259
Television
765
829
Cable Network Programming
1,606
1,454
Direct Broadcast Satellite Television
927
969
Integrated Marketing Services
267
259
Newspapers and Information Services
1,403
1,705
Book Publishing
310
315
Other
400
719
Total revenues
$ 7,199
$ 7,509
Operating income (loss):
Filmed Entertainment
$
391
$
251
Television
38
83
Cable Network Programming
495
350
Direct Broadcast Satellite Television
128
165
Integrated Marketing Services
73
68
Newspapers and Information Services
25
134
Book Publishing
20
3
Other
(128)
(101)
Total operating income
1,042
953
Equity earnings (losses) of affiliates
32
(359)
Interest expense, net
(245)
(221)
Interest income
25
40
Other, net
(12)
304
Income before income tax expense
842
717
Income tax expense
(245)
(181)
Net income
597
536
Less: Net income attributable to noncontrolling interests
(26)
(21)
Net income attributable to News Corporation stockholders
$
571
$
515
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
21
For the three months ended September 30, 2009
Operating
income
(loss)
Depreciation and
amortization
Amortization
of cable
distribution
investments
Operating income
(loss) before
depreciation and
amortization
(in millions)
Filmed Entertainment
$
391
$
23
$
--
$
414
Television
38
21
--
59
Cable Network Programming
495
42
23
560
Direct Broadcast Satellite Television
128
66
--
194
Integrated Marketing Services
73
3
--
76
Newspapers and Information Services
25
87
--
112
Book Publishing
20
4
--
24
Other
(128)
51
--
(77)
Total
$ 1,042
$
297
$
23
$
1,362
For the three months ended September 30, 2008
Operating
income
(loss)
Depreciation and
amortization
Amortization
of cable
distribution
investments
Operating income
(loss) before
depreciation and
amortization
(in millions)
Filmed Entertainment
$
251
$
23
$
--
$
274
Television
83
20
--
103
Cable Network Programming
350
31
23
404
Direct Broadcast Satellite Television
165
60
--
225
Integrated Marketing Services
68
2
--
70
Newspapers and Information Services
134
90
--
224
Book Publishing
3
2
--
5
Other
(101)
68
--
(33)
Total
$
953
$
296
$
23
$
1,272
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 16--Additional Financial Information
Supplemental Cash Flows Information
22
At September 30,
2009
At June 30,
2009
(in millions)
Total assets:
Filmed Entertainment
$
7,200
$
7,042
Television
6,393
6,378
Cable Network Programming
11,718
11,688
Direct Broadcast Satellite Television
2,999
2,647
Integrated Marketing Services
1,374
1,346
Newspapers and Information Services
10,702
10,741
Book Publishing
1,632
1,582
Other
10,193
8,740
Investments
3,105
2,957
Total assets
$
55,316
$ 53,121
Goodwill and Intangible assets, net:
Filmed Entertainment
$
1,909
$
1,917
Television
4,310
4,310
Cable Network Programming
6,901
6,912
Direct Broadcast Satellite Television
644
617
Integrated Marketing Services
1,036
1,034
Newspapers and Information Services
6,193
6,050
Book Publishing
511
511
Other
1,935
1,956
Total goodwill and intangible assets, net
$
23,439
$ 23,307
For the three months ended
September 30,
2009
2008
(in millions)
Supplemental cash flows information:
Cash paid for income taxes
$
(76)
$
(171)
Cash paid for interest
(202)
(166)
Sale of other investments
14
2
Purchase of other investments
(65)
(18)
Supplemental information on businesses acquired:
Fair value of assets acquired
14
6
Cash acquired
3
--
Liabilities assumed
58
58
Noncontrolling interest (increase) decrease
(1)
1
Cash paid
(74)
(65)
Fair value of stock consideration
$
--
$
--
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Other, net consisted of the following:
Note 17--Subsequent Events
In preparation of its consolidated financial statements, the Company considered subsequent events through November 4, 2009,
which was the date the Company's consolidated financial statements were issued.
Note 18--Supplemental Guarantor Information
In May 2007, NAI entered into a credit agreement, among NAI as Borrower, the Company as Parent Guarantor, the initial
lenders named therein (the "Lenders"), Citibank, N. A. as Administrative Agent and JPMorgan Chase Bank, N. A. as Syndication
Agent (the "Credit Agreement"). The Credit Agreement provides a $2.25 billion unsecured revolving credit facility with a sub-limit
of $600 million available for the issuance of letters of credit. NAI may request an increase in the amount of the credit facility up to a
maximum amount of $2.5 billion. Borrowings are in U.S. dollars only, while letters of credit are issuable in U.S. dollars or Euros. The
significant terms of the agreement include the requirement that the Company maintain specific leverage ratios and limitations on
secured indebtedness. The Company pays a facility fee of 0.08% regardless of facility usage. The Company pays interest for
borrowings at LIBOR plus 0.27% and pays commission fees on letters of credit at 0.27%. The Company pays an additional fee of
0.05% if borrowings under the facility exceed 50% of the committed facility. The interest and fees are based on the Company's
current debt rating. The maturity date is in May 2012; however, NAI may request that the Lenders' commitments be renewed for up
to two additional one year periods.
The Company, as Parent Guarantor, presently guarantees the senior public indebtedness of NAI and the guarantee is full and
unconditional. The supplemental condensed consolidating financial information of the Parent Guarantor should be read in conjunction
with these consolidated financial statements.
In accordance with rules and regulations of the SEC, the Company uses the equity method to account for the results of all of the
non-guarantor subsidiaries, representing substantially all of the Company's consolidated results of operations, excluding certain
intercompany eliminations.
The following condensed consolidating financial statements present the results of operations, financial position and cash flows
of NAI, the Company and the subsidiaries of the Company and the eliminations and reclassifications necessary to arrive at the
information for the Company on a consolidated basis.
23
For the three months ended
September 30,
2009
2008
(in millions)
Gain on the sale of television stations
$
--
$
232
Change in fair value of Exchangeable securities and other financial instruments
(4)
62
Other
(8)
10
Total Other, net
$
(12)
$
304
See Note 2--Acquisitions, Disposals and Other Transactions
The Company has certain outstanding exchangeable debt securities which contain embedded derivatives. Pursuant to ASC 815,
these embedded derivatives require separate accounting and, as such, changes in their fair value are recognized in Other, net. A
significant variance in the price of underlying stock could have a material impact on the operating results of the Company.
(a)
(b)
(a)
(b)
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Operations
For the three months ended September 30, 2009
(US$ in millions)
See notes to supplemental guarantor information
24
News America
Incorporated
News
Corporation
Non-
Guarantor
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Revenues
$
--
$
--
$ 7,199
$
--
$
7,199
Expenses
62
--
6,095
--
6,157
Operating income (loss)
(62)
--
1,104
--
1,042
Other income (expense) :
Equity earnings of affiliates
1
--
31
--
32
Interest expense, net
(740)
(290)
(381)
1,166
(245)
Interest income
1
--
785
(761)
25
Earnings (losses) from subsidiary entities
473
861
--
(1,334)
--
Other, net
385
--
8
(405)
(12)
Income (loss) before income tax expense
58
571
1,547
(1,334)
842
Income tax (expense) benefit
(17)
--
(450)
222
(245)
Net income (loss)
41
571
1,097
(1,112)
597
Less: Net income attributable to
noncontrolling interests
--
--
(26)
--
(26)
Net income attributable to News Corporation
stockholders
$
41
$
571
$ 1,071
$
(1,112)
$
571
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Operations
For the three months ended September 30, 2008
(US$ in millions)
See notes to supplemental guarantor information
25
News America
Incorporated
News
Corporation
Non-
Guarantor
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Revenues
$
2
$
--
$ 7,507
$
--
$
7,509
Expenses
88
--
6,468
--
6,556
Operating income (loss)
(86)
--
1,039
--
953
Other income (expense):
Equity earnings (losses) of affiliates
1
--
(360)
--
(359)
Interest expense, net
(340)
(263)
--
382
(221)
Interest income
16
--
406
(382)
40
Earnings (losses) from subsidiary entities
434
814
--
(1,248)
--
Other, net
81
(36)
259
--
304
Income (loss) before income tax expense
106
515
1,344
(1,248)
717
Income tax (expense) benefit
(27)
--
(339)
185
(181)
Net income (loss)
79
515
1,005
(1,063)
536
Less: Net income attributable to
noncontrolling interests
--
--
(21)
--
(21)
Net income attributable to News Corporation
stockholders
$
79
$
515
$
984
$
(1,063)
$
515
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Balance Sheet
At September 30, 2009
(US$ in millions)
See notes to supplemental guarantor information
26
News America
Incorporated
News
Corporation
Non-
Guarantor
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
ASSETS:
Current assets:
Cash and cash equivalents
$
5,852
$
--
$ 1,980
$
--
$
7,832
Receivables, net
36
1
6,171
--
6,208
Inventories, net
--
--
2,783
--
2,783
Other
63
--
539
--
602
Total current assets
5,951
1
11,473
--
17,425
Non-current assets:
Receivables
--
--
244
--
244
Inventories, net
--
--
3,511
--
3,511
Property, plant and equipment, net
64
--
6,184
--
6,248
Intangible assets, net
--
--
8,947
--
8,947
Goodwill
--
--
14,492
--
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