Fairfax Media Limited
Annual Report 2008

Plain-text annual report

Fairfax Media Limited ACN 008 663 161 Annual Report 2008 Contents Chairman’s Report Chief Executive Officer’s Report Board of Directors Directors’ Report Auditor’s Independence Declaration Remuneration Report Corporate Governance Management Discussion & Analysis Report Consolidated Income Statements Consolidated Balance Sheets Consolidated Statements of Recognised Income and Expense Consolidated Cash Flow Statements 1 3 6 8 13 14 22 30 33 34 35 36 Notes to the Financial Statements Inventories Income tax expense 37 1. Summary of significant accounting policies 52 2. Revenues 53 3. Expenses 54 4. Significant items 55 5. 56 6. Dividends paid and proposed and finance costs 57 7. Receivables 58 8. 58 9. Assets held for sale 10. Other assets 59 11. Investments accounted for using the equity method 59 61 12. Available for sale investments 62 13. Held to maturity investments 63 14. Intangible assets 67 15. Property, plant and equipment 69 16. Derivative financial instruments 72 17. Pension asset 75 18. Deferred tax assets and liabilities 77 19. Other financial assets 77 20. Payables 77 21. Interest bearing liabilities 79 22. Provisions 80 23. Contributed equity 83 24. Reserves 84 25. Retained profits 85 26. Minority interest 85 27. Earnings per share 86 28. Commitments 87 29. Contingencies 88 30. Controlled entities 94 31. Acquisition and disposal of controlled entities 97 32. Business combinations 99 33. Employee benefits 101 34. Remuneration of auditors 102 35. Director and executive disclosures 104 36. Related party transactions 105 37. Notes to the cash flow statements 106 38. Financial and capital risk management 115 39. Segment reporting 117 40. Events subsequent to balance sheet date Directors’ Declaration Independent Audit Report Shareholder Information Five Year Performance Summary Directory Publications and Websites 118 119 121 123 124 125 Chairman’s Report Our Board is very pleased to report strong earnings growth as a result of our focus on reaping the benefits of our merger with Rural Press and acquisition of Southern Cross. We have successfully completed the integration of those businesses into Fairfax Media and its operations in Australia, New Zealand and the USA. These strategic transactions have completely transformed our company. As a result of our concerted and dynamic strategy of diversification and growth, the new Fairfax Media is, today, the largest and most diversified media company in Australasia. By positioning Fairfax Media for the digital age, managing costs, and strengthening our publishing businesses, we continue to be more competitive and successful than ever before. The success of our strategy is fully reflected in our reported results for the expanded company for the 2008 financial year: • Revenue increased 34% to $2.92 billion • EBITDA grew 46% to $818.3 million • Net profit after tax of $386.9 million, up 47% • Earnings per share 24.6 cents, up 8.1% Of particular note are our underlying earnings per share growth of 8.2%, to 25.2 cents. A final dividend of 10.0 cents, 75% franked has been declared by the Board. This brings total dividends for the year to 20.0 cents, continuing the company’s payout ratio to shareholders at nearly 80%. Fairfax Media has taken decisive steps to ensure that we are better positioned than publishers in the United States and the United Kingdom to respond to these structural challenges: • Our newspapers have an excellent record of circulation growth and long-term circulation and readership stability. This is a result of our investment in colour and other innovations to revitalize our publications. • We have firm cost disciplines that have been devised so as not to harm the internationally recognised quality journalism for which we are renowned. • We have far stronger online positions than our peers overseas, yielding the #1 news and information sites in Australia and a greater share of online classified and display revenues. We own 100% of our entire portfolio of internet assets. No other major publishing company in the world has such strength in newspapers and magazines across metro, regional, financial, community, and agriculture publishing; a comprehensive portfolio of successful online news, classified and transaction businesses; and a strong radio network. With over 300 mastheads across Australia, New Zealand and the United States, more than over 50 major websites, and 15 radio stations, we are one of the largest content generators in Australasia. For Fairfax Media today, our newspapers, news and information websites, radio stations, magazines, and online businesses reach over 10 million people each week in Australia and New Zealand. While Fairfax Media faces the same structural and cyclical issues as other publishing companies worldwide, we are managing those challenges forthrightly through our strategy of diversification and growth. As directed by our Board, our media businesses – in print, online and on air – are working together. The company's publishing operations in regional and rural Australia, agricultural publishing, and financial news and information are performing well. Our online businesses in Australia and with Trade Me in New Zealand are growing aggressively. Our new radio businesses are strong. Fairfax New Zealand is carefully managing the difficult economic conditions in that country. Taken together, our growth in these key areas – which generate 80% of the company’s earnings – helps offset the structural threat to the classifieds in the metropolitan newspapers in Sydney and Melbourne, and the cyclical weakness in those advertising markets. Notwithstanding an earnings decline of 9% in the Sydney and Melbourne mastheads, overall earnings were up 8%. This is a direct result of our strategic reorientation of the company. This is why we believe Fairfax Media is better positioned than at any other time in its past 175 years to meet the ongoing challenges we will face this year and continue on a sound strategic course for the future. With a dynamic Board and management’s leadership, we have completely reshaped our company for the next generation. 1 Chairman’s Report I am pleased to report that your Board continues to work as a team together. We have an exceptionally capable management team, led by our CEO, David Kirk, to ensure we deliver to our shareholders the full benefits of the investments and acquisitions we have made. We look forward to continued implementation of our strategic vision and the benefits it is delivering to everyone involved in this exceptional company. I also want to thank our staff for their continued dedication and commitment to the company and our shareholders. Ronald J. Walker, AC CBE Chairman 2 Chief Executive Officer’s Report For the 2008 financial year, we reported strong earnings growth in the face of difficult economic conditions in Australia’s Sydney and Melbourne metropolitan markets and in New Zealand. Fairfax Media continued to grow in the second half of the year as markets tightened with earnings per share up 7.7%. These results highlight the successful implementation of our strategy of diversification of revenue, investment in digital earnings growth and constant focus on operational improvement to drive earnings per share growth. Our highest priority this year was to deliver on what we promised when we undertook substantial investment and expansion – and we have delivered. Full year key operating performance highlights include: • • • • Australian Regional and Community publications EBITDA up 7.8% Specialist (financial and agricultural) publishing EBITDA up 15.0% Fairfax Digital revenues up over 30%, and EBITDA up 46% Trade Me EBITDA up 39.0% to NZ$70.1 million • Overall costs up 1.4% • Continued growth in New Zealand publishing in the second half of the year in tough conditions with EBITDA (local currency) improving 0.6% on the prior year, and full year earnings up by 3.1% and by 4.3% on a like-for-like basis. With respect to overall business performance, there were significant achievements in key areas: • • • • • • • • Successful completion of the merger with Rural Press, and the establishment of a new management team for Australian Publishing and Printing led by Brian McCarthy, with delivery of all synergies. Successful upgrade and enhancements of the regional masthead websites, and rebranding and rollout of the Domain property brand across that network. A range of upgrades and investments to expand our printing business. A continued program of successful bolt-on acquisitions. Successful completion of the acquisition of the radio broadcasting and television production and distribution businesses of Southern Cross, with rebranding completed and cross-promotion with radio and our print and online mastheads in major markets underway, and cost synergies realised. Successful launch of WAtoday.com.au, extending our national footprint in news and classifieds, and bringing diversity and competition to the media market in Western Australia. WAtoday’s initial audience figures have exceeded expectations, and are already within range of the incumbent newspaper’s website. Successful completion of our move to One Darling Island in Sydney, with new infrastructure and facilities serving our Sydney operations, including Herald Publications, Fairfax Business Media, Fairfax Digital, and corporate. A major reorganisation in Fairfax New Zealand, with new editorial and commercial leadership, growth of our online news and information sites and continued strong market leadership in newspapers and magazines. • Commencement of construction of Media House in Melbourne, which will house our Victorian operations. With respect to the business units and their performance: AUSTRALIAN PUBLISHING AND PRINTING Regional and Community Newspapers overall continued to post strong revenue and profit growth in Canberra, Newcastle, and regional publications across Queensland, Victoria, South Australia, Tasmania and Western Australia. Weaker real estate markets affected NSW community publications. Metro publishing revenues were weaker, with total revenues reflecting continued advertising weakness, particularly in Sydney. Melbourne market conditions were stronger but did weaken in the second half of the year. Circulation was strong with The Age a particular highlight. 3 Chief Executive Officer’s Report Fairfax Magazines performed very well, with strong revenue and profit growth. Agriculture publishing had a strong year, notwithstanding drought conditions in parts of Australia, most notably southern and western NSW, with solid earnings growth on steady revenues and firm cost controls. Offshore publishing The US agricultural publishing business continued to enjoy solid gains with an earnings improvement of 38% on last year in US dollar terms. New Zealand agricultural publishing increased revenue and earnings. Printing operations benefited from restructuring, consolidation and investment, with good earnings growth. FAIRFAX BUSINESS MEDIA Fairfax Business Media had continued strong revenue and profit growth with robust advertising growth in The Australian Financial Review. Business magazines had a steady performance with stronger profit growth at BRW. Circulation of The Australian Financial Review, both on weekdays and during the weekend, has grown strongly. Afr.com continues to progress well. FAIRFAX DIGITAL Fairfax Digital’s revenue increased over 30%, with a profit at the EBITDA level, up 46.8% over the 2007 financial year. Total traffic across all the Fairfax sites increased to over 16.5 million unique browsers per month, up 15% on the previous corresponding period. Fairfax Digital enjoys the absolute leadership position in online news with smh.com.au and theage.com.au, has the leading sites in online dating (RSVP), and holiday rentals (Stayz), and has strong positions in the employment, real estate and automotive classified categories. Brisbanetimes.com.au has enjoyed strong growth over the year, and WAtoday has exceeded expectations thus far. Transaction revenues continue to grow strongly. Revenue and earnings gains were also registered as a result of the upgrade of Rural Press masthead online sites and their integration into the overall Fairfax Digital network. TRADE ME Trade Me contributed NZ$70.1 million in EBITDA to the group result, up 39%. These strong results triggered the payout to the principals of the earn-out on the acquisition of Trade Me of NZ$45.2 million. During the year: • Live to site auction listings passed 1,180,118, an increase of 31% • Motor Vehicle listings are currently over 59,409, up 37% YOY • Real Estate listings exceeded 81,796, and were up 111% YOY • Jobs listings exceed 10,000, up 31% YOY FAIRFAX MEDIA NEW ZEALAND Fairfax Media New Zealand reported earnings growth and a marginal increase in revenues in local currency terms, notwithstanding a worsening of economic conditions during the second half of the year that affected employment and real estate advertising markets. In particular, the benefits of cost reduction measures continue to flow through to earnings. Underlying publishing costs were well contained despite strong inflationary pressures on labour costs. The New Zealand mastheads had solid circulation and readership performance. FAIRFAX RADIO Fairfax Radio Network enjoyed good performance in Melbourne, Perth and Brisbane, with Sydney operations stabilising. Overall ratings improved as the year progressed. Expected cost synergies have been fully achieved. Regional radio continued to grow solidly. SOUTHERN STAR Southern Star fully delivered on expectations in the first eight months of ownership by Fairfax Media. The Company has announced the sale of Carnival Film & Television Ltd. in the UK to NBC Universal, which will generate proceeds to the Company of £22.5 million (or $48.3 million at the current exchange rate). This is a very satisfactory set of results in the face of declining earnings for our metropolitan newspapers in Australia and tough trading conditions, particularly in New Zealand. 4 Chief Executive Officer’s Report BUSINESS IMPROVEMENT PROGRAM In August we announced implementation during the first half of the 2009 financial year a business improvement program across the Group’s corporate division, Australian publishing and printing businesses and Fairfax New Zealand. The program will deliver around $50 million in annualised cost savings. Approximately $25 million of the savings will flow into the 2009 financial year result. The Company will book a one-off charge of approximately $50 million for redundancy and associated costs during this half. This is the third wave of business improvement initiatives we have undertaken over the past three years. Over the course of the 2006 and 2007 financial years we achieved $52 million in ongoing real cost reductions. Cost synergies associated with the merger of Fairfax Media and Rural Press and the acquisition of Southern Cross radio produced a further $53 million in savings ($45 million Rural Press, $8 million radio). All of these synergies will be realised by the end of this financial year. With the new organisation structure in place and line management operating effectively now is the time to launch a third wave of business improvement. Fairfax Media needs to continue to adapt as media markets here and around the world change. This far- reaching program will position us well for the next stage of our growth and development. Fairfax Media is in excellent shape. Our strategy of diversification and growth has enabled us to meet the challenges we face, and to ensure an even more robust future. I appreciate the support given by the Board for me and my executive team. David Kirk MBE Chief Executive Officer 5 Board of Directors Board of Directors MR RONALD WALKER, AC CBE NON-EXECUTIVE CHAIRMAN Mr Walker has been prominent in public life for more than 40 years. He was founder and chairman of one of Australia’s largest private chemical companies between 1963 and 1976, was co-founder, director and major shareholder of Hudson Conway Limited, and was co-founder and major shareholder of Crown Casino Limited, and Scarborough Minerals Limited. Mr Walker served two terms as Lord Mayor of Melbourne from 1974 to 1976. Mr Walker has served Australia in many capacities over many years in public life including: Chairman, Cancer Institute; Chairman, Heart Foundation Appeal; Chairman, Save the Children Fund; Chairman, Aborigines Advancement League; Chairman, Australian Ballet Foundation; Chairman, Australia Business Arts Foundation; Commissioner, Melbourne 1996 Olympic Games Bid; Member, Sydney 2000 Olympics Bid; Trustee, National Gallery of Victoria for nine years; Founding Chairman, Victorian Major Events Company for ten years; Chairman, Melbourne 2006 Commonwealth Games; Chairman, Australian Grand Prix Corporation and MotoGP; Member, Formula One Commission UK; Director, Football Federation Australia; Chairman, Microsurgery Foundation at St Vincent’s Hospital; Director, Australian Tissue Engineering Centre at St Vincent’s Hospital. In 1977 Mr Walker was made a Commander of the Order of the British Empire (CBE) for service to the Commonwealth. He became an officer of the Order for Australia (AO) for service to the community 1987, and was made a Companion of the Order of Australia (AC) in 2003 for services to business, arts, tourism and the community. MR ROGER CORBETT, AO NON-EXECUTIVE DIRECTOR Mr Corbett has been involved in the retail industry for more than 40 years. In 1984, Mr Corbett joined the Board of David Jones Australia as Director of Operations. In 1990, he was appointed to the Board of Woolworths Limited and to the position of Managing Director of BIG W. On 1 January 1999, Mr Corbett was appointed Chief Executive Officer of Woolworths Limited and retired from that position at the end of September 2006. Mr Corbett is a Director of the Reserve Bank of Australia, a Director of Wal-Mart Stores, a Director of PrimeAg and Chairman of ALH Group. MR DAVID EVANS NON-EXECUTIVE DIRECTOR Mr Evans has over three decades of experience in the television industry in Australia, the US and the UK. He is a member of the senior executive team at RHI Entertainment in New York, in charge of New Media and Channel Development. Mr Evans is also on the board of directors of Village Roadshow Limited and BSkyB in the UK. Prior to taking up his position at RHI Entertainment, he was President and CEO of Crown Media Holdings, Inc, the owner of Hallmark Channels in the USA. Mr Evans has also served as Executive Vice President of News Corporation, and President and Chief Operating Officer of Fox Television. MR JOHN B FAIRFAX, AM NON-EXECUTIVE DIRECTOR Mr John B Fairfax was a board member of Rural Press from 1988 and Chairman from 1990 until the Merger with Fairfax Media Limited. He has significant experience as a company director and in the media and agricultural industries. He has been Chairman of Marinya Media Pty Limited since 1988, councillor of the Royal Agricultural Society of New South Wales since 1990, Councillor since 1979, and President since 1993 of Girls and Boys Brigade Inc. and Trustee of Reuters Founders Share Company Limited since 2005. Previously Mr Fairfax was Deputy Chairman of Fairfax (then John Fairfax Limited) from 1985 – 1987 and Director from 1979 – 87, Director of David Syme & co Ltd 1981 – 87, Chairman of the Media Council of Australia from 1980 – 82, Chairman of the Newspaper Advertising Bureau 1985 – 87, Chairman of the Australian section of the Commonwealth Press Union 1987 – 92, Director of St Lukes’ Hospital 1973 – 76 and also 1981-95, Chairman of Cambooya Investments Limited 1991 – 2002, Director of Australian Rural Leadership Foundation Limited 1992 – 98, Director of Crane Group Limited 1996 – 2003 and a Director of Westpac Banking Corporation Limited 1996 – 2003. 6 Board of Directors MR NICHOLAS J FAIRFAX NON-EXECUTIVE DIRECTOR Mr Nicholas Fairfax was a Director of Rural Press Limited from August 2005 until 9 May, 2007. He has been a Director of Marinya Media Pty Ltd since 2005, a Director of Cambooya Pty Ltd since 2002 and a Director of the Vincent Fairfax Family Foundation since 2004. Mr Fairfax is a Director of Tickets Holdings Pty Limited, an alternate Director of Bayard Group Pty Ltd since 2002 and a member of UTS Faculty of Business Executive Council. MRS JULIA KING NON-EXECUTIVE DIRECTOR Mrs King has had more than 30 years’ experience in media marketing and advertising. She was Chief Executive of the LVMH fashion group in Oceania and developed the businesses in this area. Prior to joining LVMH she was the Managing Director of Lintas Advertising. She has been on the Australian Government’s Task Force for the restructure of the Wool Industry, the Council of the National Library and the Heide Museum of Modern Art. Mrs King is a director of Servcorp Australian Holdings Pty Limited, Opera Australia and Carla Zampatti Limited. MR DAVID KIRK, MBE EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr Kirk commenced as CEO of Fairfax Media in October 2005. Prior to joining Fairfax Media, Mr Kirk was the CEO and Managing Director of PMP Ltd, the largest magazine and commercial printing and media services company in Australia. Prior to this, he was Regional President, Australasia for Norske Skog, the world’s largest manufacturer of newsprint and magazine grades of paper. Mr Kirk previously worked for Fletcher Challenge Paper and Fletcher Challenge Energy in senior executive roles in New Zealand and Australia. Prior to joining Fletcher Challenge, Mr Kirk worked for three years as first Executive Assistant and then Chief Policy Advisor to the Rt. Hon. Jim Bolger, Prime Minister of New Zealand. Apart from the business arena, he represented New Zealand in rugby union from 1983-1987 and captained the All Blacks in 1986 and 1987. In 1987, under his leadership the All Blacks won the inaugural Rugby World Cup. In 1987 he was awarded an MBE for services to rugby. In 1987 he took up a Rhodes Scholarship at Oxford University, studying Philosophy, Politics and Economics. His first degree was in Medicine. MR BOB SAVAGE NON-EXECUTIVE DIRECTOR In addition to his particular expertise in the management of information technology and systems, Mr. Savage brings to the Fairfax Media board his experience as a senior executive in Australia and the Asian region, including experience in people management and organisation effectiveness issues and several years experience as a Non Executive director and Chairman across a wide range of Australian companies. Mr Savage was formerly Chairman and Managing Director of IBM Australia and New Zealand. He is Chairman of David Jones Limited and Perpetual Limited, was Chair of Mincom Limited until sold in May 2007, and was a director of Smorgon Steel Group Limited until August, 2007, when it merged with OneSteel Limited. MR PETER YOUNG, AM NON-EXECUTIVE DIRECTOR Over the last thirty years Mr Young has been an investment banking executive in Australia, New Zealand and the U.S.A. Until recently he served as Chairman of Investment Banking for ABN AMRO in Australia and New Zealand. From 1998 to 2002, Mr Young was Executive Vice Chairman, ABN AMRO Group (Australia and New Zealand) and Head of Telecommunications, Media & Technology Client Management for Asia Pacific. He is currently the Chairman of Transfield Services Infrastructure Fund, Chairman of the AIDA Fund Limited, the Chairman of EFIC, the Federal Government’s Export Agency and Chairman of Delta Electricity. He is involved in several other community, environmental and artistic activities. 7 Directors’ Report The Board of directors presents its report together with the financial report of Fairfax Media Limited (the Company) and of the consolidated entity, being the Company and its controlled entities for the period ended 29 June 2008 and the auditor’s report thereon. Directors The directors of the Company at any time during the financial year or up to the date of this report are as follows. Directors held office for the entire period unless otherwise stated: MR RONALD WALKER, AC, CBE Non-Executive Chair MR DAVID KIRK, MBE Executive Director and Chief Executive Officer MR ROBERT SAVAGE Non-Executive Director MR PETER YOUNG, AM Non-Executive Director MR ROGER CORBETT, AO Non-Executive Director MR DAVID EVANS Non-Executive Director MR JOHN B FAIRFAX, AM Non-Executive Director MR NICHOLAS FAIRFAX Non-Executive Director MRS JULIA KING Non-Executive Director Company Secretary MR MARK BURROWS, AO Non-Executive Deputy Chair Resigned from the Board on 31 January, 2008 A profile of each director at the date of this report is included on pages 6 and 7 of this report. Mr Patrick Joyce, Investment Director at Marinya Media Pty Limited, is an alternate director for Messrs John B and Nicholas Fairfax. The company secretary, Ms Gail Hambly, was appointed to the position of Group General Counsel and Company Secretary in 1993. Before joining Fairfax Media Limited she practised as a solicitor at a major law firm. She has extensive experience in commercial, media and communication law. Ms Hambly is a member of the Media and Communications Committee for the Law Council of Australia and a member of the Institute of Chartered Secretaries and Administrators and Chartered Secretaries Australia. She holds degrees in Law, Economics, Science and Arts. Corporate structure Fairfax Media Limited is a company limited by shares that is incorporated and domiciled in Australia. Principal activities The principal activities of the consolidated entity during the course of the financial year were publishing of news, information and entertainment, advertising sales in newspaper, magazine and online formats, radio broadcasting and film and television production and distribution. There were no significant changes in the nature of the consolidated entity during the year other than the matters set out as significant changes in the state of affairs below. Consolidated result The consolidated profit attributable to the consolidated entity for the financial year was $386,878,000 (2007: $263,510,000). 8 Directors’ Report Dividends A final fully franked dividend of 10 cents per ordinary share and debenture in respect of the year ended 1 July, 2007 was paid on 27 September, 2007. This dividend was shown as approved in the previous annual report. An interim 75% franked dividend of 10 cents per ordinary share and debenture in respect of the year ended 29 June, 2008 was paid on 31 March 2008. Since the end of the financial year, the Board has declared a final 75% franked dividend of 10 cents per ordinary share and debenture in respect of the year ended 29 June, 2008 payable on 2 October, 2008. Distributions to holders of Stapled Preference Securities (SPS) were paid as follows: $4.0404 per share paid 31 October 2007 and $4.3341 per share paid 30 April 2008. Review of operations Revenue for the Group increased 34% to $2,934 million generating a net profit after tax of $386.9 million, an increase of 46.8%. Earnings per share increased 8.4% to 24.6 cents. These Group results include the former Southern Cross radio network and Southern Star television and distribution businesses acquired on 9 November 2007. Operations which recorded increases in revenues and profits were Australian regional and community publications, specialist publications, Australian printing, New Zealand publications and the online businesses Fairfax Digital in Australia and Trade Me in New Zealand. Revenues and profit of the Australian metropolitan publication businesses were lower. Further information is provided in the Management Discussion and Analysis Report on page 30. Significant changes in the state of affairs Significant changes in the state of affairs of the consolidated entity during the financial year were as follows: • On 9 November 2007, the consolidated entity completed its acquisition of the former Southern Cross Broadcasting’s radio business, (including metropolitan stations 2UE in Sydney, 3AW and Magic 1278 in Melbourne, 4BC and 4BH in Brisbane and 6PR and 96FM in Perth) the Southern Star television production and distribution business, Satellite Music Australia and associated businesses from Macquarie Media Group; • The headquarters of the consolidated entity were relocated from Darling Park to One Darling Island, Pyrmont during December, 2007. Likely developments and expected results The consolidated entity’s prospects and strategic direction are discussed in the Chairman’s and the Chief Executive Officer’s reports on pages 1 - 5 of this report. Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. Environmental regulation and performance The Company is not subject to any particular and significant environmental regulation under law. Nevertheless, the Company commissions regular independent expert audits in respect of environmental compliance. Recommendations resulting from these audits and reports have been, or are being, implemented. No material non-compliance with environmental regulation has been identified relating to the 2007/08 financial year. During the year the Company commissioned a measurement of its carbon footprint. Based upon current reporting threshold requirements the Company does not presently have a CO2 emissions reporting obligation. In the move of its head office building and the planned relocation of The Age Company in Melbourne, the Company aims to achieve real improvements in its energy efficiency and CO2 emissions. 9 Directors’ Report Events after balance date RESTRUCTURE Subsequent to year end, the Group announced a business improvement program and initiatives to improve the overall productivity and performance of the business. The restructure is expected to deliver around $50 million in annualised cost savings with approximately $25 million flowing in to the 2009 financial year. It is anticipated that there will be a one off cost in the 2009 financial year of approximately $50 million. This has not been recorded in the current period. TRADE ME EARN OUT Subsequent to year end, NZ$45.2 million (A$35.2million) was paid to the former owners of Trade Me Limited as part of the contractual second year earn out agreement entered into at the time of acquisition of Trade Me Limited on 5 March, 2006. A provision was recognised as at 29 June 2008. CARNIVAL FILM & TELEVISION LTD SALE On 20 August 2008, the Company announced it had agreed to sell, subject to regulatory approvals, Southern Star Group Limited's 75% interest in UK based Carnival Film & Television Ltd together with certain library and distribution rights of Carnival productions currently held by Southern Star, for a total sale price of approximately £22.3 million. This has not been recorded in the current period. Remuneration Report A remuneration report is set out on pages 14 - 21 and forms part of this Directors’ Report. Directors’ Interests The relevant interest of each director in the equity of the Company, as at the date of this report is: ORDINARY SHARES Opening Closing Year End Year End Year End Balance Acquisition Disposals Balance Acquisitions Disposals Balance Post Post Post RJ Walker RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk R Savage P Young M Burrows * TOTAL 1,014,300 29,540 13,801 216,501,147 19,530 10,551 38,647 8,135 1,210,113 1,202,238 37,352 8,716 324,405 786,386 - 19,996 12,367 45,712 9,048 8,943 26,500 216,482,782 - - - - - - - - - 1,033,830 28,297 40,091 52,448 2,412,351 46,068 3,989 3,547 3,103 3,989 3,325 1,110,791 857,489 19,996 21,415 54,655 3,324 3,768 - 219,188,737 2,112,190 26,500 221,274,427 910,831 - - - - - - - - - - - 1,062,127 44,080 55,995 216,485,885 2,416,340 49,393 1,968,280 23,320 25,183 54,655 222,185,258 * The closing and post year end balance represents the number of shares held by Mr Burrows at the date he resigned from the Board. No director holds options over shares in the Company. 10 Directors’ Report Directors’ meetings The following table shows the number of Board and Committee meetings held during the financial year ended 29 June, 2008 and the number attended by each director or Committee member. MEETINGS *** Personnel Policy and No. Held No. Attended No. Held No. Attended No. Held No. Attended No. Held No. Attended Audit & Risk Nominations Remuneration 8 8 8 8 8 8 8 8 8 4 8 7 8 7 8 8 8 8 8 4 4 4 - - 4 - 4 4 4 2 4 4 - - 4 - 4 3 4 2 2 - 1 - 2 2 2 - - - 2 - 1 - 2 2 2 - - - 5 6 6 6 - - 6 - 2 4 5 6 4 5 - - 6 - 2 3 R J Walker** R C Corbett D Evans JB Fairfax NJ Fairfax JM King DE Kirk* R Savage P Young M Burrows * Mr Kirk attended Audit & Risk and Personnel Policy and Remuneration Committee meetings as an invitee of the Committees. ** Mr Walker, Chairman, is an ex officio member of all Board committees. *** The number of meetings held refers to the number of meetings held while the director was a member of the Board or the relevant Committee. Options There are no unissued shares under option as at the date of this report. No options over unissued shares were granted during or since the end of the financial year. There were no movements in options during the financial year. No shares were issued during or since the end of the financial year as a result of the exercise of an option. Indemnification and insurance of officers and auditors The directors of the Company and such other officers as the directors determine, are entitled to receive the benefit of an indemnity contained in the Constitution of the Company to the extent allowed by the Corporations Act 2001, including against liabilities incurred by them in their respective capacities in successfully defending proceedings against them. During or since the end of the financial year, the Company has paid premiums under contracts insuring the directors and officers of the Company and its controlled entities against liability incurred in that capacity to the extent allowed by the Corporations Act 2001. The terms of the policies prohibit disclosure of the details of the liability and the premium paid. Each director has entered into a Deed of Indemnity and Access which provides for indemnity against liability as a director to the extent allowed by the law. There are no indemnities given or insurance premiums paid during or since the end of the financial year for the auditors. No officers are former auditors No officer of the consolidated entity has been a partner of an audit firm or a director of an audit company that is the auditor of the company and the consolidated entity for the financial year. Non-audit services Under its Charter of Audit Independence, the Company may employ the auditor to provide services additional to statutory audit duties where the type of work performed and the fee for services do not impact on the actual or perceived independence of the auditor. Details of the amounts paid or payable to the auditor, Ernst & Young for non-audit services provided during the financial year are set out below. Details of amounts paid or payable for audit services are set out in Note 34 to the financial statements. 11 Directors’ Report The Board of Directors has received advice from the Audit & Risk Committee and is satisfied that the provision of the non-audit services did not compromise the auditor independence requirements of the Corporations Act 2001 because none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. A copy of the auditor’s independence declaration under section 307C of the Corporations Act 2001 is on page 13 of this report. During the financial year, Ernst & Young received or were due to receive the following amounts for the provision of non-audit services: Subsidiary company and other audits required by contract or regulatory or other bodies: • Australia $296,000 • Overseas $230,402 Other assurance and non-assurance services: • Australia $148,707 • Overseas $41,136 Rounding The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the directors’ report. Amounts contained in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. Signed on behalf of the directors in accordance with a resolution of the directors. Ronald Walker Chair 26 September, 2008 David Kirk Chief Executive Officer and Director 12 Remuneration Report 1. Introduction This report forms part of the Company’s 2008 Directors’ Report and describes the Fairfax remuneration arrangements for directors and prescribed senior executives. It has been prepared to comply with the requirements of the Corporations Act 2001 and its Regulations. The report also contains details of the equity interests of Fairfax directors and certain senior executives. 2. Personnel Policy and Remuneration Committee (PPRC) The current members of the PPRC are Roger Corbett (Chair), David Evans, John B Fairfax and Peter Young. All members except John B Fairfax are independent directors. The PPRC met six times during the year. The Committee’s primary responsibilities are to: (a) review and approve Fairfax employee remuneration strategies and frameworks and to oversee the development and implementation of employee remuneration programs, performance management processes and succession planning with the goal of attracting, motivating and retaining high quality people; (b) review and recommend to the Board for approval the goals and objectives relevant to the remuneration of the CEO, assist the Board to evaluate the performance of the CEO in light of those goals and objectives, and to recommend to the Board the CEO’s remuneration (including incentive payments) based on this evaluation; (c) review the principles to apply to contractual terms of employment for direct reports to the CEO including base pay, incentives, superannuation arrangements, retention arrangements, termination payments, performance goals and performance based evaluation procedures and succession plans; (d) make recommendations to the Board regarding directors’ fees and review and recommend the aggregate remuneration of non- executive directors to be approved by shareholders; (e) review the key parameters for salary movements for the Group as a whole. The CEO, the IT & Group HR Director and the General Manager, Group HR, regularly attend PPRC meetings but not when their own remuneration arrangements are being discussed. The Committee commissions reports from independent remuneration experts on market relativities and other matters relating to remuneration practices to assist it with setting appropriate remuneration levels and processes. 3. Remuneration of Non-Executive Directors Under the Company’s Constitution, the aggregate remuneration of non-executive directors is set by resolution of shareholders. The aggregate was last reviewed by shareholders at the 2007 Annual General Meeting and set at $2,000,000 per annum. Within this limit, the Board annually reviews directors’ remuneration with advice from the PPRC. The Board also considers survey data on directors’ fees paid by comparable companies, and expert advice commissioned from time to time. Fees to non-executive directors reflect the demands and the responsibilities of each director including service on Board Committees. By resolution of the Board, each non-executive director sacrifices at least 25% per annum of his or her director’s fees to the Company’s Employee Share Plan. Under this Plan, shares are purchased on-market by an independent trustee on behalf of directors, as well as for employees who have salary sacrificed to participate in the Plan. Share acquisition dates are pre-set by the trustee. 14 Remuneration Report Directors have resolved that there will be no increase in Directors fees for 2008-09 year. At the date of this report the Board has set fees as follows: Chair * Other Non-Executive Director Chair of Audit & Risk Committee Members of Audit & Risk Committee Chair of Personnel Policy & Remuneration Committee Members of Personnel Policy & Remuneration Committee Chair of the Nominations Committee Members of Nominations Committee * Ronald Walker, as Chair, does not receive committee fees. The fees above do not include statutory superannuation payments. 3.1 RETIREMENT BENEFITS FOR NON-EXECUTIVE DIRECTORS $ 336,000 120,000 40,000 30,000 30,000 20,000 30,000 20,000 The Company makes superannuation contributions on behalf of non-executive directors in accordance with statutory requirements. In 2004, the Company discontinued its retirement benefits scheme for non-executive directors and froze existing entitlements at that time. Other than superannuation contributions as outlined above, non-executive directors who did not have five years service on the Board as at 30 June 2004 are not eligible for retirement benefits. Non-executive directors who had served on the Board for at least five years as at 30 June 2004 and who therefore had already qualified for benefits under the previous scheme are, on retirement, entitled to a retirement benefit equivalent to the lesser of: (a) three times the relevant director’s annual directors fee as at 30 June 2004: or (b) the maximum allowable without shareholder approval under the Corporations Act and the ASX Listing Rules. 4. Remuneration of the Chief Executive Officer The remuneration details for the CEO, are set out in section 5.6 of this report. The key terms of Mr Kirk’s Executive Services Agreement with the Company include a base salary, currently $1.7 million per year, and performance bonus (“Performance Bonus”) of up to 100% of base salary depending on achievement of defined performance criteria set at the beginning of each financial year. The performance targets are approved by the Personnel Policy and Remuneration Committee (“PPRC”) of the Board each year. Sixty percent of the Performance Bonus is determined by achievement of financial targets for the Group. The remaining forty percent is based on other Key Performance Indicators set by the PPRC each year depending on the operational and strategic goals of the Group. For the financial years 2006 and 2007, one third of the Performance Bonus earned by the CEO was paid in Company shares purchased on market by the trustee of the Employee Share Plan. Each of the annual allocations of these shares have a three year vesting date. Under his Executive Service Agreement entered into when he joined the Company, Mr Kirk was entitled to a one-off special payment of $1.2 million in lieu of benefits forgone from previous employment. Of this amount, $400,000 was paid on commencement of employment, a further instalment of $400,000 was paid on 1 July 2006 and the final $400,000 was paid on 1 July 2007. Mr Kirk has salary sacrificed each of the instalments into the Fairfax Employee Share Plan for the purchase of Fairfax shares. In 2007 the Company introduced a new long-term equity based incentive scheme for senior executives, including the CEO (“Long Term EBIS”). This scheme is effective from the 2008 financial year. This replaced the previous equity-based incentive scheme. Details of the Long Term EBIS are set out in section 5.2(C) of this report. Under the Long Term EBIS Mr Kirk receives the equivalent of 150% of his total fixed remuneration as an allocation of Company shares each year. These shares vest on the terms set out in section 5.2(C) below. 5. Remuneration of Senior Executives The objectives of the Company’s executive remuneration framework are to align executive remuneration with the achievement of strategic objectives, the creation of value for shareholders, and to be in line with market. 15 Remuneration Report The PPRC aims to ensure that executive remuneration addresses the following criteria: • Fairly remunerate capable and performing executives. • Attract, retain and motivate talented, qualified and experienced people in light of competitive employment markets. • Align remuneration with achievement of business strategy. • Align interests of executives and shareholders. • Deliver competitive cost outcomes. • Comply with regulatory requirements. • Be transparent and fair. The framework provides a mix of fixed salary and performance-based incentives. Payment of performance-based incentives is determined by the financial performance of the Company, the financial performance of the business unit relevant to the executive and the performance of the individual executive against objectives set at the beginning of the year. The PPRC discusses and approves the remuneration packages and any bonus payments to the direct reports of the CEO annually in August. On the recommendation of the CEO, it also approves key performance indicators for these executives for the following year. The executive remuneration framework has the following components: • A fixed remuneration package which includes base pay, superannuation and other benefits. • Performance incentives. The combination comprises the executive’s total remuneration. The fixed component of the remuneration package (represents the total cost to the Company and) includes all employee benefits and related Fringe Benefits Tax (FBT), for example, motor vehicle, parking and superannuation. 5.1 PERFORMANCE BASED SHORT TERM INCENTIVES (“BONUS”) FOR SENIOR EXECUTIVES Annual Bonus payments for senior executives depend on achievement of annual financial performance criteria for the Group as well as specific strategic and operational criteria. The Bonus criteria for the CEO are set each year by the Board. Each senior executive has a target bonus opportunity depending on the accountabilities of the role and impact on Company or business unit performance. For most senior executives reporting directly to the CEO the on-target Bonus opportunity for 2008 was 40% of the executive’s fixed remuneration package and the maximum Bonus opportunity was 80% of the fixed remuneration package. Generally, the Bonus opportunity consists of three components: 35% of the Bonus opportunity is based on EBITDA and earnings per share, 35% is based on business unit financial performance and 30% is based on other key performance indicators (KPIs). For corporate executives whose duties are not confined to one business unit, generally 60% of the Bonus opportunity is based on corporate financial performance. For the period ended 29 June 2008, the KPIs linked to the incentive plans for senior executives were based on Group performance, individual business unit performance and personal objectives (KPIs). The KPIs required performance in increasing revenue, reducing operating costs and achieving specific targets relating to other key strategic non-financial measures linked to drivers of the Group’s performance, including circulation, readership and market position. Specific measures for individuals include EPS, EBITDA, revenue, circulation, readership targets and occupational health and safety targets. The Board sets Group profit targets annually as part of the budget and strategic planning process. Using a profit target ensures reward is linked to achievement of the business plan and value creation for shareholders. Incentives are leveraged for performance above the threshold to provide incentive for executive over performance. 5.2 EQUITY-BASED INCENTIVE SCHEMES (EBIS) Participants are senior executives reporting to the CEO whose roles and skills are critical to the strategy of the Group. 16 Remuneration Report (A) PRE 2006 EBIS Under the Pre 2006 EBIS in place prior to the 2006 financial year, equity-based incentives (EBIs) were payable according to the total shareholder return (TSR) of the Company over a three year period against a comparator group of companies. The maximum reward was 25% of fixed pay plus bonus and was payable in Company shares. Each year a target EBI amount was determined for each participating executive (the “Allocation”). At the end of three years from the Allocation date, the Allocation becomes available to the executive (“Vests”) if performance hurdles have been met. If the performance hurdles are not met at the end of the third year the executive loses the Allocation. The comparator group is the ASX 300 Industrial Accumulation Index (“Comparator”). For each Allocation to vest, the Company’s TSR over the relevant three year period must outperform the Comparator (the “Hurdle”). Allocations in the EBIS were made in each July 2001, 2002, 2003, 2004 and 2005. Over all of the performance periods, the Hurdle was not met and as a result, at the end of the 2008 financial year all allocations have been cancelled. In 2006, the Pre 2006 EBIS was replaced by the 2006/07 EBIS described below. (B) 2006-2007 EBIS In 2006, after a review of the Pre 2006 EBIS by the PPRC and consultation with an external remuneration expert, the Company replaced the Pre 2006 EBIS with the 2006/07 EBIS to more closely align shareholders’ interests with the Company’s remuneration principles. Under the 2006-2007 EBIS, which applied for bonuses earned in the 2006 and 2007 financial years, one third of the annual bonus earned on the achievement of KPIs, as detailed in Section 5.1 above, was deferred. The deferred amount was remitted to the trustee of the Employee Share Plan who purchases shares on market and allocates the shares inside the Plan to the relevant executive. Each executive’s allocated shares vest three years after the allocation date subject to ongoing employment requirements. C) 2008 LONG TERM EBIS In August 2007, the Board approved a new long-term EBIS (Long Term EBIS) for the CEO, his direct reports and a wider group of senior executives whose performance is critical to the overall performance of the Group. The Long Term EBIS commenced from the 2008 financial year. It aims to reward executives for creating growth in shareholder value. Participants in the Long Term EBIS receive a percentage of their total fixed remuneration as an allocation of Company shares (Allocation), as part of the performance review process. The number of Company shares to which a participant is entitled will depend on the participant’s role and responsibilities. Company shares for the Allocations are be purchased on market by the Trustee of the Employee Share plan and held by the Trustee in trust until the Allocation vests or is forfeited. For an Allocation to vest, there are two performance hurdles, both linked to the Company’s return to shareholders. The hurdles are measured at the end of the three year vesting period. In addition, if an Allocation does not vest at the end of the three year period, a re-test of the performance hurdles will occur at the end of the fourth year, and if satisfied, the Allocation will vest. Fifty percent of an Allocation will vest on achievement by the Company of the total shareholder return (TSR) target. TSR will be measured against the S&P/ASX 300 Consumer Discretionary Index and shares will vest against the capital weighted percentile thresholds set out in the table below: TSR performance % of allocation that vests Under 50th percentile 50th percentile 50th to 75th percentile Above 75th percentile Nil 50% of allocation Straight line pro rata 100% The other fifty percent of the Allocation will vest on achievement of the earnings per share (EPS) target. EPS will be measured by the compound annual growth rate (CAGR) of the Company’s EPS and vesting will be according to the table below: 17 Remuneration Report EPS performance % of allocation that vests Less than 7% CAGR 7% CAGR Nil 25% 7% to 10% CAGR Straight line pro rata 10% CAGR or above 100% OTHER TERMS OF THE LONG-TERM EBIS On termination of a participant’s employment, vesting rights will depend on the circumstances of the termination. If a participant resigns, unvested allocations will be forfeited however the Board will have a discretion to allow vesting. On termination for fraud or misconduct, allocations will be forfeited. If a participant is terminated without cause, for example made redundant or dies or is permanently disabled, then vesting will be at the Board’s discretion and subject to the achievement of the performance hurdles. In the circumstances of an offer to acquire the Company, vesting will be at the Board’s discretion. The financial performance of the Company in key shareholder value measures over the past five years is shown below: Underlying operating revenue Net profit before significant items Earnings per share before significant items Dividends per share *Total Shareholder Returns (TSR) AIFRS AIFRS AIFRS AGAAP AGAAP Restated $m $m Cents Cents % 2008 2,909 395.9 25.1 20.0 (34.7) 2007 2006 2005 2004 2,117.6 1,907.8 1,873.4 1,767.7 267.8 23.2 20.0 34.2 234.3 24.5 19.5 (5.70) 237.6 25.8 23.5 23.20 207.6 21.4 16.5 36.64 * Total shareholder returns comprises share price appreciation and dividends, gross of franking credits, reinvested in the shares (source: Bloomberg) 5.3 RETENTION ARRANGEMENTS In 2005, retention arrangements were put in place for two key executives to ensure their retention and successful contribution during the transition to the new CEO. The two key executives and the amounts of the retention are: G Hambly $300,000 S Narayan $300,000 To facilitate this arrangement, ordinary Fairfax Media shares were purchased on market by the trustee of the Employee Share Plan and held in the Employee Share Plan until they vest. The shares vest over a three year period. Vesting is contingent on the executive continuing to be employed by the Company on the date of vesting and also subject to the achievement of the executive’s personal KPIs related to each individual’s area of responsibility. The KPIs are chosen as the most appropriate to drive the successful delivery of business outcomes. The first tranche of 25% of the shares vested on 1 October 2006, the second tranche of 25% vested on 1 October 2007 and the final tranche of 50% is due to vest on 1 October 2008. 5.4 RETIREMENT BENEFITS FOR EXECUTIVES Except for a small number of long serving executives who are members of a defined-benefit superannuation plan, retirement benefits are delivered through defined contribution superannuation plans. The defined-benefit fund (which is closed to new entrants) provides defined lump sum benefits based on years of service, retirement age and the executive’s remuneration at the time of retirement. 5.5 EXECUTIVE SERVICES AGREEMENTS The terms of employment of the CEO are set out in section 4 and in the tables below. The remuneration and other terms of employment for the highest paid executives (disclosed pursuant to section 300A of the Corporations Act) are set out in written agreements. Except for Ms Withers (who has a fixed term contract), these service agreements are unlimited in term but may be terminated without cause by written notice by either party or by the Company making payment in lieu of notice. They may also be terminated with cause as set out below. 18 Remuneration Report Each of these agreements sets out the arrangements for total fixed remuneration, performance-related cash bonus opportunities, superannuation, termination rights and obligations and eligibility to participate in the equity-based incentive scheme. As described elsewhere in this report, executive salaries are reviewed annually. The executive service agreements do not require the Company to increase base salary, pay incentive bonuses or continue the participant’s participation in the equity-based incentive scheme. The key non-financial terms of the contracts for key executives are set out below. Base pay, bonus and equity payments are set out in tables below. TERMINATION OF EMPLOYMENT WITHOUT NOTICE AND WITHOUT PAYMENT IN LIEU OF NOTICE The Company may terminate the employment of the executive without notice and without payment in lieu of notice in some circumstances. Generally this includes if the executive: (a) commits an act of serious misconduct; (b) commits a material breach of the executive service agreement; (c) is charged with any criminal offence which, in the reasonable opinion of the Company, may embarrass or bring the Fairfax Group into disrepute; or (d) unreasonably refuses to carry out his or her duties including complying with reasonable, material and lawful directions from the Company. TERMINATION OF EMPLOYMENT WITH NOTICE OR WITH PAYMENT IN LIEU OF NOTICE The Company may terminate the employment of the executive at any time by giving the executive notice of termination or payment in lieu of such notice. The amount of notice required from the Company in these circumstances is set out in the table below. If the Company elects to make payment in lieu of all or part of the required notice, payment is calculated on the basis of fixed remuneration excluding bonuses and non-cash incentives, except in the case of David Kirk, who is entitled to $2,000,000 in lieu of the full 12 months notice or a pro rata amount for part thereof. Name of Executive David Kirk Company Employee Termination Termination Notice Period Notice Period Post-Employment Restraint 12 months 6 months - 12 month no solicitation of employees or clients - 12 months no work for a competitor of the Fairfax Group Brian McCarthy 12 months 6 months - 12 month no solicitation of employees or clients Gail Hambly 18 months 3 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group - 6 months no work for a competitor of the Fairfax Group Jack Matthews 12 months 6 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group Sankar Narayan 12 months 4 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group Joan Withers 6 months 6 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group 19 Remuneration Report 5.6 REMUNERATION OF DIRECTORS SHORT-TERM Base Salary POST EMPLOYMENT Performance Directors’ & Other Cash Super- Retirement Long Service Total * Related Fees Benefits Bonus annuation Benefits Leave Expense RJ Walker RC Corbett D Evans JB Fairfax NJ Fairfax DE Kirk JM King R Savage P Young 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 336,000 328,000 151,667 151,667 147,333 130,000 140,000 20,290 173,667 24,638 - - 150,000 140,000 152,977 - 154,000 140,000 MD Burrows 2008 128,333 2007 214,167 Total - - - - - - - - - - - - - - - - - - - - 1,650,038 864,960 30,240 29,520 13,650 13,650 13,260 11,700 12,600 1,826 15,630 2,217 50,000 1,330,192 1,166,667 143,380 13,500 12,600 13,768 - 13,860 12,600 - - - - - - - - - - - - - - - - 11,550 228,900 19,275 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 366,240 357,520 165,317 165,317 160,593 141,700 152,600 22,116 189,297 26,855 13,918 2,578,916 - - - - - - - - - 2,640,239 163,500 152,600 166,745 - 167,860 152,600 368,783 233,442 Total n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 50% 47% n/a n/a n/a n/a n/a n/a n/a n/a Directors 2008 1,533,97 1,650,038 864,960 188,058 228,900 13,918 4,479,851 2007 1,148,76 1,330,192 1,166,667 246,768 - - 3,892,389 * In addition to the remuneration in table 5.6 above, David Kirk’s total cost to the Company includes the amortised cost of the fair value of rights to shares issued of $834,967 (2007: $116,666) representing a total of $3,413,883 (2007: $2,756,905). Non-executive directors are not participants in any performance related share arrangements (refer section 3 of the remuneration report). 5.7 KEY MANAGEMENT PERSONNEL The following are the key management personnel for the financial year in addition to the directors listed above. Brian McCarthy Gail Hambly Jack Matthews Sankar Narayan Joan Withers Title Deputy CEO and CEO Australia Group General Counsel and Company Secretary CEO Fairfax Digital Chief Financial Officer CEO Fairfax New Zealand There were no changes to the key management personnel between the end of the financial year and the date of this report. 20 Remuneration Report REMUNERATION OF THE COMPANY & GROUP EXECUTIVES WHO RECEIVED THE HIGHEST REMUNERATION OR ARE KEY MANAGEMENT PERSONNEL POST SHORT-TERM EMPLOYMENT Base Salary Performance & Other Cash Super- Termination Long Service Total excluding Related Company Group Benefits Bonus annuation Benefits Leave Expense shares B McCarthy G Hambly J Matthews S Narayan J Withers TOTAL 490,993 391,600 132,756 1,224,776 2008 (cid:57) (cid:57) 2007 (cid:57) (cid:57) 2008 (cid:57) (cid:57) 2007 (cid:57) (cid:57) 2008 (cid:57) (cid:57) 2007 (cid:57) (cid:57) 459,705 2008 (cid:57) (cid:57) 734,642 2007 (cid:57) (cid:57) 571,804 (cid:57) 564,759 2008 (cid:57) 2008 3,562,533 547,363 516,034 2007 780,000 100,000 - 15,258 150,000 59,045 299,638 74,474 155,000 46,114 116,667 40,295 288,000 65,396 442,071 78,387 174,382 91,616 - - 1,547,382 270,554 2007 2,071,899 949,992 208,414 - - - - - - - - - - - - 46,570 2,151,346 2,600 150,614 36,017 736,055 14,019 779,731 3,950 752,457 - 616,667 13,426 1,101,464 6,201 1,098,463 - - 739,141 607,650 99,963 5,480,434 22,820 3,253,125 Total 44% n/a 38% 48% 31% 19% 43% 48% 24% 15% B McCarthy joined the Company and Group on 9 May 2007 following the acquisition of the Rural Press group. The key management personnel of the Company and Group also include the five highest remunerated executives of the Company and Group. Amortised cost to the Company of the fair value of rights to shares issued to key management personel: B McCarthy $279,573 (2007: nil), G Hambly $180,863 (2007: $134,937), J Matthews $106,687 (2007: 3,334) and S Narayan $317,053 (2007 $151,790). Total cost to Company after inclusion of the amortised cost of the fair value of rights to shares B McCarthy $2,430,919 (2007: $ 148,014), G Hambly $916,918 (2007: $914,668), J Matthews $859,114 (2007: 620,001), S Narayan $1,418,517 (2007 $1,250,253) and J Withers $739,141 (2007: $607,650). 5.8 OPTIONS During the year ended 29 June 2008: • no options were granted to directors or key management personnel (2007:nil); • no options held by directors or key management personnel vested (2007:nil); • no options held by directors or key management personnel lapsed (2007:nil); and • no options held by directors or key management personnel were exercised (2007:nil). 5.9 LOANS TO DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL During the year ended 29 June 2008, there were no loans to directors or to key management personnel (2007: nil). 5.10 HEDGING RISK ON SCECURITIES FORMING PART OF REMUNERATION The rules of the Employee Share Plan Trusts prohibit employees from creating any encumbrance on unvested share rights. The Board does not presently have a formal policy in relation to employees limiting their exposure to risk in relation to securities which form part of remuneration. 21 Corporate Governance The Company has considered the ASX Corporate Governance Council’s “Principles of Good Corporate Governance and Best Practice Recommendations” and recorded its compliance with the recommendations in the following table. Compliance Page Reference Principle 1: Lay solid foundations for management and oversight 1.1 Formalise and disclose the functions reserved to the board and those delegated to management (cid:57) 24 Principle 2: Structure the board to add value 2.1 A majority of the board should be independent directors (cid:57) (cid:57) 2.2 The Chair should be an independent director 2.3 The roles of Chair and chief executive officer should not be exercised by the same individual (cid:57) (cid:57) 2.4 The board should establish a nomination committee (cid:57) 2.5 Provide the information indicated in Guide to reporting on Principle 2 25-27 Principle 3: Promote ethical and responsible decision making 3.1 Establish a code of conduct to guide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to: 3.1.1 The practices necessary to maintain confidence in the Company’s integrity; and 3.1.2 The responsibility and accountability of individuals for reporting and investigating reports of unethical practices 3.2 Disclose the policy for trading in company securities by directors, officers and employees 3.3 Provide the information indicated in Guide to reporting on Principle 3 Principle 4: Safeguard integrity in financial reporting 4.1 Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) (cid:57) (cid:57) (cid:57) 26-29 to state in writing to the board that the Company’s financial reports present a true and fair view in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. 4.2 The Board should establish an audit committee 4.3 Structure the audit committee so that it consists of: • only non-executive directors • a majority of independent directors • an independent chair, who is not chair of the board • at least three members 4.4 The audit committee should have a formal charter 4.5 Provide the information indicated in Guide to reporting on Principle 4 Principle 5: Make timely and balanced disclosure 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance 5.2 Provide the information indicated in Guide to reporting on Principle 5 22 (cid:57) (cid:57) (cid:57) (cid:57) 1 (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 26-27 27-29 Corporate Governance Compliance Page Reference Principle 6: Respect the rights of shareholders 6.1 Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings 6.2 Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report Principle 7: Recognise and manage risk 7.1 The board or appropriate board committee should establish policies on risk oversight and management 7.2 The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the board in writing that: 7.2.1 the statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board 7.2.2 the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material aspects 7.3 Provide the information indicated in Guide to reporting on Principle 7 Principle 8: Encourage enhanced performance 8.1 Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives. Principle 9: Remunerate fairly and responsibly 9.1 Provide disclosure in relation to the Company’s remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance. 9.2 The Board should establish a remuneration committee 9.3 Clearly distinguish the structure of non-executive directors’ remuneration from that of executives 9.4 Ensure that payment of equity-based executives’ remuneration is made in accordance with thresholds set in plans approved by shareholders 9.5 Provide the information indicated in Guide to reporting on Principle 9 Principle 10: Recognise the legitimate interests of stakeholders 10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders. (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 2 (cid:57) (cid:57) 3 (cid:57) (cid:57) 4 (cid:57) (cid:57) 28 26-28 14-19, 29 14-21 26 23 Corporate Governance The above disclosure should be read in conjunction with the following: 1 see Audit and Risk Committee section below; 2. the Company has complied with the Guide to Compliance with the ASX Principle 7: Recognise and Manage Risk prepared by the Group of 100 and endorsed by the ASX Corporate Governance Council; 3. remuneration policy and procedures are set out in the Remuneration Report on pages 14 - 21; and 4. equity-based remuneration is not paid to directors other than the CEO. The terms of the CEO’s equity-based incentive were approved by shareholders at the 2005 Annual General Meeting. In 2008, the Board introduced a new long-term equity based incentive scheme for the CEO and key executives for the 2008 financial year and future years. Details of the scheme, including hurdles, are set out on pages 16 - 18 of this report. The scheme did not require shareholder approval as the shares for the scheme are purchased on market. Set out on the following pages are the key corporate governance principles of the Company. The Board of Directors The Board of Directors is responsible for the long-term growth and profitability of the Group. The Board has adopted a Board Charter which sets out the responsibilities of the Board and its structure and governance requirements. Under the Board Charter, the powers and responsibilities of the Board are to: (a) set the strategic direction of the Fairfax Group; (b) provide overall policy guidance and ensure that policies and procedures for corporate governance and risk management are in place to ensure shareholder funds are prudently managed and that the Group complies with its regulatory obligations and ethical standards; (c) set and monitor performance against the financial objectives and performance targets for the Group; (d) determine the terms of employment and review the performance of the Chief Executive Officer; (e) set and monitor the Group’s programs for succession planning and key executive development with the aim to ensure these programs are effective; (f) approve acquisitions and disposals of assets, businesses and expenditure above set monetary limits; and (g) approve any issues of securities and entry into material finance arrangements, including loans and debt issues. Membership of the Board and its committees at the date of this report is set out in the table below. 24 Corporate Governance THE BOARD OF DIRECTORS Director Membership Type Audit & Risk Nominations Remuneration COMMITTEE MEMBERSHIP Personnel Policy & RJ Walker DE Kirk Independent Chair CEO RC Corbett Independent D Evans JB Fairfax N Fairfax JM King R Savage Independent Non-Independent Non-Independent Independent Independent P Young Independent MD Burrows* Independent Deputy Chair * Mr Burrows resigned from the Company on 31 January, 2008 - - Member - - Chair - Member Member Chair Member - - Member - Member Chair - - Member - - Chair Member Member - - - Member Member The qualifications and other details of each member of the Board are set out on pages 6 - 7 of this report. Except for the Chief Executive Officer, Mr John B Fairfax and Mr Nicholas Fairfax, all directors (including the Chair) are considered by the Board to be independent, non-executive directors. The Constitution requires that the Board has a minimum of 3 directors and maximum of 12 or such lower number as the Board may determine from time to time. The Board has resolved that presently the maximum number of directors is 9. The Constitution authorises the Board to appoint directors to vacancies and to elect the Chair. One third of directors (excluding the Chief Executive Officer and a director appointed to fill a casual vacancy and rounded down to the nearest whole number) must retire at every annual general meeting. Other than the Chief Executive Officer, no director may remain in office for more than three years or the third annual general meeting following appointment without resigning and being re-elected. Any director appointed by the Board must stand for election at the next general meeting of shareholders. The Nominations Committee reviews potential Board candidates when necessary. The Committee may seek expert external advice on suitable candidates. The Board has adopted a formal Charter for the Nominations Committee. Under the Charter, the Committee uses the following principles to recommend candidates and provide advice and other recommendations to the Board: • • A majority of directors and the Chair should be independent. The Board should represent a broad range of expertise consistent with the Company’s strategic focus. Any director may seek independent professional advice at the Company’s expense. Prior approval by the Chair is required, but approval must not be unreasonably withheld. INDEPENDENT DIRECTORS Under the Board Charter, the majority of the Board and the Chair must be independent. Directors have determined that all directors except the Chief Executive Officer, Mr John B Fairfax and Mr Nicholas Fairfax, are independent. In assessing whether a director is independent, the Board has considered directors’ obligations to shareholders, the requirements of applicable laws and regulations and the ASX Principles of Good Corporate Governance and Best Practice Recommendations. The guidelines in the Recommendations examine in summary the following criteria: • whether the director is a substantial shareholder • • independence from management freedom to exercise independent judgement 25 Corporate Governance • whether the director has any present or prior executive role with the Company or the Company’s auditor or other professional advisor • whether the director has any significant supplier, customer or contractual relationship with the Company other than as a non- executive director Mr John B Fairfax has a relevant share interest of 14.3% in the Company and Mr Nicholas Fairfax has a family relationship with Mr John B Fairfax. On this basis, the Board has concluded that, given the shareholding criteria in the Recommendations, neither is an independent director. CODES OF CONDUCT All directors, managers and employees are required to act honestly and with integrity. The Company has developed and communicated to all employees, directors and consultants the Fairfax Codes of Conduct. The Codes assist in upholding ethical standards and conducting business in accordance with applicable laws. The Codes also set out the responsibility of individuals for reporting Code breaches. The Fairfax Codes of Conduct aim to: • • • • provide clear guidance on the Company’s values and expectations while acting as a representative of Fairfax; promote minimum ethical behavioural standards and expectations across the Fairfax Group, all business units and locations; offer guidance for shareholders, customers, readers, suppliers and the wider community on our values, standards and expectations, and what it means to work for Fairfax; raise employee awareness of acceptable and unacceptable behaviour and provide a means to assist in avoiding any real or perceived misconduct. Supporting the Codes of Conduct is the Company’s range of documented guidelines and policies. These policies are posted on the Company intranet, are communicated to employees at the time of employment and are reinforced by training programs. AUDIT AND RISK COMMITTEE The Board has had an Audit and Risk Committee since listing on the ASX in 1992. The Committee operates in accordance with a written charter which sets out its role and functions. In summary, the Committee’s role is to advise and assist the Board on the establishment and maintenance of a framework of risk management, internal controls and ethical standards for the management of the economic entity and to monitor the quality and reliability of financial information for the Group. To carry out this role, the Committee: • • • appoints the external auditor, reviews its performance, independence and effectiveness, approves the auditor’s fee arrangements and enforces the Company’s Charter of Audit Independence; ensures that appropriate systems of control are in place to effectively safeguard the value of assets; ensures accounting records are maintained in accordance with statutory and accounting requirements; • monitors systems designed to ensure financial statements and other information provided to shareholders is timely, reliable and • • • • accurate; formulates policy and oversees key finance and treasury functions; seeks to ensure there is an appropriate framework for compliance with all legal and regulatory requirements and monitors performance against these requirements; reviews the audit process with the external auditor, including in the absence of management to ensure full and frank discussion of audit issues; recommends to the Board the appointment and tenure of the Internal Audit Manager, reviews the Internal Audit Manager’s performance, approves the internal audit plan, receives summaries of significant reports prepared by internal audit and meets with the Internal Audit Manager (including in the absence of management if considered necessary). Executives may attend by invitation. The Chair of the Committee is required to have relevant financial expertise and may not be the Chair of the Board. 26 Corporate Governance Mr Nicholas Fairfax is a non-independent director. Notwithstanding his non-independent status, the Board considers that it is appropriate for him to Chair the Audit & Risk Committee on the basis of his financial and accounting qualifications, his recognition of his obligation to properly consider the best interests of all shareholders in bringing independent judgment to bear in decision making. The Board also takes into account that all other members of the Audit & Risk Committee are independent directors. The Chair of the Committee may, at the Company’s expense, obtain such external expert advice, assistance and information from officers of the Group as is reasonably required from time to time. CHARTER OF AUDIT INDEPENDENCE The Board has also adopted a Charter of Audit Independence, a copy of which is available on the Company’s website. The purpose of this Charter is to provide a framework for the Board and management to ensure that the statutory auditor is both independent and seen to be independent. The purpose of an independent statutory audit is to provide shareholders with reliable and clear financial reports on which to base investment decisions. The Charter sets out key commitments by the Board and procedures to be followed by the Audit and Risk Committee and management aimed to set a proper framework of audit independence. To promote audit quality and effective audit service by suitably qualified professionals, the Board ensures that the auditor is fairly rewarded for the agreed scope of the statutory audit and audit-related services. Restrictions are placed on non audit work performed by the auditor. Non audit fees above a fixed minimum level may not be incurred without the approval of the Chair of the Audit and Risk Committee. The Company requires rotation of the senior audit partner for the Company at least every five years. The Company’s audit partner was changed during the previous financial year. The Audit and Risk Committee requires the auditor to confirm annually that it has complied with all professional regulations and guidelines issued by the Australian accounting profession relating to auditor independence and that it has no financial or material business interests in the Company outside of the supply of professional services. INTEGRITY IN FINANCIAL REPORTING As well as the Audit and Risk Committee Charter and the Charter of Audit Independence, the Company has implemented a structure to verify and safeguard the integrity of its financial reporting. The Chief Executive Officer and the Chief Financial Officer provide a written statement to the Board that, to the best of their knowledge and belief, the Company’s published financial reports present a true and fair view, in all material respects, of the Company’s financial condition and that the operational results are in accordance with relevant accounting standards. This statement to the Board is underpinned by the requirement for appropriate senior executives to provide a signed letter of representation addressed to the Chief Executive Officer and Chief Financial Officer verifying material issues relating to the executive’s areas of responsibility and disclosing factors that may have a material effect on the financial results or operations of the Group. DISCLOSURE POLICY The Company has a Market Disclosure Policy which sets out requirements aimed to ensure full and timely disclosure to the market of material issues relating to the Group to ensure that all stakeholders have an equal opportunity to access information. The policy reflects the ASX Listing Rules and Corporations Act continuous disclosure requirements. The Market Disclosure Policy requires that the Company notify the market, via the ASX, of any price sensitive information (subject to exceptions to disclosure under the Listing Rules). Information is price sensitive if a reasonable person would expect the information to have a material effect on the price or value of the Company’s securities. The Chief Executive Officer, Chief Financial Officer, Director of Corporate Affairs, General Manager Investor Relations and Group General Counsel and Company Secretary are designated as Disclosure Officers who are responsible for reviewing potential disclosures and deciding what information should be disclosed. Only the Disclosure Officers may authorise communication on behalf of the Company to the ASX, media, analysts and investors. This safeguards the premature exposure of confidential information and aims to ensure proper disclosure is made in accordance with the law. The Disclosure Officers are also authorised to determine whether a trading halt will be requested from the ASX to prevent trading in an uninformed market. 27 Corporate Governance The onus is on all staff to inform a Disclosure Officer of any price sensitive information as soon as becoming aware of it. The Executive Leadership Team is responsible for ensuring staff understand and comply with the policy. As well as its statutory reporting obligations, the Company actively encourages timely and ongoing shareholder communications. Company announcements, annual reports, notices of meetings, analyst and investor briefings, financial results and other information useful to investors such as press releases are placed on the Company’s website as soon as practical after release to the ASX. The Chair’s and the Chief Executive Officer’s addresses and the results of resolutions of meetings of shareholders, are also posted on the Corporate Governance section of the Fairfax website. The external auditor attends the annual general meeting and is available to answer shareholder questions about the audit and the audit report. RISK MANAGEMENT The Board has set a risk management program, including internal control and compliance. This program draws upon the guidelines endorsed by the ASX Corporate Governance Council and seeks to provide a consistent approach to identifying, assessing, and reporting risks, whether they be related to company performance, reputation, safety, environment, internal control, compliance or other risk areas. Key aspects of the Company’s risk management system are summarised as follows: • Risk is assessed at least annually and revised periodically for each division through the business planning, budgeting, forecasting, reporting and performance management processes. • • • The Board, through the Audit and Risk Committee, receives regular reports from management (and independent advisers where appropriate) on key risk areas such as treasury, health safety and environment, regulatory compliance, taxation, finance and internal audit. The process for assessing and reporting on risks, internal controls and internal compliance is being standardised, enhanced and formalised across the Group. This is an ongoing process. Formal risk assessments are required as part of business case approvals for one-off projects or initiatives of a significant nature. Project teams are responsible for managing the risks identified. • Under the direction of the Audit and Risk Committee, Internal Audit conducts a program of internal control reviews over key areas, based on their importance to the Company, and provides independent assurance over the internal control assessments undertaken by management. The Board has received written assurance from the Chief Executive and the Chief Financial Officer that in their opinion: (a) The financial statements and associated notes comply in all material respects with the accounting standards as required by Section 296 of the Corporations Act 2001; (b) The financial statements and associated notes give a true and fair view, in all material respects, of the financial position as at 29 June, 2008, and performance of the Company and consolidated entity for the year then ended as required by Section 297 of the Corporations Act 2001; (c) The financial records of the Company have been properly maintained in accordance with Section 286 of the Corporations Act 2001; (d) The statements made in (a) and (b) above regarding the integrity of the financial statements are founded on a sound system of risk management and internal compliance and control which, in all material respects, implements the policies adopted by the Board; (e) The risk management and internal compliance and control systems of the Company and consolidated entity relating to financial reporting objectives are operating efficiently and effectively, in all material respects; and (f) Subsequent to 29 June, 2008, no changes or other matters have arisen that would have a material effect on the operation of risk management and internal compliance and control systems of the Company and consolidated entity. 28 Corporate Governance REMUNERATION Details of the Company’s remuneration policies are set out in the Remuneration Report beginning on page 14. DIRECTORS’ DEALINGS IN COMPANY SHARES By resolution of the Board, each non-executive director sacrifices at least 25% of his or her director’s fees to the Company’s Employee Share Plan. Under this Plan, shares are purchased on the market by an independent trustee on behalf of directors and employees who have salary sacrificed to participate in the Plan. Share acquisition dates are pre-set and determined by the trustee. Consistent with the law, directors must not trade directly or indirectly in Fairfax securities while in possession of unpublished price sensitive information. Price sensitive information is information, usually about the Group or its intentions, which a reasonable person would expect to have a material effect on the price or value of Fairfax securities. The Company has a written policy on trading in the Company’s securities by directors and relevant employees. The policy sets out periods when no trading is to be undertaken and a process for authorisation of trading at other times. Notwithstanding the above, it is also the responsibility of each individual director to reasonably consider whether he or she is in possession of price sensitive information and if in doubt, the director should not trade, to minimise the possibility of a perception of improper trading. A director must notify the Company Secretary of any change in the director’s legal or beneficial interest in Company securities so as to ensure compliance with the disclosure requirements of the ASX Listing Rules. REVIEW OF THE BOARD’S EFFECTIVENESS The Board conducts a review of its structure, composition and performance annually. The Board has access to external expertise to assist in the process. 29 Management Discussion & Analysis Report OVERVIEW The net profit attributable to members of the Company increased 46.8% to $386.9 million. Excluding significant non recurring items, the underlying net profit increased to $395.3 million, an increase of 47.6% over the previous year. Reported earnings per share increased by 8.1%. Excluding the impact of significant non recurring items, underlying earnings per share increased 8.2% to 25.1 cents with growth in earnings per share in both the first and second halves. This was on the back of growth in existing businesses as well as the realisation of acquisition synergies. The diversification program of the last few years has also greatly reduced earnings cyclicality. With significant changes to the Fairfax Media business from the Rural Press merger and the acquisition of the radio and TV production and distribution assets of Southern Cross, the reported results do not present a true comparative assessment against last year. For comparative purposes, including the 2007 results of Rural Press Limited for the twelve months to 1 July 2007, including Southern Cross and Southern Star for the eight months to 1 July 2007 and excluding significant items, a like for like analysis shows: • Revenue increased 2.9% to $2.92 billion • Earnings before interest and tax increased 8.7% to $722.1 million (9.6% on a constant currency basis) • Total costs increased 1.4% to $2.09 billion Detailed segment analysis of revenues and profitability and commentary on divisional performance is covered in detail in the Chief Executive Officer’s report on pages 3 to 5 of the annual report. SIGNIFICANT ITEMS During the year, significant non recurring losses of $8.4 million after tax were incurred. These items were in the two categories of Property and Restructuring/Fixed Asset Impairment. Property related costs of $1.7 million after tax associated with the relocation from the Sydney CBD offices to Pyrmont were incurred during the year. The relocation was completed during the 2008 financial year. Restructuring, systems integration and fixed asset impairment charges of $6.7 million after tax were largely incurred as a result of the integration of the Rural Press, Southern Cross Radio and Southern Star businesses. BALANCE SHEET The acquisition in November 2007 of the Southern Cross radio business and Southern Star production business for $536 million had a significant impact on the balance sheet. Intangible assets and goodwill increased by $478.6 million. The acquisition, funded from cash resources and drawdowns of existing debt facilities, largely accounts for the reduction from the prior year in cash on hand by $272.4 million and the increase in non current interest bearing liabilities. Contributed equity increased to $4.32 billion from $4.18 billion last year. This increase was largely driven by a $148 million increase in ordinary shares on issue from the underwritten Dividend Reinvestment Plan (DRP) for the September 2007 final dividend. Shares acquired for $14 million under the new long term employee incentive plan which are yet to vest have been included as a reduction in contributed equity as required by accounting standards. The actual number of shares on issue increased by 33.9 million over the year and represented the shares issued under the DRP for the final dividend paid on 27 September 2007. The DRP was also in operation for the interim dividend paid on 31 March 2008. During the DRP pricing period, the Company made on market purchases of shares to satisfy the take up under the DRP. There was therefore no increase in the actual number of shares issued by the Company for this dividend. Movements in particularly the AUD/NZD exchange rates over the course of the year also had an impact on the balance sheet, The AUD equivalent of NZD denominated net assets generated a $250.9 million reduction in foreign currency translation reserves in the year. This is shown as a reduction in reserves in the balance sheet. 30 Management Discussion & Analysis Report CASH FLOW Operating cash flow remains strong with net cash inflow from operations increasing by 15% to $419.7 million. This increase is after absorbing approximately $50 million related to provisions for non recurring items raised in the 2007 financial year. Expenditure on plant, equipment and systems upgrades of $115.4 million compared to $88.7 million last year was slightly above the $108.3 million depreciation charge. The increase was mainly due to upgrades to printing plants in Australia and New Zealand and investments being made to improve the editorial, advertising, digital and financial systems across the Company. These investments meet our strict financial criteria and will generate significant benefits into the future. Since balance date, the Company has announced the conditional sale of the UK based Carnival Film and Television business for ₤22.5 million. The Company has also since balance date announced a major restructuring initiative which will incur one-off costs of approximately $50 million. The restructuring initiative will result in $50 million of savings from the 2010 financial year. DEBT Over the past twelve months, credit markets globally have experienced significant upheavals from which we were protected due to the capital raisings we completed in July 2007. While our net debt did increase by $436.7 million during the year to predominately finance acquisitions, our debt ratios are well within debt covenant limits. The Company does not face any refinancing exposure for the next 18 months and currently has $475 million in undrawn facilities available. The graph below details the debt maturity profile of the Company Committed Facility Maturity Profile (inc SPS) Committed Facility Maturity Profile (inc SPS) AUD $m's AUD $m's 1,000 1,000 750 750 500 500 250 250 0 0 Staple Preference Security (SPS) Staple Preference Security (SPS) Staple Preference Security (SPS) Eurobond Issue Eurobond Issue Eurobond Issue US Private Placement III US Private Placement III US Private Placement III A$ Bank Syndication (8 Banks) A$ Bank Syndication (8 Banks) A$ Bank Syndication (8 Banks) CBA A$200m Bank Facility CBA A$200m Bank Facility CBA A$200m Bank Facility NZD Redeemable Preference Shares NZD Redeemable Preference Shares NZD Redeemable Preference Shares Chullora Financing Chullora Financing Chullora Financing ASB NZD Facility ASB NZD Facility ASB NZD Facility Domestic MTN A$200m Domestic MTN A$200m Domestic MTN A$200m US Private Placement II US Private Placement II US Private Placement II 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 Borrowings denominated in foreign currency have been hedged against the impact of currency movements on both the debt outstanding and the interest obligations. These hedges largely account for a $63 million increase in derivative current and non current derivative assets and an increase in non current derivative liabilities of $31 million. 31 Management Discussion & Analysis Report DIVIDENDS Total ordinary dividends of $299.4 million were paid during the year, an increase of $81.0 million on last year. Ordinary dividends amounting to $243.2 million were paid in cash with the balance of $56.2 million being satisfied by the issue of ordinary shares under the Company’s DRP. The September 2007 final dividend was fully underwritten with 21.1 million shares being issued to the underwriters for $91.8 million cash. Dividends of $25.6 million were paid on the Stapled Preference Shares in both the current and prior years. A final dividend of 10 cents per share, franked to 75% has been declared. This takes the total dividend per share on ordinary shares for 2008 to 20 cents per share, comparable with the amount paid last year. FRANKING Based upon current estimates of income tax payable in Australia as a percentage of the total income tax paid by the Company, it is anticipated that future dividends will be franked at 75%. The 25% unfranked portion of the dividend will be treated as Conduit Foreign Income under income tax legislation. 32 Consolidated Income Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 No te 2(A) 2(B) C o ns ol id ate d C on so li da ted C om pa ny C om pa ny 2 9 Ju n e 2 00 8 1 Ju ly 20 07 29 Jun e 2 0 08 1 Ju ly 2 0 07 $' 00 0 $ '0 00 $ '0 00 $ '0 00 2,900,883 2,111,385 33,124 67,155 101,445 26,509 776,463 26,758 2,934,007 2,178,540 127,954 803,221 11(C) 8,735 2,961 - - 3(A) 3(B) 3(C) (2,099,355) (108,295) (1,615,034) (111,281) (211,919) (116,964) 523,173 (135,683) 387,490 (612) 338,222 (76,601) 261,621 1,889 (86,003) (9,514) (5) 32,432 26,754 59,186 - (86,613) (12,635) (2,743) 701,230 20,355 721,585 - Revenue from continuing operations Other revenue and income Total revenue and inc ome Share of net profits of assoc iates and joint ventures Expenses from continuing operations excluding depreciation, amortisation, asset impairment and finance costs Depreciation, amortis ation and asset impairment Finance costs Net profit from continuing operations before income tax expense Income tax (expens e)/benef it Net profit from continuing operations after income tax expense Net (profit)/loss attribut able to minority interest Net profit attributable to members of the Company Earnings per share (cents per share) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 5 26 27 27 The above Income Statements should be read in conjunction with the accompanying Not es. 386,878 263,510 59,186 721,585 24.6 24.1 22.7 23.0 33 Consolidated Balance Sheets Fairfax Media Limited and Controlled Entities as at 29 June, 2008 CURRENT ASSETS Cash and cash equivalents Trade and other rec eivables Inventories Derivative assets As sets held for sale Other current asset s Total curr ent assets NON-CURRENT ASSETS Receivables Investments accounted f or using the equity method Available for sale investments Held to maturity inves tments Intangible as sets Property, plant and equipment Derivative assets Pension asset Deferred tax ass ets Other financial assets Other non-current assets Total non-cur rent assets Total assets CURRENT LIABILITIES Payables Interest bearing liabilities Derivative liabilities Provisions Current tax liabilities Total curr ent liabilities NON-CURRENT LIABILITIES Interest bearing liabilities Derivative liabilities Deferred tax liabilities Provisions Other non-current liabilities Total non-cur rent liabilities Total liabilities NET ASSET S EQ UITY Contributed equity Reserves Retained profits Total parent entity interest Minority interest TOTAL EQUITY C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 No te $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 37(B) 7 8 16 9 10 7 11 12 13 14 15 16 17(A) 18(A) 19 10 20 21 16 22 21 16 18(A) 22 23 24 25 26 93, 864 499, 126 44, 801 3,519 2,222 11, 610 366,307 408,917 48,527 8 500 - 680 687 1,277,111 1,360,669 - - - - - - - - 655, 142 824,259 1,277,791 1,361,356 3,683 45, 690 3,547 14, 686 1,323 34,478 2,431 16,014 401,122 398,705 - - - - - - 6,492,640 6,131,043 875, 181 860,044 14,044 16,839 21,417 23,163 59, 417 5,542 128, 561 122 8,890 165 13,381 117,282 122 - - - - - 9,200 3,143,723 9,310 3,142,329 - - 7,637,959 7,176,283 3,584,928 3,594,924 8,293,101 8,000,542 4,862,719 4,956,280 330, 045 289,519 15,900 14,640 15, 816 1,006 159, 837 5,456 12,237 1,344 147,022 30,425 512, 160 480,547 2,496,133 2,335,498 121, 251 148, 931 45, 398 3,894 90,448 89,564 41,087 2,404 2,815,607 2,559,001 - - 7,385 14,279 37,564 - - 7,643 703 - 8,346 - - 4,889 11,641 31,170 - - 3,943 1,939 - 5,882 3,327,767 3,039,548 45,910 37,052 4,965,334 4,960,994 4,816,809 4,919,228 4,318,409 4,184,325 4,324,524 4,190,440 (186, 063) 821, 987 15,583 748,164 1,750 490,535 (1,943) 730,731 4,954,333 11, 001 4,948,072 12,922 4,816,809 - 4,919,228 - 4,965,334 4,960,994 4,816,809 4,919,228 The above Balanc e Sheets should be read in conjunction with the accompanying Notes. 34 Consolidated Statements of Recognised Income and Expense Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Amounts recognised directly in equity Cashflow hedge reserve, net of tax Net investment hedge reserve, net of tax Foreign currency translation reserve, net of tax Changes in fair value of available for sale assets, net of tax Ac tuarial (loss)/gain on defined benefit plans, net of tax Share of ass et revaluation of joint venture, net of tax Minority interest trans fer Tax benefits recognis ed directly in equity Reclassification of tax benefits to equity Net (expense)/income recognised directly in equity Net prof it from c ontinuing operations after income tax expense Total recognised income and expense for the financial period Total recognised income and expense attributable to minority interes t Total recognised income and expense attributable C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 22,046 24,281 (250,865) (801) (4,315) - - 8,427 7,833 (193,394) 387,490 194,096 (612) (5,425) (20,225) 178,271 667 1,459 887 619 - - 156,253 261,621 417,874 1,889 - - - - - - - - - - - - - - - - - - - 59,186 59,186 - - 721,585 721,585 - to members of the Company 193,484 419,763 59,186 721,585 The above Statements of Recognised Income and Expense should be read in conjunction with the acc ompanying Notes. 35 Consolidated Cash Flow Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Cash flows from operating acti vities Receipts from customers (inclusive of G ST) Payments to suppliers and employees (inclusive of GST) Interest received Dividends and distributions received Finance costs paid Net income taxes paid Co n so lid a ted C o ns ol id ate d Co mp an y C o mp an y 2 9 Jun e 2 0 08 1 Jul y 2 00 7 2 9 Ju ne 2 00 8 1 J ul y 2 00 7 No te $ '0 00 $' 00 0 $' 00 0 $' 00 0 3,192,965 2,325,834 673 838 (2,461,573) (1,782,749) (76, 173) (86,627) 25,177 8,837 (209,511) (136,219) 5,100 1,957 (96,132) (89,130) 26, 509 100, 000 (6) (26, 636) 26,758 775,000 (2,280) (7,041) Net cash inflow from operating activities 37(A) 419,676 364,880 24, 367 706,648 Cash flows from investing activities Payment for purchase of controlled entities, assoc iates and joint ventures (net of cash acquired) Payment for purchase of businesses, including mastheads Payment for property, plant and equipment, sof tware and mastheads Proceeds from sale of property, plant and equipment Payment for available for sale investments Proceeds from sale of investments and ot her assets Loans advanced to controlled entities Loans repaid by controlled entities (586,735) (8,189) (115,403) 5,181 - 6,481 - - (574,247) (7,579) (88,746) 64,589 (1,125) 23,516 (1, 389) - (7, 031) (427,233) - (4,708) - - - - - - - - - 150, 085 (123,915) - Net cash (outflow)/inflow from investing activities (698,665) (583,592) 141, 665 (555,856) Cash flows from financing activities Proceeds from issue of shares Payment for shares acquired by employee share trust Proceeds from borrowings and other financial liabilities Repayment of borrowings and other financial liabilities Transaction costs - debt sec urities Dividends paid to shareholders including SPS* 91,808 (14,621) 352,763 (150,149) - (268,844) - - 1,256,911 (547,487) (358) (176,332) 91, 808 (14, 621) - - - - - - - (243, 226) (358) (150,701) Net cash inflow/(outflow) from financing activities 10,957 532,734 (166, 039) (151,059) Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents at beginning of the year Ef fect of exchange rate c hanges on cash and cash equivalents (268,032) 366,307 (4,411) 314,022 52,748 (463) Cash and cash equival ents at end of the financial year 37(B) 93,864 366,307 (7) 687 - 680 (267) 954 - 687 * Under the term s of t he DRP, $56.2 m illion ( 2007: $ 67.7 m illion) of dividends were paid via th e issu e of 12 ,820,970 ordin ary shares (2007 : 16,414, 299 ordinary shares). A cash dividend payment of $243. 2 million (2 007: $150. 7 million) w as made to ordinary sh areholders that did not elect t o participate in the D RP. Total cash dividends for the year totalled $268 .8 million (2007: $176. 3 million); this includes $2 5.6 million (2007: $25. 6 million) made to st ap led preference shareholders (SPS) . The above Cash Flow Statements should be read in conjunction with the acc ompanying Notes. 36 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Fairfax Media Limited as an individual entity and the consolidated entity consisting of Fairfax Media Limited and its controlled entities. The financial report is for the period 2 July 2007 to 29 June 2008 (2007: the period 1 July 2006 to 1 July 2007). Reference in this report to 'a year' is to the period ended 29 June 2008 or 1 July 2007 respectively, unless otherwise stated. ( A) BASIS OF PREPARATIO N The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authorative pronouncements of the Australian Accounting Standards Board. The financial report also complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financ ial Reporting Standards (IFRS) as is sued by the International Acc ounting Standards Board. Historical cost convention These financial statements have been prepared on a going concern basis and on the basis of historical cost principles except for derivative financial instruments and certain financial ass ets whic h are measured at fair value. The carrying values of recognis ed assets and liabilities that are hedged with fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged. Compar atives Certain comparative amounts have been reclas sified to be consistent with current year presentation. ( B) PRINCIPLES OF CO NSOLIDATIO N (i) Contr olled entities The c onsolidated financial statements incorporate the assets and liabilities of the Company, Fairfax Media Limited, and its controlled entities. Fairfax Media Limited and its controlled entities together are referred to in this financial report as the Group or the c onsolidated entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. T hey are de-consolidated from the date that control ceases. The purchase method of accounting is us ed to account for the acquisition of controlled entities by the Group (refer to Note 1(C)). All inter-entity trans actions, balances and unrealised gains on transactions between Group entities have been eliminated in full. Minority interest in the earnings and equity of controlled entities is shown separately in the consolidated income statement and balance sheet respectively. (ii) Associates and joint ventures Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity method. Associates are entities over which the Group has significant influence and are neither subsidiaries or joint ventures. The Group’s share of its associates’ and joint ventures’ post-acquisition profits or losses are recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates and joint ventures are recognised in the c onsolidated financial statements as a reduction in the carrying amount of the investment. 37 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate, the G roup does not recognise further losses, unless it has inc urred obligations or made payments on behalf of the as sociate. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the G roup’s interest in as sociates and joint ventures. ( C) ACCOUNTING FOR ACQUISITIONS The purchase method of accounting is us ed to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity ins truments or other assets are acquired. Cos t is meas ured as the fair value of the ass ets given, equity instruments issued or liabilities inc urred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published pric e at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transac tion costs arising on the is sue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the c ost of acquisition over the fair value of the net identifiable assets acquired represents goodwill (refer to Note 1(E)(i)). ( D) IMPAIRMENT O F ASSETS Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circums tances indic ate that they might be impaired. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by whic h the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are disc ounted to their pres ent value us ing a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the as set. Where an asset does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. A cash generating unit is the grouping of assets at the lowest level for which there are separately identifiable cash flows. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. At each balance date, the Group ass esses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the c arrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. ( E) INTANGIBLES (i) G oodwill Goodwill represents the excess of cost of an acquisition over the fair value of the Group's share of the net identifiable as sets of the acquired subsidiary/assoc iate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is inc luded in investments in associates. Goodwill is alloc ated to cash-generating units for the purposes of impairment tes ting (refer Note 1(D)). G oodwill is not amortis ed. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment los ses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 38 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (ii) Other intangible assets Mastheads and tr adenames The newspaper mastheads and tradenames have been ass essed to have indefinite useful lives. Ac cordingly, they are not amortised, instead they are tested for impairment annually, or whenever there is an indication that the carrying value may be impaired, and are carried at cos t less accumulated impairment los ses. The Group's mastheads and tradenames operate in established markets with limited license conditions and are expected to continue to complement the Group's new media initiatives. On this basis, the direc tors have determined that mastheads and tradenames have indefinite lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. Radio licences Radio licences, being commercial radio licences held by the consolidated entity under the provisions of the Broadcasting Services Act 1992, have been ass essed to have indefinite useful lives. Ac cordingly, they are not amortised, instead they are tested for impairment annually, or whenever there is an indication that the carrying value may be impaired, and are carried at cost less accumulated impairment los ses. Web-Sites Internal and external costs directly incurred in the development of web-sites are capitalised and amortised using a straight-line method over the assessed useful lives of the web-sites. Capitalised web-site costs are reviewed annually for potential impairment. Computer software Acquired computer software licences are capitalised as an intangible as are internal and external cos ts directly incurred in the purchase or development of computer software, including subsequent upgrades and enhancements when it is probable that they will generate future economic benefits attributable to the consolidated entity. Thes e costs are amortis ed using the straight-line method over three years. Other Other intangibles, where applicable, are stated at cost les s accumulated amortisation and impairment losses. T he useful lives of the intangible assets are ass essed to be either finite or indefinite and are examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Other intangible assets created within the business are not capitalis ed and are expensed in the income statement in the period the expenditure is inc urred. Intangible assets are tested for impairment annually (refer to Note 1(D)). ( F) FOREIGN CURRENCY (i) Currency of presentation All amounts are expressed in Australian dollars, which is the parent entity and consolidated entity’s presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). (ii) Transactions and balances Foreign currency transactions are translated into the func tional currency using the exchange rates prevailing at the dates of t he transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary as sets and liabilities denominated in foreign currencies are recognised in the inc ome statement, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation and qualifying c ash flow hedges, which are deferred in equity until disposal. Tax charges and credits attributable to exchange differences on borrowings are also recognised in equity. 39 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Translation differences on non-monetary items that are measured in terms of historical c ost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Translation differences on non-monetary items, such as available for sale financial assets, are translated us ing the exchange rates at the date when the fair value was determined and included in the asset revaluation reserve in equity. (iii) Group entities The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • • assets and liabilities for eac h balanc e sheet presented are translated at the clos ing rate at the date of that balance sheet; income and expenses for eac h income statement are translated at average exchange rates; and all resulting exchange differenc es are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the borrowings designated as hedges of the net investment in foreign entities are taken directly to a s eparate component of equity, the net investment hedge reserve. On disposal of a foreign entity, or borrowings that form part of the net investment are repaid, the deferred cumulative amount of the exchange differences in the net investment hedge reserve relating to that foreign operation is recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquis ition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. ( G) REVENUE RECO GNITION Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenue can be reliably measured. Advertising and circulation revenue from the sale of newspapers, magazines and other publications is recognised on publication net of expected returns and pricing adjustments. Revenue from rendering of services is recognised when control of a right to be compensated for the s ervices has been attained and the stage of completion of the service contract can be reliably measured. Stage of completion is measured by reference to the services performed to date as a percentage of total estimated services to be performed for each contract. If a contract outcome cannot be reliably measured, revenue is recognised only to the extent that costs have been incurred. Revenue from dividends and distributions from controlled entities are recognis ed by the Company when they are declared by the controlled entities. Interest is recognised as it accrues, taking into account the effective yield on the financ ial asset. Revenue from the contribution of services and materials during the production of television programs and the licensing of copyright is rec ognised when the program is available for delivery, the contract is fully executed and the collectability is reasonably assured. Revenue from the provision of production services is recognised in ac cordance with the agreement for the project and is brought to account on a stage-of-completion basis. Revenue from royalties due from the ownership of a program copyright is recognised on an accrual bas is in accordance with the agreement and is only brought to account where the amount of the royalty can be reliably estimated and collec tion is reasonably assured. ( H) INCO ME TAX AND OTHER TAXES The inc ome tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributed to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial s tatements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financ ial reporting purposes. 40 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Deferred income tax liabilities are rec ognised for all taxable temporary differences: • • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a bus iness combination and, at the time of the trans action, af fects neither the accounting profit nor taxable profit or loss; and in res pect of taxable temporary differences associated with investments in subsidiaries , associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not revers e in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax loss es can be utilised: • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in res pect of deductible temporary differences associated with investments in subsidiaries , associates and interests in joint ventures, deferred tax assets are only recognis ed to the extent that it is probable that the temporary differences will reverse in the fores eeable future and taxable profit will be available against which the temporary differences can be utilised. The c arrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity. Goods and Services Tax (GST) Revenues, expenses and assets are rec ognised net of the amount of GST except: (i) where the GST incurred on a purchas e of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of t he asset or as part of the cost of acquisition of the asset or as part of the expense item as applicable; and (ii) receivables and payables are stated with the amount of GST included. This net amount of GST rec overable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cashflows are included in the cash flow statement on a gross bas is and the GST component of cashflows arising from investing and financing activities, which are recoverable from, or payable to the taxation authority are classified as operating cashflows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Tax consolidation - Australia Fairfax Media Limited (the head entity) and its wholly-owned Aus tralian entities have implemented the tax consolidation legislation as of 1 July 2003. Each member in the tax consolidated group continues to account for their own current and deferred tax amounts as if they continued to be a modified stand alone taxpayer in its own right. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default of the head entity, Fairfax Media Limited. 41 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 The entities have also entered into a tax funding agreement under which the wholly-owned entities fully c ompensate Fairfax Media Limited for any current tax payable assumed and are compensated by the Company for any current tax receivable and deferred tax assets relating to unused tax loss es or unused tax credits transferred to Fairfax Media Limited under the tax consolidation legis lation. Assets or liabilities arising under tax funding arrangements with the tax cons olidated entities are recognised as amounts receivable from or payable to other entities in the group. The amounts receivable/payable under the tax funding arrangements are due upon demand from the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. ( I) LEASES (i) Finance leases Assets acquired under finance leases which result in the consolidated entity rec eiving substantially all the risks and rewards of owners hip of the as set are capitalised at the lease’s inception at the lower of the fair value of the leased property or the estimated present value of the minimum lease payments. The corresponding financ e lease obligation, net of finance charges, is included within interest bearing liabilities. The interest element is allocated to acc ounting periods during the leas e term to reflect a constant rate of interest on the remaining balance of the liability for each accounting period. The leased asset is included in property, plant and equipment and is depreciated over the shorter of the estimated useful life of the asset or the lease term. (ii) Operating leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases . Net rental payments, excluding contingent payments, are recognised as an expense in the income statement on a straight-line basis over the period of the lease. ( J) CASH AND CASH EQ UIVALENTS Cash and cash equivalents includes cash on hand, deposits held at c all with financial institutions and other short term investments with original maturities of three months or less that are readily convertible to cash and subject to insignificant risk of changes in value. Bank overdrafts are shown within interest bearing liabilities in current liabilities on the balance sheet. ( K) TRADE AND O THER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, which in the case of the Group, is the original invoic e amount less an allowance for any uncollectible amount. Collec tability of trade receivables is reviewed on an ongoing basis and a provision for doubtful debts is made when there is objective evidence that the Group will not be able to collec t the debts. Interest receivable on related party loans is recognised on an accruals basis. ( L) INVENTORIES Inventories including work in progres s are stated at the lower of cost and net realisable value. The methods used to determine cost for the main items of inventory are: • • • raw materials (comprising mainly newsprint and paper on hand) are assessed at average cost and newsprint and paper in transit by specific identification cost; finished goods and work-in-progress are assess ed as the cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity; and in the c ase of other inventories, cost is as signed by the weighted average cost method. A provision for diminution in value of inventories exists to cover the es timated decline in value from the effec ts of storage hazards. 42 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Program copyright Expenditure incurred in relation to film and television program copyright is capitalised and allocated against future licens ing revenue. Licensing revenue forecas ts are reviewed when events or changes in circumstances indicate that forecasts are unachievable, and the remaining capitalised balance is written down to net realisable value. Costs of developing new program concepts are expensed if the program does not proceed. ( M) AVAILABLE-FO R-SALE INVESTMENTS Available-for-sale financial assets are investments in listed equity securities in which the Group does not have significant influence or control. They are stated at fair value based on current quoted pric es and unrealis ed gains and losses arising from c hanges in the fair value are recognised in the ass et revaluation res erve. The assets are inc luded in non-current ass ets unless management intends to dispose of the investment within twelve months of the balance sheet date. ( N) INVESTMENTS AND OTHER FINANCIAL ASSETS The Group classifies its investments in the following categories: financial assets at fair value through profit or los s, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held to maturity, re-evaluates this designation at each reporting date. The c onsolidated entity clas sifies and measures its investments as follows: (i) Financial assets at fair value through profit and loss This category has two sub-categories: financial assets held for trading and thos e designated at fair value through profit and loss on initial recognition. The policy of management is to designate a financial asset at fair value through profit and loss if there exists t he pos sibility it will be sold in the short term and the asset is subjec t to frequent changes in fair value. These assets are measured at fair value and realised and unrealised gains and losses arising from changes in fair value are included in the income s tatement in the period in which they arise. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are included in receivables in the balance sheet and measured at amortis ed cost using the effective interest method. (iii) Other financial assets These ass ets are non-derivatives that are either designated or not c lassified in any of the other categories and measured at fair value. Any unrealised gains and losses arising from changes in fair value are included in equity, impairment loss es are included in profit and loss. Investments in partnerships are carried at cost less impairment loss. (iv) Held-to-maturity investments Held-to-maturity investments are non-derivative financ ial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. These ass ets are measured at amortised cos t using the effective interest method. Financial assets other than derivatives are recognised at fair value or amortised cost in accordance with the requirements of AASB 139 Financial Instruments: Recognition and Measurement. Where they are carried at fair value, gains and losses on remeasurement are recognised directly in equity unles s the financial assets have been designated as being held at fair value through profit and loss, in which case the gains and losses are recognised directly in the income statement. All financ ial liabilities other than derivatives are carried at amortised cos t. 43 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 The Group uses derivative financial instruments such as forward foreign currency c ontracts, and foreign currency and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Derivatives, including those embedded in other contractual arrangements, are initially recognis ed at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or los s depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The measurement of the fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with s imilar maturity profiles. The fair value of interes t rate swap contrac ts is determined by reference to market values for similar instruments. Hedge accounting For the purposes of hedge accounting, hedges are classified as either fair value hedges (hedges of the fair value of recognised assets or liabilities or a firm commitment) or c ash flow hedges (hedges of highly probable forecast transactions). Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Any gain or loss attributable to the hedged risk on remeasurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the income statement such that it is fully amortised by maturity. When the hedged firm commitment results in the recognition of an as set or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the as set or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains or losses that are recognis ed in equity are transferred to the income statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. The c onsolidated entity’s interest rate swaps and cross currency swaps held for hedging purposes are generally accounted for as cash flow hedges. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge ac counting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs . If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. Derivatives that do not qualify for hedge accounting For derivatives that do not qualify for hedge accounting, any gains or losses aris ing from changes in f air value are taken direc tly to the income statement. ( O) O THER ASSETS Film investments Costs assoc iated with acquiring film inves tments are capitalised and allocated against future licensing revenue. Licensing revenue forecasts are reviewed regularly and when lower than the capitalised balance the remaining amount is written down to its recoverable amount. Classification of film investments between current and non current is based on when the amounts will be allocated. 44 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Distr ibution advances and costs Advanc es and costs incurred for television program distribution rights are capitalised and allocated against future licensing revenue. An allowance for unrecoupable advances and costs is recorded where the amount is not expected to be fully recoverable out of future licensing revenue. Classification of distribution advances and c osts between current and non current is based on when the amounts will be allocated. ( P) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost less depreciation and where applicable an impairment provision. Directly attributable costs arising from the acquisition or construction of fixed ass ets, including internal labour and interest, are also capitalis ed as part of the cost. Recoverable amount All items of property, plant and equipment are reviewed annually to ensure carrying values are not in excess of recoverable amounts. Recoverable amounts are bas ed upon the present value of expected future cashflows. Depr eciation and amor tisation Land is not depreciated. Depreciation on other assets is c alculated us ing the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Buildings Printing presses Other production equipment Other equipment up to 60 years up to 20 years up to 15 years up to 40 years The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its es timated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with carrying amount. These are included in the income statement. ( Q) TRADE AND OTHER PAYABLES Liabilities for trade creditors and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and services received. Loans payable to related parties are carried at amortised cost and interest payable is recognised on an accruals basis. ( R) PROVISIONS Provisions are recognised when the G roup has a legal, equitable or construc tive obligation to make a future sacrifice of economic benefits to others as a result of past transactions, or past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate c an be made of the amount of the obligation. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the balance sheet date using a discounted cash flow methodology. The risks specific to the provision are factored into the cash flows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before balanc e date. 45 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( S) INTEREST-BEARING LIABILITIES Subsequent to initial recognition at fair value, net of transaction costs incurred, interest bearing liabilities are measured at amortised cost. Any difference between the proceeds (net of trans action costs ) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interes t method. Finance lease liabilities are determined in accordanc e with the requirements of AASB 117 Leases (refer to Note 1(I)). Borrowing costs Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation or ancillary costs incurred in connection with arrangement of borrowings and foreign exchange loss es net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expens ed as inc urred unless they relate to qualifying as sets. Qualifying assets are as sets which take more than 12 months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cos t of the asset. W here funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate. There were no borrowing costs capitalised during either of the pas t two financial years. ( T) EMPLOYEE BENEFITS (i) Wages, salaries, annual leave and long service leave Current liabilities for wages and salaries , holiday pay, annual leave and long service leave are recognised in the provision for employee benefits and measured at the amounts expected to be paid when the liabilities are settled. The employee benefit liability expected to be settled within twelve months from balance date is recognised in current liabilities. The non-current provis ion relates to entitlements, including long service leave, which are expected to be payable after twelve months from balance date and are measured as the present value of expected future payments to be made in respect of services employee departures and periods of service. Expected future payments are discounted using market yields at balance date on national government bonds with terms to maturity and currency that match, as closely as poss ible, the estimated future cash outflows. Employee benefit on-costs are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. (ii) Share-based payment transactions Share based compensation benefits can be provided to employees in the form of shares and/or options. No options have been issued by the Company since the 2001 financial year. The c ost of share based payments is recognised over the period in which the performance and/or servic e conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the ves ting date). At each subsequent reporting date until ves ting, the cumulative charge to the income statement is the product of (i) the grant date fair value of the award; (ii) the c urrent best estimate of the number of awards that will vest, taking into ac count such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period. The market value of shares is sued to employees for no cas h cons ideration under the Long Term Incentive Share Plan is recognised as an employee benefits expense over the vesting period (refer to Note 33). Shares purchased, but whic h have not yet vested to the employee as at reporting date are offest against contributed equity of the Group (see note 1U). 46 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (iii) Defined benefit super annuation plans Fairfax Media Limited and certain controlled entities partic ipate in a number of superannuation plans. An asset in respect of defined benefit superannuation plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses), less the fair value of the superannuation fund's assets at that date and any unrecognised past service cos t. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the balance date, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Actuarial gains and losses are recognised in retained earnings in the periods in which they arise. Contributions made by the Group to defined contribution superannuation funds are charged to the income statement in the period the employee’s service is provided. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee ac cepts voluntary redundancy in exc hange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to enc ourage voluntary redundancy. (v) Bonus plans The Group recognises a provision and an expense for bonuses where contrac tually obliged or where there is a pas t practice that has created a constructive obligation. ( U) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Stapled preference shares are classified as equity (refer Note 23(C)). Incremental costs directly attributable to the issue of new shares or options are recognised in equity as a reduction from the proceeds . Incremental costs directly attributable to the issue of new shares for the ac quisition of a bus iness are not included in the cost of the acquisition as part of the purchase consideration. If the Group reacquired its own equity instruments, eg. under the Long Term Incentive Plan, those instruments are deducted from equity. Debentures Debentures have been included as equity as the rights attaching to them are in all material respects comparable to those attaching to the ordinary shares. Such debentures are unsecured non-voting securities that have interest entitlements equivalent to the dividend entitlements attaching to the ordinary voting s hares and rank equally with such s hares on any liquidation or winding up. These interest entitlements are treated as dividends. The debentures are convertible into shares on a one-for-one basis at the option of the holder provided that convers ion will not result in a breach of any of the following: (i) any provision of the Foreign Acquisitions and Takeovers Act 1975; (ii) any undertaking given by the Company to the Foreign Investment Review Board or at the request of the Foreign Investment Review Board from time to time; or (iii) any other applicable law including, without limitation the Broadcasting Act 1942. 47 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( V) EARNINGS PER SHARE Basic earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members , adjusted to exclude costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the financ ial year. Diluted earnings per share Diluted earnings per share is calculated by dividing the basic EPS earnings adjusted by the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares by the weighted average number of ordinary s hares and dilutive potential ordinary shares adjusted for any bonus issue. ( W) SEGMENT REPORTING A business segment is a group of assets and operations engaged in providing products or services that are subjec t to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments. Geographical segments are the c onsolidated entity’s primary reporting format. ( X) SIGNIFICANT ACCO UNTING ESTIMATES AND JUDGEMENTS The c arrying amounts of certain as sets and liabilities are often determined based on estimates and assumptions of future events . The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next financial year are: (i) Impairment of goodwill and intangibles with indefinite useful lives The Group tests annually whether goodwill and intangible assets with indefinite useful lives are impaired. This requires an es timation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the c arrying amount of goodwill and intangibles with indefinite useful lives are detailed in Note 14. (ii) Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary cours e of business for which the ultimate tax determination is uncertain. (iii) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. The fair value is determined by an external valuer us ing a binomial model, using the assumptions detailed in Note 33. The Group measures the cost of share-based payments at fair value at the grant date using the Monte Carlo formula taking into account the terms and conditions upon which the instruments were granted, as discussed in Note 33. (iv) Defined benefit plans Various actuarial assumptions are required when determining the Group’s superannuation plan obligations. Thes e assumptions and the related carrying amounts are discussed in Note 17. 48 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (v) Held-to-maturity investments The Group follows the AASB 139 guidance on classifying non-derivative financial assets with f ixed or determinable payments and fixed maturity as held-to-maturity. This classification requires s ignificant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the G roup fails to keep thes e inves tments to maturity other than for specific circumstances explained in AASB 139, it will be required to reclassify the whole class as available-for-sale. The investments would therefore be measured at fair value not amortised cost which would result in a corresponding entry in the fair value res erve in shareholders ’ equity. Furthermore, the entity would not be able to classify any financial assets as held-to-maturity for the following two financial years. ( Y) ROUNDING OF AMOUNTS The c onsolidated entity is of a kind referred to in Class Order 98/0100, as amended by Class Order 04/667, issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the financial report. Amounts in this report have been rounded to the nearest thousand dollars in acc ordance with that Class Order, unless otherwise indic ated. ( Z) NEW ACCOUNTING STANDARDS AND UIG INTERPRETATIONS Certain new accounting standards and interpretations have been publis hed that are not mandatory for 29 June 2008 reporting periods. The Group and the Company's assessment of the impact of these new standards and interpretations is set out below: 49 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Referen ce T itle Sum mary AASB Int. 12 and AASB 2007- 2 Service Concession Arrangements and consequential amendments to other Australian Accounting Standards AASB Int. 4 (Revised) Determining whether an Arrangement contains a Lease AASB Int. 129 Service Concession Arrangements: Disclosures Clarifies how operator s recognise the infr astructure as a financial asset and/or an intangible asset – not as property, plant and equipment. The revised Interpretation specifically scopes out arrangements that fall within the scope of AASB Interpretation 12. Requires disclosure of provisions or significant features necessary to assist in assessing the amount, timing and certainty of futur e cash flows and the nature and extent of the var ious r ights and obligations involved. T hese disclosures apply to both grantors and oper ators. Ap plicat ion date o f standard* 1 Januar y 2008 Imp act on Gro up fin ancial report Unless the Group enters into ser vice concession arrangements or public-private-partnerships (PPP), the amendments are not expected to have any impact on the Group's financial report. App licatio n d ate for Group* 30 June 2008 1 Januar y 2008 Refer to AASB Int. 12 and AASB 2007-2 above. 30 June 2008 1 Januar y 2008 Refer to AASB Int. 12 and AASB 2007-2 above. 30 June 2008 AASB Int. 13 Customer Loyalty Programmes Deals with the accounting for customer loyalty programmes, which are used by companies to provide incentives to their customers to buy their products or use their services. 1 July 2008 T he Group does not have any customer loyalty programmes and as such this interpretation is not expected to have any impact on the Group’s financial report. 30 June 2008 AASB Int. 14 AASB 119 – T he Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Aims to clar ify how to determine in normal circumstances the limit on the asset that an employer’s balance sheet may contain in respect of its defined benefit pension plan. 1 Januar y 2008 T he Group has a defined benefit pension plan and as such this inter pretation may have an impact on the Group’s financial report. However, the Group has not yet determined the extent of the impact, if any. 30 June 2008 AASB 8 and AASB 2007-3 Operating Segments and consequential amendments to other Australian Accounting Standards New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting. 1 Januar y 2009 AASB 123 (Revised) and AASB 2007- 6 Borrowing Costs and consequential amendments to other Australian Accounting Standards The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. 1 Januar y 2009 AASB 101 (Revised) and AASB 2007- 8 Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards 1 Januar y 2009 Intr oduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or r eclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements. AASB 8 is a disclosure standar d so will have no direct impact on the amounts included in the Group' s financial statements, although it may indirectly impact the level at w hich goodwill is tested for impairment. In addition, the amendments may have an impact on the Gr oup’s segment disclosures. 29 June 2009 T hese amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. The Gr oup has no borrowing costs associated with qualifying assets and as such the amendments are not expected to have any impact on the Group' s financial report. T hese amendments are only expected to affect the presentation of the Group’s financial report and will not have a dir ect impact on the measurement and recognition of amounts disclosed in the financial report. T he Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements. 29 June 2009 29 June 2009 AASB 2008-1 Amendments to Australian Accounting Standard – Share- based Payments: Vesting Conditions and Cancellations The amendments clarify the definition of 'vesting conditions', introducing the ter m 'non- vesting conditions' for conditions other than vesting conditions as specifically defined and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. 1 Januar y 2009 T he Group has share-based payment arrangements that may be affected by these amendments. However, the Group has not yet determined the extent of the impact, if any 29 June 2009 AASB 2008-2 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation The amendments provide a limited exception to the definition of a liability so as to allow an entity that issues puttable financial instruments with cer tain specified features, to classify those instruments as equity rather than financial liabilities. 1 Januar y 2009 T hese amendments are not expected to have any impact on the Group’s financial report as the Group does not have on issue or expect to issue any puttable financial instr uments as defined by the amendments. 29 June 2009 50 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Referen ce T itle Sum mary AASB 3 (Revised) Business Combinations The revised standard introduces a number of changes to the accounting for business combinations, the most significant of which allows entities a choice for each business combination entered into – to measure a non- controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. T his choice will effectively r esult in recognising goodwill relating to 100% of the business ( applying the fair value option) or recognising goodwill relating to the percentage interest acquired. T he changes apply prospectively. Ap plicat ion date o f standard* 1 July 2009 Imp act on Gro up fin ancial report T he Group may enter into some business combinations during the next financial year and may therefore consider early adopting the revised standard. The Group has not yet assessed the impact of early adoption, including which accounting policy to adopt. App licatio n d ate for Group* 29 June 2009 AASB 127 (Revised) Consolidated and Separ ate Financial Statements Under the revised standard, a change in the ownership interest of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction. 1 July 2009 If the Group changes its owner ship interest in existing subsidiar ies in the future, the change will be accounted for as an equity transaction. T his will have no impact on goodwill, nor will it give rise to a gain or a loss in the Group’s income statement. 29 June 2009 AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Cost of an Investment in a Subsidiary, Jointly Contr olled Entity or Associate Amendments to International Financial Reporting Standards Amending standard issued as a consequence of revisions to AASB 3 and AASB 127. 1 July 2009 Refer to AASB 3 (Revised) and AASB 127 (Revised) above 29 June 2009 The main amendments of relevance to Australian entities are those made to IAS 27 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profit or loss in an entity's separate financial statements (i.e., parent company accounts). T he distinction between pre- and post-acquisition profits is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary ( that is, share of equity) rather than its fair value. 1 Januar y 2009 Recognising all dividends received from subsidiaries, jointly controlled entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these amendments. 29 June 2009 In addition, if the Group enter s into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a ‘carry-over basis’ rather than at fair value. Improvements to IFRSs Amendments to International Financial Reporting Standards The improvements project is an annual pr oject that provides a mechanism for making non- urgent, but necessary, amendments to IFRSs. The IASB has separ ated the amendments into two par ts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals w ith either terminology or editorial amendments that the IASB believes will have minimal impact. 1 Januar y 2009 except for amendments to IFRS 5, which are effective from 1 July 2009. T he Group has not yet determined the extent of the impact of the amendments, if any. 29 June 2009 IFRIC 16 Hedges of a Net Investment in a Foreign Operation This interpretation proposes that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventur es, associates or branches. *designates the beginning of the applicable annual repor ting period unless otherwise stated 1 Januar y 2009 T he Inter pretation is unlikely to have any impact on the Group since it does not significantly r estrict the hedged risk or where the hedging instrument can be held. 29 June 2009 51 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 2. Revenues ( A) REVENUE FROM OPERATIONS Revenue generated from s ales of: Newspapers and magazines Online and other Total sales revenue Revenue from printing and other services Dividend/distribution revenue Wholly owned controlled entities Other c orporations C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 2,276,638 1,846,767 503,222 221,943 2,779,860 2,068,710 120,895 41,955 - 1,445 1,445 - - 1,463 1,463 - - 128 - 720 100,000 - 775,000 - Total revenue from continuing oper ations 2,900,883 2,111,385 101,445 776,463 ( B) OTHER REVENUE AND INCOME Interest income Wholly owned controlled entities Other c orporations Net gain on sale of property, plant and equipment Net gain on sale of investments Net gain on foreign exchange Other Total other revenue and income Total revenue and income - 25,044 2,430 - 2,933 2,717 33,124 - 5,760 41,859 13,227 113 6,196 67,155 26,368 141 26,557 201 - - - - - - - - 26,509 26,758 2,934,007 2,178,540 127,954 803,221 52 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 3. Expenses ( A) EXPENSES BY NATURE Staff costs excluding staff redundancy costs Newsprint and paper Distribution and other production costs Promotion and advertis ing costs Staff redundancy costs Rent and outgoings Repairs and maintenance Communication costs News services Computer costs Fringe benefits tax, travel and entertainment Royalties and copyright payments Other Total expenses befor e depreciation, amortisation, asset impairment and finance costs ( B) DEPRECIATIO N, AMORTISATION AND ASSET IMPAIRMENT Depreciation of freehold property Depreciation of plant and equipment Amortis ation of leas ehold property/buildings Amortis ation of software Amortis ation of customer relationships Impairment of depreciable assets C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 951,943 311,807 313,006 108,572 11,423 62,434 32,426 24,056 16,522 19,917 34,886 696,852 269,057 235,522 88,141 12,862 78,076 24,417 17,418 12,398 15,135 23,534 44,985 167,378 4,341 137,281 35,654 - 2 343 7,446 17,890 6,769 931 31 5,884 2,263 10 8,780 40,138 - 9 69 832 23,050 4,963 2,305 40 5,997 2,105 - 7,105 2,099,355 1,615,034 86,003 86,613 4,860 79,834 2,303 19,385 1,913 - 3,574 68,594 1,504 19,447 892 17,270 - 7,183 41 2,290 - - - 4,779 144 7,712 - - Total depreciation, amortisation and asset impairment 108,295 111,281 9,514 12,635 ( C) FINANCE COSTS Finance costs External corporations/persons* Finance lease Total finance costs ( D) DETAILED EXPENSE DISCLOSURES Costs of sales Operating lease rental expense Lease surrender fee and additional rent costs - Darling Park head office Defined contribution fund expense Share based payments expense 207,124 4,795 112,127 4,837 211,919 116,964 5 - 5 869,649 43,583 - 56,789 4,429 764,415 30,023 37,188 41,685 822 - 16,858 - 3,196 4,429 * Finance costs paid to external persons at 1 July 2007 included $1.8m of PRESSES costs. PRESSES converted on 27 July 2006. 2,743 - 2,743 - 22,567 - 3,794 822 53 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 4. Significant items The profit after tax from continuing operations inc ludes the following whose disclosure is relevant in explaining the financial performance of the consolidated entity. Property - Comprising: Profit on sale of Spencer Street property * Property costs associated with the relocation from Darling Park to the new facility at One Darling Island, Pyrmont ** Income tax benefit Property (loss)/gain, net of tax Investments and Impairments - Comprising: Profit on sale of inves tment in Cars ales.com.au Limited *** Impairment of investments and ass ets held for sale Impairment of mastheads Outside equity interest share of masthead impairment Income tax benefit Investment gains and impairment of intangibles and investments, net of tax Fixed asset impairment and restructuring - Comprising: Impairment of plant, equipment and software Restructuring and redundancy charges Income tax benefit Fixed asset impairment and restructuring, net of tax - 41,929 (2,398) 719 (1,679) (41,283) 12,184 12,830 - - - - - - 13,227 (8,538) (6,666) 3,000 519 1,542 778 (17,270) (10,419) 2,893 (6,748) (9,344) 7,982 (18,632) Net significant and non-recurring items after income tax expense (8,427) (4,260) - - - - - - - - - - - - - - - - (2,377) 713 (1,664) - (3,046) - - - (3,046) (553) - 166 (387) (5,097) * The consolidated entity utilised existing capital losses and as such no income t ax was payable on the disposal of the Spencer Street propert y ** Other property costs includes the lease surren der fee, real estate consult an t fees, w rite-off of assets and fixtures that could not b e relocated from the Darling Park offices to the new office location *** The consolidated entity utilised existing capital losses and as such no income t ax was payable on the disposal of the investment in Carsales.com.au L im it ed 54 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 5. Income tax expense Income tax expense is reconciled to prima fac ie inc ome tax payable as follows: Net prof it before inc ome tax expense 523,173 338,222 32,432 701,230 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 Prima facie income tax at 30% (2007: 30%) Tax effect of differences: Share of net profits of associates and joint ventures Capital gains not taxable Non assessable dividends Over provision in prior financial years Overs eas tax rate and accounting differentials Non-deductible items Intragroup provision transfers Other Income tax expense/(benefit) Current income tax expens e/(benefit) Deferred income tax (benefit)/expense Over provision in prior financial years 156,952 101,467 9,730 210,369 (1,476) (6,017) (74) (2,633) (13,876) 2,555 - 252 135,683 156,532 (18,216) (2,633) (638) (17,597) (590) (30) (8,646) 1,679 - 956 76,601 89,503 (12,872) (30) - - (30,000) (2,396) - 1,519 (5,607) - - (232,500) (338) 669 272 - - 1,173 (26,754) (20,548) (3,810) (2,396) (20,355) (18,060) (1,957) (338) Income tax expense/(benefit) in the income statement 135,683 76,601 (26,754) (20,355) 55 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 6. Dividends paid and proposed and finance costs ( A) ORDINARY SHARES Interim 2008 75% franked dividend: 10 cents - paid 31 March 2008 (2007: f ully f ranked 10 cents - paid 21 March 2007) 151, 418 102,255 151,418 102,255 Final 2007 f ully f ranked dividend: 10 cents - paid 27 S eptember 2007 (2006: 11.5 cents - paid 6 O ctober 2006) Total dividends paid - ordinary shares 147, 964 116,182 147,964 116,182 299, 382 218,437 299,382 218,437 ( B) PREFERRED RESET SECURITIES EXCHANGEABLE FOR SHARES (PRESSES) Fully f ranked PRES SES dividend: 2008: $nil* 2007: $0. 8921 per share - paid 4 A ugust 2006 Total finance costs pai d - PRES SES ( C) STAPLED PREFERENCE SHARES ( SPS) SP S dividend: 2008: $4. 3341 per share - paid 30 April 2008 2008: $4. 0404 per share - paid 31 October 2007 2007: $4. 0040 per share - paid 30 April 2007 2007: $4. 3721 per share - paid 31 October 2006 Total dividends paid - SPS - - - - 2,230 2,230 13, 262 12, 356 - - 25, 618 - - 12,515 13,116 25,631 - - - - - - - - - 2,230 2,230 - - - - - Total dividends and PRES SES finance costs paid 325, 000 246,298 299,382 220,667 * PRESSES were r ed eem ed on 27 July 2006 and conver ted into fully paid ordinary shar es. ( D) DIVIDENDS PROPOSED AND NOT RECOG NISED AS A LIABILITY Sinc e balance date the directors have declared a final dividend of 10 cent s per fully paid ordinary share 75% franked at the corporate t ax rate of 30%. The aggregat e amount of the final dividend to be paid on 2 October 2008 out of the retained profits at 29 June 2008, but not recognised as a liability at the end of the year is expected to be $151.4 million. ( E) FRANKED DIVIDENDS Franking acc ount balance as at balanc e date at 30% (2007: 30%) Franking credits t hat will aris e from t he payment of income tax payable balances as at the end of the financial year Total franki ng credits avai lable for subsequent financial years based on a tax rate of 30% C o mp an y C o mp an y 20 0 8 $'0 0 0 20 07 $ '0 00 10,030 25,504 7,927 17,957 10,756 36,260 On a tax-paid basis, the Company’s franking account balance is approximately $10. 0 million (2007: $25.5 million). The impact on the f ranking account of the dividend declared by t he directors since balance date, will be a reduction in the f ranking account of approximat ely $48.6 million. The Company expects t o have suf ficient f ranking account credits arising f rom payment of income tax payable. 56 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 7. Receivables Current Trade debtors * Provision for doubtful debts Loans to related parties ** Loans and deposits Prepayments Other Total current receivables Non-current Loans to related parties *** Loans and deposits Prepayments Other Total non-current receivables Consolidated Consolidated Company Company 29 June 2008 1 July 2007 29 June 2008 1 July 2007 $'000 $'000 $'000 $'000 439,427 (9,515) 372,585 (5,711) 429,912 366,874 - - - 770 - 770 - 274 16,771 52,169 - 98 16,204 25,741 1,273,644 1,354,703 - 2,624 843 75 4,344 777 499,126 408,917 1,277,111 1,360,669 - 1,102 2,008 573 3,683 - 398,566 398,566 1,171 25 127 - 2,008 548 - 25 114 1,323 401,122 398,705 * Trade debtors are non-interest bearing and are generally on 7 to 45 day terms ** Loans to related parties current are non-interest bearing and are repayable at call *** Loans to related parties non-current are interest bearing deriving interest of 9.5% p.a. and are repayable on 27 June 2015, although this term may be extended upon mutual agreement of the parties (A) IMPAIRED TRADE DEBTORS As at 29 June 2008, trade debtors of the Group with a nominal value of $9.5million (2007: $5.7m) were impaired and fully provided for. Refer to Note 38(C) for the factors considered in determining whether trade debtors are impaired. There were no impaired trade debtors for the Company in 2008 or 2007. As at 29 June 2008, an analysis of trade debtors that are not considered as impaired is as follows: Consolidated Consolidated Company Company Not past due Past due 0 - 30 days Past due 31 - 60 days Past 60 days 2008 $'000 239,371 148,590 21,151 20,800 2007 $'000 206,637 134,794 14,758 10,685 429,912 366,874 2008 $'000 - - - - - The past 60 day ageing category was impacted by the inclusion of the Southern Cross Broadcasting group which was acquired during the 2008 year. Based on the credit history of these receivables, it is expected these amounts will be received. All other receivables do not contain impaired assets and are not past due. 2007 $'000 770 - - - 770 57 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Movements in the provision for doubtful debts are as follows: Balance at the beginning of the financial year Additional provisions Acquisition of controlled entities Utilised Exchange differences Balance at the end of the financial year 8. Inventories Raw materials and stores - at cost Provision for diminution in value Total raw materials and stores Finished goods - at cost Work in progress - at cost Program copyright in production costs Total inventories 9. Assets held for sale Mastheads* Property** Total assets held for sale Consolidated Consolidated 2008 $'000 5,711 4,081 2,469 (2,566) (180) 9,515 2007 $'000 3,572 2,126 2,476 (2,589) 126 5,711 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 39,353 (128) 39,225 3,852 1,565 159 44,613 - 44,613 3,426 488 - 44,801 48,527 - - - - - - - - - - - - - - - 2,222 2,222 500 - 500 - - - - - - * On 9 May 2007 the Company acquired Rural Press Limited. In order to address specific concerns of the Australian Competition and Consumer Commission (ACCC) arising from this acquisition the Group gave an undertaking to divest two community newspapers, The Newcastle and Lake Macquarie Post and The Hunter Post. These mastheads were classified as held for sale at 1 July 2007. The newspapers were subsequently sold on 1 December 2007. ** A decision was taken prior to 29 June 2008 to sell two buildings owned by Fairfax Media (UK) Limited, a wholly owned subsidiary of Fairfax Media Limited. A further property owned by the Group in Nowra, NSW is also due to be sold. These properties are being actively marketed, with a sale expected within six months. 58 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 10. Other assets Current Distribution advances and costs Film investments Provision for impairment of film investments Total other current assets Non-current Distribution advances and costs Provision for impairment of distribution advances and costs Total other non-current assets 11. Investments accounted for using the equity method Shares in associates Shares in joint ventures Total investments accounted for using the equity method (A) INTERESTS IN ASSOCIATES Note (A)(i) (B)(i) C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 5,903 12,449 (6,742) 5,707 11,610 29,847 (20,957) 8,890 - - - - - - - - 14,764 30,926 45,690 13,545 20,933 34,478 - - - - - - - - - - - - - - - - - - - - - - Name of Company Autobase Limited Principal Activity Place of Incorporation Ownership interest 29 June 2008 1 July 2007 E-commerce: online vehicle dealer New Zealand 25.4% 25.4% Australian Associated Press Pty Ltd News agency business and Australia 47.0% 47.0% automotive website information service Executive Publishing Network Pty Ltd* Magazine Publishing Guardian Print Limited Printing facility Australia New Zealand Homebush Transmitters Pty Ltd** Rental of a transmission facility Australia Newspaper House Limited Property ownership New Zealand New Zealand Press Association Ltd News agency business and financial New Zealand information service 30.0% 25.0% 50.0% 45.5% 49.2% 30.0% 25.0% - 45.5% 49.2% NGA.net Pty Ltd Provider of e-recruitment software Australia 30.0% 30.0% Perth FM Facilities Pty Ltd** Rental of a transmission facility Australia Times Newspapers Limited Newspaper Publishing New Zealand 33.3% 49.9% - 49.9% to corporations * ** The value of the investment in Executive Publishing Network Pty Ltd was written off at June 2007 following advice that a Board resolution had been passed to place the company into liquidation. Investments in associates acquired as part of the Southern Cross Broadcasting acquisition on 9 November 2007. 59 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (i) Carrying amount of investment in associates Balance at the beginning of the financial year Investments in associates acquired during the financ ial year Adjustment for foreign exchange revaluation Share of ass ociates' net profit after income tax expense Dividends received/receivable from associates Investments in associates disposed during the financial year Impairment of investment in associate * Balance at end of the financial year (ii) Share of associates' profits Profit before income tax expens e Income tax expense Net profit after income tax expense (iii) Shar e of associates' assets and liabilities Current assets Non-current ass ets Total assets Current liabilities Non-current liabilities Total liabilities C on so li da te d C on so li da ted 29 Ju ne 20 0 8 1 Ju ly 20 07 $'0 0 0 $ '0 00 13,545 100 (868) 2,427 (340) (100) - 15,553 796 203 333 (294) - (3,046) 14,764 13,545 2,607 (180) 2,427 10,434 21,436 31,870 5,739 3,104 8,843 744 (411) 333 10,355 21,393 31,748 5,652 3,231 8,883 ( B) INTERESTS IN JOINT VENTURES Na me of C om pa n y Prin ci pa l A ctivi ty P la ce o f In co rp ora tio n Own e rsh ip in tere st 29 Ju ne 20 0 8 1 Ju ly 20 07 Advantate Pty Ltd** * E-commerce: Online Marketing Australia Columbia Press Pty Ltd Newspaper publishing and printing Australia Endemol Southern Star (NZ) Pty Ltd** Television program production New Zealand Endemol Southern Star Pty Ltd** Television program production Gilgandra Newspapers Pty Ltd Newspaper publishing and printing Gippsland Regional Partnership Newspaper publishing and printing Hi-5 Operations Pty Ltd* *** Television program production Australia Australia Australia Australia Torch Publishing Company Pty Ltd Newspaper publishing and printing Australia 50.0% 50.0% 49.0% 49.0% 50.0% 50.0% 50.0% 50.0% - 50.0% - - 50.0% 50.0% - 50.0% ** *** Investment s in joint ventu res acquired as part of the Southern C ross Br oad casting acquisition on 9 Novem ber 20 07. Investment in joint venture acquired on 14 May 2008 . **** Investment in joint venture acquired on 11 March 2008. 60 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (i) Carrying amount of investment in joint ventures Balance at the beginning of the financial year Share of joint venture's net profit after income tax expense Interests in joint venture acquired during the year Dividends received/receivable from joint venture Share of increment in joint ventures' reserves Balance at end of the financial year (ii) Share of joint ventures' profits Revenues Expenses Profit before income tax expens e Income tax expense Net profit after income tax expense (iii) Shar e of joint ventur es' assets and liabilities Current assets Non-current ass ets Total assets Current liabilities Non-current liabilities Total liabilities ( C) SHARE OF NET PROFITS OF ASSOCIATES AND J OINT VENTURES Profit before income tax expens e Income tax expense Net profit after income tax expense C on so li da te d C on so li da ted 29 Ju ne 20 0 8 1 Ju ly 20 07 $'0 0 0 $ '0 00 20,933 6,308 12,053 (8,368) - 30,926 31,999 (23,991) 8,008 (1,700) 6,308 17,636 10,840 28,476 9,559 1,154 10,713 2,780 2,628 16,000 (1,362) 887 20,933 40,097 (36,259) 3,838 (1,210) 2,628 3,034 6,162 9,196 1,188 563 1,751 10,615 (1,880) 8,735 4,582 (1,621) 2,961 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 12. Available for sale investments Listed equity securities - at fair value Total available for sale investments 3,547 3,547 2,431 2,431 - - - - Available for sale investments consis t of investments in ordinary shares and have no fixed maturity date. During the financ ial year, an impairment charge of $1.4 million was recognised in the income statement in respec t of one of these investments due to a significant dec line in the share price of the investment during the financial year. 61 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 13. Held to maturity investments Bonds Total held to maturity investments 14,686 14,686 16,014 16,014 - - - - The annuity bonds issued by Paperbonds Limited, which were acquired on 8 March 2006 and are to be held to maturity in September 2015, have a face value of $20.0 million. They are indexed to the consumer price index (CPI) and have an effective interes t rate for the period ended 29 June 2008 of 5.64% (2007: 5.64%). 14. Intangible assets Mastheads and tradenames Software Customer relationships Radio licences Goodwill Total intangible assets 3,715,455 3,788,983 - - 62,250 14,298 53,136 16,411 146,245 2,554,392 17,000 2,255,513 14,044 21,417 - - - - - - 6,492,640 6,131,043 14,044 21,417 RECONCILIATIONS Reconciliations of the carrying amount of each class of intangible at the beginning and end of the current financial year are set out below: Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 Total $'000 (i) Consolidated At 1 July 2006 Cost Accumulated amortisation and impairment Net carrying amount - - - 1,000 - 2,200,270 - 127,316 (83,080) 654,142 - 2,982,728 (83,080) 1,000 2,200,270 44,236 654,142 2,899,648 62 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 Total $'000 Period ended 1 July 2007 Balance at beginning of the financial year Additions Disposals - - - 1,000 2,200,270 - - 1,428 - 44,236 26,218 (586) 654,142 2,899,648 5,711 33,357 - (586) Acquisition of business combinations 17,000 16,303 1,494,780 2,131 1,534,763 3,064,977 Impairment charge Amortisation charge Assets classified as held for sale Transfers from plant & equipment Exchange differences 3(B) 9 15(i) At 1 July 2007, net of accumulated amortisation and impairment - - - - - - (892) - - - (8,396) - (500) - 101,401 (8,530) (19,447) - 8,401 713 - - - - 60,897 (16,926) (20,339) (500) 8,401 163,011 17,000 16,411 3,788,983 53,136 2,255,513 6,131,043 At 1 July 2007 Cost Accumulated amortisation and impairment Net carrying amount 17,000 - 17,000 17,303 (892) 3,795,649 (6,666) 163,421 (110,285) 2,255,513 - 6,248,886 (117,843) 16,411 3,788,983 53,136 2,255,513 6,131,043 Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 Total $'000 Period ended 29 June 2008 Balance at beginning of the financial year 17,000 16,411 3,788,983 Additions Disposals Acquisition of business combinations Amortisation charge Exchange differences 3(B) At 29 June 2008, net of accumulated amortisation and impairment At 29 June 2008 Cost Accumulated amortisation and impairment - (6,369) 135,614 - - - - (200) (1,913) - 27,035 - 39,885 - (140,448) 53,136 28,864 (106) 1,438 (19,385) (1,697) 2,255,513 6,131,043 7,937 - 63,836 (6,475) 372,472 549,209 - (81,530) (21,298) (223,675) 146,245 14,298 3,715,455 62,250 2,554,392 6,492,640 146,245 - 17,103 (2,805) 3,715,455 - 188,748 (126,498) 2,554,392 - 6,621,943 (129,303) Net carrying amount 146,245 14,298 3,715,455 62,250 2,554,392 6,492,640 63 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (ii) Company At 1 July 2006 Cost Accumulated amortisation and impairment Net carrying amount Period ended 1 July 2007 Balance at beginning of the financial year Additions Disposal Amortisation charge Transfers from plant & equipment 3(B) 15(ii) At 1 July 2007, net of accumulated amortisation and impairment At 1 July 2007 Cost Accumulated amortisation and impairment Net carrying amount Period ended 29 June 2008 Balance at beginning of the financial year Additions Disposals Amortisation charge Intercompany transfers 3(B) At 29 June 2008, net of accumulated amortisation and impairment At 29 June 2008 Cost Accumulated amortisation and impairment Net carrying amount - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 53,350 (27,529) 25,821 25,821 2,253 (3) (7,712) 1,058 21,417 56,466 (35,049) 21,417 21,417 1,833 (35) (2,290) (6,881) 14,044 53,392 (39,348) 14,044 - - - - - - - - - - - - - - - - - - - - - 53,350 (27,529) 25,821 25,821 2,253 (3) (7,712) 1,058 21,417 56,466 (35,049) 21,417 21,417 1,833 (35) (2,290) (6,881) - 14,044 53,392 (39,348) 14,044 64 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (iii) Impair ment of cash generating units (CGU) including goodwill and indefinite life assets Goodwill is allocated to CGU groups which represent the economic entity's main operational groups within geographic segments. The rec overable amount of each CGU which includes goodwill or indefinite life intangibles has been reviewed. The rec overable amount of each CGU is determined based on value-in-use c alculations over a five year period with a terminal value as this method resulted in a higher recoverable amount than the fair value less costs to sell method. These calculations use cash flow projec tions based on financial budgets approved by the Directors for the 2009 financial year, after an adjustment for central overheads and s ynergy benefits. Cas h flows beyond the 2009 period are extrapolcated using the estimated growth rates stated at (v) below. The growth rates do not exceed the long-term avarage growths rate for the bus inesses in which the CGU operates. In the prior year the recoverable amount was determined based on fair value less cost to sell using a masthead multiple, based on recent market transactions, independent valuations or directors' assessment, to the CGU's resulting cas hflows. (iv) Allocation of goodwill and non-amortising intangibles to CGUs For the financial year ended 1 July 2007, the consolidated entity allocated goodwill and non-amortising intangibles to the following CGU Groups: Allocation of goodwill to CGU Groups New South Wales General Publications Victorian General Publications Queensland, South Australia, Western Australia and Tasmania General Publications Fairfax Business Media Agricultural Publications Australian Digital New Zealand Publishing New Zealand Digital Total goodwill Allocation of non-amortising intangibles to CGU Groups New South Wales General Publications Victorian General Publications Queensland, South Australia, Western Australia and Tasmania General Publications Fairfax Business Media Agricultural Publications Australian Digital New Zealand Publishing New Zealand Digital Total indefinite life intangibles Total goodwill and indefinite life intangibles C on so li da ted 1 Ju ly 20 07 $ '0 00 724,369 307,632 352,630 14,253 177,058 67,743 - 611,828 2,255,513 1,319,628 564,805 332,000 167,050 380,650 8,450 1,003,624 29,776 3,805,983 6,061,496 For the financial year ended 29 June 2008, the consolidated entity has redefined its CGU Groups. This change has occurred primarily as a result of the acquisition of the Rural Press and Southern Cross Broadcasting entities. 65 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 The consolidated entity has allocated goodwill and non-amortising intangibles to the following CGU Groups for the year ended 29 June 2008: Allocation of goodwill to CGU Groups New South Wales Metropolitan and Community Publications Victorian Metropolitan and Community Publications Regional Publications Business Public ations Agricultural Publications New Zealand Publications Australian Digital New Zealand Digital Fairfax Radio Networks and Southern Star Group Rural Press Printing Australian Printing and Publishing Total goodwill Allocation of non-amortising intangibles to CGU Groups New South Wales Metropolitan and Community Publications Victorian Metropolitan and Community Publications Regional Publications Business Public ations Agricultural Publications New Zealand Publications Australian Digital New Zealand Digital Fairfax Radio Networks and Southern Star Group Total indefinite life intangibles Total goodwill and indefinite life intangibles C on so li da ted 29 Ju ne 20 08 $ '0 00 11,795 54,623 230,338 16,216 39,863 2,824 66,969 568,299 363,230 577,910 622,325 2,554,392 650,779 436,906 1,175,697 167,050 371,480 879,181 8,450 25,912 146,245 3,861,700 6,416,092 No goodwill or indefinite life intangibles are allocated to a CGU in the Company. (v) Key assumptions used for value-in-use calculations The key as sumptions on which management has based its cashflow projections when determining the value-in-use calc ulations of the CGUs are as follows: • no significant increase in budgeted gross margin or growth rate from the 29 June 2008 financial year for non-digital CGUs. This is bas ed on past performance and expected efficiency improvements. growth rates of between 30% to 50% for digital CGUs , 3%-12% for publication CGUs and 25% to 30% for combined digital/public ation CGUs. the weighted average growth rates used are c onsistent with forecasts included in industry reports . the spot exchange rate prevailing at balance date is used when converting foreign cashflows on foreign mas theads . The exchange rate of 0.7926 has been applied to New Zealand mastheads for the current financial year. the post-tax discount rate applied to the cash flow projections was 10.5% • • • • (vi) Impact of possible change in key assumptions If the discount rate applied to the cash flow projections was increased to 11%, an aggregated impairment of $3.8 million would result across three CGUs . Management does not cons ider a reasonably possible change in any of the other key assumptions would cause the carrying amount of any of the CGU Groups to exceed its rec overable amount. 66 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 15. Property, plant and equipment Freehold land and buildings At cost Provision for depreciation Total freehold l and and buil dings Leasehold buildings At cost Provision for depreciation Total leasehold buildings Plant and equipment At cost Provision for depreciation Total plant and equipment C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 266, 515 (22, 228) 253,719 (17,491) 244, 287 236,228 80, 897 (18, 325) 80,887 (15,793) 62, 572 65,094 - - - 256 (116) 140 - - - 582 (144) 438 1,163, 748 (679, 664) 1,127,646 (608,035) 37,740 (26,268) 44,959 (27,566) 484, 084 519,611 11,472 17,393 Capital works in progress - at cost 84, 238 39,111 5,227 5,332 Total property, pl ant and equipment 875, 181 860,044 16,839 23,163 RECO NCILIATIONS Reconc iliations of the c arrying amount of each class of property, plant and equipment during the financial year are set out below: C ap ita l w or ks in pr og re ss Free h ol d l an d L ea se h ol d Pla n t a n d & bu il di ng s bu il di ng s e qu ip me nt N ote $' 00 0 $' 00 0 $'0 0 0 $'0 0 0 Tota l $ '0 00 (i) Consoli dated At 1 July 2006 Cost Ac cumulat ed depreciat ion and impairment 23, 489 - 184, 784 (14, 220) 57,015 1,026,976 1,292,264 (13,643) (610,144) (638,007) Net car rying amount 23, 489 170, 564 43,372 416,832 654,257 Period ended 1 July 2007 Balance at beginning of f inancial year Additions/capitalisations Disposals Ac quisition of controlled entities Impairment charge Depreciation charge Transf ers to software Transf ers to other asset categories Exchange dif ferences At 1 July 2007, net of accumul ated depreciation and impairment 3(B) 14(i) 23, 489 14, 751 - - - - - - 871 170, 564 43,372 416,832 654,257 306 (18, 532) 97, 909 - (3, 574) - (15, 354) 4, 909 5,508 - 20,264 - (1,504) - (2,548) 2 43,237 (4,590) 129,103 (10,740) (68,594) (8,401) 17,902 4,862 63,802 (23,122) 247,276 (10,740) (73,672) (8,401) - 10,644 39, 111 236, 228 65,094 519,611 860,044 67 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Total $'000 At 1 July 2007 Cost Accumulated depreciation and impairment 39,111 - 253,719 (17,491) 80,887 (15,793) 1,127,646 (608,035) 1,501,363 (641,319) Net carrying amount 39,111 236,228 65,094 519,611 860,044 Period ended 29 June 2008 Balance at beginning of financial year Additions/capitalisations Disposals Acquisition of controlled entities Depreciation charge Assets classified as held for sale Transfers to other asset categories Exchange differences At 29 June 2008, net of accumulated depreciation and impairment At 29 June 2008 Cost Accumulated depreciation and impairment 3(B) 9 39,111 46,624 - 25 - - - (1,522) 236,228 65,094 1,683 (6,699) 25,329 (4,860) (1,096) - (6,298) 816 (89) 1,616 (2,303) (1,126) (1,082) (354) 519,611 37,089 860,044 86,212 (11,035) (17,823) 23,512 50,482 (79,834) (86,997) - 1,082 (6,341) (2,222) - (14,515) 84,238 244,287 62,572 484,084 875,181 84,238 - 266,515 (22,228) 80,897 (18,325) 1,163,748 (679,664) 1,595,398 (720,217) Net carrying amount 84,238 244,287 62,572 484,084 875,181 (ii) Company At 1 July 2006 Cost Accumulated depreciation and impairment Net carrying amount Period ended 1 July 2007 Balance at beginning of financial year Additions/capitalisations Disposals Transfers to software Depreciation charge At 1 July 2007, net of accumulated depreciation and impairment At 1 July 2007 Cost Accumulated depreciation and impairment Net carrying amount 68 14(ii) 3(B) 5,899 - 5,899 5,899 (567) - - - 5,332 5,332 - 5,332 - - - - - - - - - - - - 473 - 473 43,808 (23,484) 50,180 (23,484) 20,324 26,696 473 109 - - (144) 20,324 2,913 (7) (1,058) (4,779) 26,696 2,455 (7) (1,058) (4,923) 438 17,393 23,163 582 (144) 438 44,959 (27,566) 50,873 (27,710) 17,393 23,163 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Period ended 29 June 2008 Balance at beginning of financial year Additions/capitalisations Disposals Intercompany transfers Depreciation charge At 29 June 2008, net of accumulated depreciation and impairment At 29 June 2008 Cost Accumulated depreciation and impairment Net carrying amount 3(B) 5,332 (105) - - - 5,227 5,227 - 5,227 - - - - - - - - - Total $'000 23,163 3,112 (7) (2,205) (7,224) 438 - - (257) (41) 17,393 3,217 (7) (1,948) (7,183) 140 11,472 16,839 256 (116) 140 37,740 (26,268) 43,223 (26,384) 11,472 16,839 Consolidated Consolidated Company Company 29 June 2008 1 July 2007 29 June 2008 1 July 2007 $'000 $'000 $'000 $'000 16. Derivative financial instruments Current assets Forward contracts - cash flow hedges Forward contracts - fair value to profit and loss Total current derivative assets Non-current assets Interest rate swap - cash flow hedge Cross currency swap - cash flow hedge Cross currency swap - fair value hedge Cross currency swap - net investment hedge Forward contracts - cash flow hedges Total non-current derivative assets Current liabilities Share swap - fair value to profit and loss Forward contracts - cash flow hedges Total current derivative liabilities Non-current liabilities Cross currency swap - fair value hedge Cross currency swap - net investment hedge Cross currency swap - cash flow hedge Cross currency swap - fair value to profit and loss Forward contracts - cash flow hedges 3,519 - 3,519 20,277 17,583 107 21,437 13 59,417 719 287 1,006 92,751 - 8,757 19,737 6 - 8 8 165 - - - - 165 - 1,344 1,344 69,688 12,538 5,175 3,047 - Total non-current derivative liabilities 121,251 90,448 - - - - - - - - - - - - - - - - - - The Group uses derivative financial instruments to reduce the exposure to fluctuations in interest rates and foreign currency rates. The Group formally designates hedging instruments to an underlying exposure and details the risk management objectives and strategies for undertaking hedge transactions. The Group assesses at inception and on a semi-annual basis thereafter, as to whether the derivative financial instruments used in the hedging transactions are effective at offsetting the risks they are designed to hedge. Due to the high effectiveness between the hedging instrument and underlying exposure being hedged, value changes in the derivatives are generally offset by changes in the fair value or cash flows of the underlying exposure. Any derivatives not formally designated as part of a hedging relationship are fair valued with any changes in fair value recognised in the income statement. The derivatives entered into are over-the-counter instruments within liquid markets. - - - - - - - - - - - - - - - - - - 69 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( A) HEDGING ACTIVITIES (i) Cash flow hedges - interest rate and cr oss curr ency swaps At 29 June 2008, the Group held interest rate s waps and cross currency swaps designated as hedges of future contracted interest payments on the EUR denominated Eurobonds. The combined swaps are being used to hedge a combination of future movements in interest rates and foreign currency exchange rates. At 29 June 2008, the notional principal amounts and period of expiry of the swaps are as follows: Pay fixed, receive floating - AUD$550m M a tu ri ty da te 15 June 2012 In tere st ra te 20 0 8 20 07 7.60% 7.60% The swaps designated to cash flow hedges cover approximately 98% of the Eurobond principal outstanding, with the remaining 2% of the Eurobond hedges designated as fair value hedges. The c ontracts require settlement on interest receivable annually and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying Eurobond. At 29 June 2008, the Group also held cross currency swaps designated as hedges of future contracted interest payments on the USD denominated senior notes issued in July 2007. The cross currency swaps are being used to hedge a combination of future movements in interest rates and foreign currency exchange rates. At 29 June 2008, the notional principal amounts and period of expiry of the swaps are as follows: Pay fixed, receive floating - AUD$59.5m Pay fixed, receive floating - AUD$59.5m M a tu ri ty da te 10 July 2017 10 July 2017 In tere st ra te 20 0 8 7.52% 7.46% 20 07 - - The contracts require s ettlement on interest rec eivable semi annually and interest payable eac h 90 days. These dates coincide with interest payable dates on the underlying Senior Notes. At 29 June 2008, the hedges of both the Eurobonds and Senior Notes were assessed to be highly effective with a combined unrealised gain in fair value of $19.3 million (2007: $3.5 million loss) recognised in equity for the period. During the year amounts trans ferred from equity to the income statement totalled $1.3 million (2007: $0.7 million) as income. (ii) Cash flow hedges - foreign exchange contracts At 29 June 2008, the Group held forward exchange contracts to hedge future foreign capital purchase commitments and intragroup monetary items across the Australian and New Zealand business. The contracts are timed to mature as payments are scheduled to be made to suppliers or transacted between group entities. In addition, the Group held forward exchange contracts to hedge future foreign currency sale agreements associated with the UK television production and distribution business. The contracts are timed to mature as the foreign cash receipts are scheduled to be received. With the exception of s ix contracts, where cash flows are expected to occur beyond 12 months, all cash flows are expec ted to occur over the next twelve months. At 29 June 2008, the details of the outstanding contrac ts are: 70 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Buy CHF/Sell AUD - Maturity 0 - 12 months Buy USD/Sell AUD - Maturity 0 - 12 months Buy EUR/Sell AUD - Maturity 0 - 12 months Buy EUR/Sell NZD - Maturity 0 - 12 months Buy EUR/Sell NZD - Maturity 13 - 24 months Buy GBP/Sell NZD - Maturity 0 - 12 months Buy AUD/Sell NZD - Maturity 0 -12 months Buy CHF/Sell NZD - Maturit y 0 - 12 months Buy CHF/Sell NZD - Maturit y 13 - 24 months Buy AUD/Sell G BP - Maturity 0 -12 months 2 0 08 * $' 00 0 2,688 2,226 2,657 5,231 2,375 258 113,505 2,723 509 428 W ei gh ted av era g e 2 0 07 * exch a ng e ra te $'0 0 0 20 0 8 20 07 1,547 2,223 - 3,990 - 160 - - - - 0.9245 0.9220 0.6208 0.4882 0.4647 0.3532 1.2285 0.7562 0.7216 0.4266 0.9157 0.7455 - 0.5049 - 0.3570 - - - - * The amounts disclosed represent currency bought measured at the contracted rate. The foreign currenc y contracts are considered to be fully effective hedges as they are matched exactly against the highly probable f oreign capital purchases, intragroup monetary items or agreed foreign currency receipts, with any gain or loss on the contracts taken directly to equity. W hen t he contrac t is delivered, the Group will adjust t he initial measurement of any component recognis ed on the balance sheet by the related amount deferred in equity. Where the hedge item affec ts net profit and loss any gain or loss deferred in equity is transferred to the income statement when the contract is delivered. At 29 June 2008, the hedges were assessed to be highly effective wit h an unrealised gain of $2.76 million (2007: $1. 2 million los s) recognised in equit y f or the period. The amount removed f rom equity and included in the initial measurement of capital purchases during the period to 29 June 2008 was $1.2 million, result ing in an increase to the capital asset base (2007: nil). During the current and prior f inancial period there was no material ineffectiveness recognised in the income st atement attribut able to cas h flow hedges of foreign exchange contracts. (iii) Fair val ue hedges At 29 June 2008, the Group held cross currency swap agreements designat ed to changes in the underlying value of USD denominated senior notes (ref er to Note 21). The t erms of cert ain cross currency swap agreements exchange USD obligations into AUD obligations and other agreements exchange USD obligations into NZD obligations. The latter are also designated to hedge value changes in the G roup’s New Zealand controlled entit ies (excluding Trade Me Limited), as discussed in Note (iv) below. At 29 June 2008, the Group also held cross currency swap agreements partly designated to changes in the underlying value of t he EUR denominated Eurobond (refer to Note 21). The terms of the cross currency swap exchange EUR obligations into AUD obligations. This swap has been 98% designated t o a cash flow hedge, as discussed in (i) above. At 29 June 2008, the cross currency swap agreements had a c ombined value of $92. 6 million (2007: $69.7 million). The cross currency swaps are designated based on matched terms to the debt and also have the same maturit y prof ile as the USD denominat ed senior notes and the EUR denominated Eurobonds. The terms of these cross currency swaps are as f ollows: Pay float ing AUD receive f ixed USD - USD $50m Pay float ing AUD receive f ixed USD - USD $125m Pay float ing AUD receive f loating USD - USD $25m Pay float ing NZD receive fixed USD - USD $40m Pay float ing NZD receive fixed USD - USD $90m Pay float ing NZD receive fixed USD - USD $50m Pay float ing AUD receive f ixed EUR - EUR $4m Ma tu rity d a te 15 January 2011 10 July 2014 10 July 2014 15 January 2019 15 January 2016 15 January 2014 15 June 2012 71 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 For the Group, the remeas urement of the hedged items resulted in a gain before tax of $15.7 million (2007: $52.5m) and the changes in the fair value of the hedging instruments resulted in a loss before tax of $15.5 million (2007: $52.6m) resulting in a net gain before tax of $269,781 (2007: $94,264 loss) recorded in f inance c osts. (iv) Net investment hedges The NZD/USD cross currency swap agreements have also been designated to hedge the net investment in New Zealand controlled entities acquired as part of the ac quisition of Independent News Limited in June 2003. At 29 June 2008, the hedges were assessed to be highly effective with an unrealised gain of $24.3 million (2007: $20.2 million loss) recognised in equity. During the c urrent and prior financial period there was no material ineffectiveness recognised in the income statement attributable to the net investment hedges. 17. Pension asset SUPERANNUATION PLAN The Group c ontributes to defined contribution and defined benefit plans, which provide benefits to employees and their dependants on retirement, disability or death. The superannuation arrangements in Australia are managed in a s ub-plan of the Mercer Super Trust, called Fairfax Super. The Trustee of the T rus t is Mercer Investment Nominees Limited. The superannuation arrangements in New Zealand are managed by AoN Cons ulting New Zealand Limited in three funds - Fairfax NZ Retirement Fund, Fairfax New Zealand Superannuation Fund and Fairfax NZ Senior Executive Superannuation Scheme. All New Zealand funds are defined contribution plans with the exc eption of the Fairfax NZ Retirement Fund which als o has a defined benefit section, this defined benefit section is closed to new members. The defined contribution plans receive fixed contributions from Group companies and the Group’s legally enforceable obligation is limited to these contributions . The defined benefit plans receive employee c ontributions and the Group also contributes to the defined benefit plans at rates recommended by the plans’ actuaries. The NZ Retirement Fund includes investments in respect of members of the NZ Defined Benefit Plan and investments in respect of the NZ Defined Contribution Plan. The following sets out details in respec t of the defined benefit plans only and in the case of the Fairfax NZ Retirement Fund, excludes $56.6 million of defined c ontribution as sets and entitlements. ( A) BALANCE SHEET The amounts recognised in the balance sheet are determined as follows: Present value of the defined benefit obligation Fair value of defined benefit plan assets Net pension asset Unrecognised actuarial (loss es)/gains Unrecognised past service costs Net pension asset in the balance sheet 72 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 (24,254) 29,796 (20,048) 33,429 5,542 13,381 - - - - 5,542 13,381 - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 The Group companies may at any time, by notice to the Trustees terminate its contributions. The Group companies have a liability to pay the monthly contributions due prior to the effective date of notice, but there is no current requirement for the Group companies to pay any further contributions, irrespective of the financial condition of the plans. (B) RECONCILIATION OF THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION Consolidated Consolidated Company Company 29 June 2008 1 July 2007 29 June 2008 1 July 2007 $'000 $'000 $'000 $'000 Balance at the beginning of the financial year 20,048 19,424 Current service cost Interest cost Contributions by employees Actuarial (gains) and losses Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Transfers in/(out) 3,255 3,763 3,717 (2,955) (9,097) (708) (64) 6,295 1,294 969 2,557 2,854 (4,760) (630) 130 (1,790) Balance at the end of the financial year defined benefit obligations 24,254 20,048 (C) RECONCILIATION OF THE FAIR VALUE OF PLAN ASSETS Balance at the beginning of the financial year Expected return on plan assets Actuarial (gains) and losses Contributions by Group companies and employees Benefits paid Taxes, premiums & expenses paid Exchange differences on foreign plans Transfers in/(out) 33,429 5,602 (8,958) 3,828 (9,097) (708) (595) 6,295 30,100 1,943 4,938 3,032 (4,760) (630) 596 (1,790) Balance at the end of the financial year defined benefit assets 29,796 33,429 (D) AMOUNTS RECOGNISED IN INCOME STATEMENT The amounts recognised in the income statement are as follows: Current service cost Interest cost Expected return on plan assets Total included in employee benefits expense Actual return on plan assets 3,255 3,763 (5,602) 1,416 1,294 969 (1,943) 320 (3,274) 6,881 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 73 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (E) CATEGORIES OF PLAN ASSETS The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows: Consolidated Consolidated Company Company 29 June 2008 1 July 2007 29 June 2008 1 July 2007 % % % % Cash Australian equities Overseas equities Fixed interest securities Property Other (F) PRINCIPAL ACTUARIAL ASSUMPTIONS The principal actuarial assumptions used (expressed as weighted averages) were as follows: Discount rate Expected return on plan assets Future salary increases 6 20 34 24 7 9 5.2 6.5 4.0 9 25 34 24 8 - 4.9 6.3 4.0 - - - - - - - - - - - - - - - - - - The expected rate of return on assets has been determined by weighting the expected long term return for each class by the target allocation of assets to each asset class. This resulted in a 6.5% p.a. rate of return, net of tax and expenses (2007: 6.25% p.a). (G) EMPLOYER CONTRIBUTIONS Employer contributions to the defined benefit section of the plans are based on recommendations by the plans’ actuaries. Actuarial assessments are made at three yearly intervals and the last actuarial assessment of Fairfax Super was carried out as at 1 July 2006 by Mercer Human Resource Consulting Pty Ltd. The last actuarial assessments of Fairfax NZ Retirement Fund and Fairfax NZ Senior Executive Superannuation Scheme were carried out as at 31 March 2005 by AoN Consulting New Zealand Limited and the next assessment will occur in September 2008. Fairfax New Zealand Superannuation Fund is a defined contribution fund and does not require an actuarial assessment. The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding benefits known as the aggregate funding method. This funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members’ salaries over their working lifetimes. Using the funding method described above and particular actuarial assumptions as to the plan’s future experience (as detailed below), the actuary recommended in the actuarial review as at 1 July 2006 (for Australia) and 31 March 2005 (for New Zealand) that a contribution holiday be taken until the next actuarial review is performed. This recommendation was adopted by the Group from 2 July 2007 and has been carried through to the current period. Total employer contributions expected to be paid by Group companies for the 2009 financial year are nil (parent entity: $nil). (H) NET FINANCIAL POSITION OF PLAN In accordance with AAS 25 Financial Reporting by Superannuation Plans the plans’ net financial position is determined as the difference between the present value of the accrued benefits and the net market value of plan assets. This has been determined as a surplus of $7.6million at the most recent financial position of the plans, being 1 July 2006 for Australia and 31 March 2005 for New Zealand. As such, the assets of each of the plans are sufficient to satisfy all benefits that would have vested under the plans in the event of termination of the plans and voluntary or compulsory termination of employment of each employee. The directors, based on the advice of the trustees of the plan, are not aware of any changes in circumstances since the date of the most recent financial statements of the plans (1 July 2006 for Australia and 31 March 2005 for New Zealand), which would have a material impact on the overall financial position of the defined benefit plan. 74 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( I) HISTORIC SUMMARY Defined benefit plan obligation Plan assets Surplus 2 00 5 $' 00 0 20 0 6 $'0 0 0 20 0 7 $'0 0 0 20 08 $ '0 00 (21,836) 28,652 (19,424) 30,100 (20,048) 33,429 (24,254) 29,796 6,816 10,676 13,381 5,542 Experience adjustments arising on plan liabilities Experience adjustments arising on plan ass ets (1,457) 644 (2,152) (892) (2,032) (1,038) 7,678 (3,132) 18. Deferred tax assets and liabilities ( A) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: Ass ets Li ab il itie s Ne t 2 9 Ju n e 2 00 8 1 Jul y 2 00 7 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $ '00 0 $' 00 0 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 (i) Consolidated Property, plant and equipment 19,018 16, 525 Inventories Investments Intangible as sets Other assets Provisions Payables Other liabilities Tax losses Film production and distribution Other - (345) 5,453 36,774 50,608 7,986 2,739 18 1,532 4,778 - - 4,837 36, 181 45, 371 7,432 1,519 4,656 - 761 38,220 4,114 6,102 44,300 39,042 - - 105 - 9,584 7,464 25,186 3,875 3,310 35,824 16,196 - - 216 - - 4,957 (19,202) (4,114) (6,447) (38,847) (2,268) 50,608 7,986 2,634 18 (8,052) (2,686) (8,661) (3,875) (3,310) (30,987) 19,985 45,371 7,432 1,303 4,656 - (4,196) Net deferred tax assets/liabilities 128,561 117,282 148,931 89,564 (20,370) 27,718 (ii) Company Property, plant & equipment Intangible as sets Other assets Employee provisions Ac cruals Other Net deferred tax assets/liabilities - 5,178 - 2,426 1,405 191 9,200 4 4,459 - 1,976 2,232 639 9,310 3,630 - 2 - - 4,011 7,643 3,943 - - - - - 3,943 (3,630) 5,178 (2) 2,426 1,405 (3,820) 1,557 (3,939) 4,459 - 1,976 2,232 639 5,367 There are no unrecognised deferred tax assets or liabilities and no unused tax losses for which no deferred tax ass et has been recognised. 75 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( B) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE FINANCIAL YEAR (i) Consolidated Property, plant and equipment Inventories Investments Intangible as sets Other assets Provisions Payables Other liabilities Tax losses Film production and distribution Other (ii) Company Property, plant and equipment Intangible as sets Other financial assets Provisions Payables Other (i) Consolidated Property, plant and equipment Inventories Investments Intangible as sets Other assets Provisions Payables Other liabilities Tax losses Other (ii) Company Property, plant and equipment Intangible as sets Other financial assets Provisions Payables Other 76 Ba la nc e R ec og ni se d R eco g ni se d Re co g ni se d Bal a nce 1 Jul y 2 00 7 o n a cq u isi tio n i n i nc om e in eq ui ty 29 Ju ne 20 08 (8, 661) (3, 875) (3, 310) (30,987) 19, 985 45, 371 7,432 1,303 4,656 - (4, 196) (13,874) - (2,613) (9,751) 230 3,341 526 117 - (1,168) 6 3,333 (239) (524) 1,891 (15,797) 1,896 28 1,214 (4,638) (6,884) 1,504 - - - - (6,686) - - - - - - (19,202) (4,114) (6,447) (38,847) (2,268) 50,608 7,986 2,634 18 (8,052) (2,686) 27, 718 (23,186) (18,216) (6,686) (20,370) (3, 939) 4,459 - 1,976 2,232 639 5,367 - - - - - - - 309 719 (2) 450 (827) (4,459) (3,810) - - - - - - - (3,630) 5,178 (2) 2,426 1,405 (3,820) 1,557 Ba la nc e R ec og ni se d R eco g ni se d Re co g ni se d Bal a nce 3 0 Ju n e 2 00 6 o n a cq u isi tio n i n i nc om e in eq ui ty 1 Ju ly 20 07 (3, 616) (2, 535) (391) (25,814) (1, 157) 29, 157 3,568 403 - (2, 996) (3, 381) (2, 729) 3,692 (202) 1,911 550 490 3,712 (6,283) (100) (2,633) (4,891) (459) 9,040 2,015 (10) - 8 (3,313) - - - - - - - 1,238 (1,240) - (282) 19,392 7,174 1,849 910 4,656 (443) 33,254 (1,210) 767 202 65 1,682 914 2,420 - - (286) - 2,209 - - - - (765) 1,158 - - - - - (765) (765) (8,661) (3,875) (3,310) (30,987) 19,985 45,371 7,432 1,303 4,656 (4,196) 27,718 (3,939) 4,459 - 1,976 2,232 639 5,367 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 19. Other financial assets Shares in controlled entities - at cost Shares in unlisted entities Total other financial assets 20. Payables Trade and other payables * Interest payable Income in advance Total curr ent payables * T rade payables are non-interest bearing and are generally on 30 day term s C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 - 122 122 - 3,143,723 3,142,329 122 122 - - 3,143,723 3,142,329 226,917 209,489 15,900 14,640 26,403 76,725 24,436 55,594 - - - - 330,045 289,519 15,900 14,640 21. Interest bearing liabilities Current - unsecured Bank borrowings Other loans Current - secur ed Finance leas e liability Total curr ent inter est bear ing liabilities Non-current - unsecured Bank borrowings Redeemable Preference Shares Other loans Senior notes Medium term notes Eurobonds Other Non-current - secured Finance leas e liability Total non-cur rent inter est bear ing liabilities (C) (C) (A) (D) (B) (E) (F) (C) 3,957 8,665 2,060 7,297 3,194 15,816 2,880 12,237 973,109 1,058,435 146,401 166,282 519,676 199,682 570,249 61,680 257,434 199,589 554,976 70,345 (C) 25,336 28,437 2,496,133 2,335,498 - - - - - - - - - - - - - - - - - - - - - - - - 77 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( A) BANK BORROWINGS Non-current A $1,200 million syndicated bank facility is available to the Group until periods ranging from April 2010 to April 2012. At 29 June 2008, $850 million was drawn down (2007: $850 million). The interest rate for the drawings under this facility is the applicable bank bill rate plus a credit margin. A $200 million revolving committed cash advance facility is available to the group until September 2010. At 29 J une 2008, $125 million was drawn down (2007: $200 million). The interest rate for this facility is the applicable bank bill rate plus a credit margin. ( B) SENIOR NOTES The Group issued Senior Notes in the US private placement market with a principal value of US$230 million (A$246.5 million) in January 2004 with a fixed coupon of between 4.74% p.a. and 5.85% p.a payable semi-annually in arrears. The interest and principal on the Senior Notes are payable in US dollars and were swapped into floating rate New Zealand dollars and floating rate Australian dollars via a cross currency swap. This issue of Senior Notes comprises maturities ranging from January 2011 to January 2019. The weighted average maturity of the issue is approximately six and a half years. The applicable cross-currency swap credit margin includes the c ost of hedging all currency risk and future interest and principal repayments on a quarterly basis. The Group issued further Senior Notes in the US private placement market with a principle value of US$250 million (A$273.2 million) in J uly 2007 comprising maturities ranging from July 2014 to July 2017. The weighted average maturity of this issue is approximately 7.2 years. The issued notes include fixed rate coupon notes, paying a weighted average coupon of 6.4% p.a. semi annually in arrears,and floating rate coupon notes. The interest and principle on the Senior Notes are payable in US dollars and were swapped into fixed and floating rate Australian dollars via cross currency swaps. ( C) OTHER LOANS AND FINANCE LEASE LIABILITY The Chullora printing fac ility in Sydney is partially financed by a financ e lease facility and loans with a maturity date of September 2015. There is a CPI indexed annuity loan with principal and interest outstanding of $45.5 million (2007: $49.0 million) and a finance leas e of $28.5 million (2007: $31.3 million), which was entered into in February 1996. There is also principal and interest outstanding of $24.9 million (2007: $28.5 million) in the form of a fixed rate loan with an established drawdown and repayment sc hedule. ( D) REDEEMABLE PREFERENCE SHARES (RPS) The Group issued Redeemable Preference Shares in New Zealand in May 2005 with a principal value of NZ$186.5 million (A$146.4 million) currently paying a fixed one year coupon of 9.31% p.a. payable quarterly in arrears and thereafter set at 1% over the applicable one year swap rate. The Redeemable Preference Shares mature in June 2010. The interest and principal on the Redeemable Preference Shares are payable in New Zealand dollars and were swapped into fixed rate Australian dollars via a cross-currency swap. The applicable c ross-currency swap credit margin includes the cost of hedging all c urrency risk and future interest and principal repayments on a quarterly basis. ( E) MEDIUM TERM NO TES (MTNs) On 27 June 2006, the Group issued $200 million of MTNs with a maturity date of 27 June 2011. The MTNs were issued at a fixed coupon of 6.865% p.a. ( F) EUROBO NDS On 15 June 2007 the Group issued €350 million guaranteed notes with a maturity date of 15 June 2012. The notes pay a fixed coupon of 5.25% p.a. payable annually in arrears. The interest and principal on the notes are payable in Euro and were swapped into fixed rate Australian dollars via a cross c urrency swap. 78 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( G) FINANCING ARRANGEMENTS A NZ$50 million revolving committed cash advance facility is available to the Group until June 2010. At 29 June 2008 this facility was not drawn down (2007: nil). The Group has sufficient unused committed facilities at the balance sheet date to finance maturing current interest bearing liabilities . The Group's financing facilities outlined in Note 21 are guaranteed by Fairfax Media Limited and are covered by Deeds of negative pledge (refer note 30). 22. Provisions Current Employee benefits Defamation Property Consideration payable under earn out arrangement Other Total curr ent provisions Non-current Employee benefits Property Other Total non-cur rent provisions C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 113,793 2,228 1,603 37,959 4,254 102,068 1,311 37,888 - 5,755 159,837 147,022 6,990 - - - 395 7,385 4,649 - - - 240 4,889 13,108 31,533 757 45,398 14,224 25,780 1,083 41,087 703 1,939 - - - - 703 1,939 RECO NCILIATION Reconc iliations of the c arrying amount of each class of provision, other than employee benefits, during the financial year are set out below: C o ns ol id ate d C o ns ol id ate d C o nso l id ate d C on so li da te d C o mp an y Current Balance at beginning of the financial year Ac quisition of controlled entities Additional provision Utilised Exchange differences Balance at end of the financial year Non-current Balance at beginning of the financial year Additional provision Utilised Balance at end of the financial year D e fa ma tio n Pro pe rty Ear n o ut 2 00 8 $' 00 0 2 00 8 $' 00 0 20 0 8 $'0 0 0 1,311 150 6,199 (5, 412) (20) 2,228 37,888 255 - (36,540) - - 37,959 - - - 1,603 37,959 - - - - 25,780 5,753 - 31,533 - - - - Othe r 20 0 8 $'0 0 0 5,755 3,625 2,743 (7,869) - 4,254 1,083 - (326) 757 Othe r 20 08 $ '0 00 240 - 395 (240) - 395 - - - - 79 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 NATURE AND TIMING OF PRO VISIONS (i) Employee benefits Provisions for employee benefits include liabilities for annual leave and long service leave and are measured at the amounts expected to be paid when the liabilities are settled, refer to Note 1(T)(i). (ii) Defamation From time to time, entities in the Group are sued for defamation and similar matters in the ordinary cours e of business. The defamation provis ion maintained is with respect to various insignificant matters across the Group. At the date of this report there were no legal actions against the consolidated entity that have not been adequately provided for or that are expected to have a material impac t on the Group. (iii) Property The provision for property costs is in respec t of make good provisions , def erred lease incentives and the move of the Sydney office from Darling Park to One Darling Island, Pyrmont. The utilisation of the provision in the current year included a lease surrender fee and rent penalties for Darling Park and additional costs associated with the move. The make good provision and deferred leases incentive are amortised over the shorter of the term of the lease or the us eful life of the assets, being up to 20 years. (iv) Earn out The provision for earn out relates to amounts in relation to recent acquisitions which are payable c ontingent on the achievement of specified financial performance criteria by the entity acquired. (v) Other Other provisions includes redundanc y cos ts and various other costs relating to the business . 23. Contributed equity Ordinary Shares 1,513,544,248 ordinary s hares fully paid (2007: 1,479,640,401) Unvested Employee Incentive Shar es C o ns ol id ate d C on so li da ted C om pa ny C om pa ny 2 9 Ju n e 2 00 8 1 Ju ly 20 07 29 Jun e 2 0 08 1 Ju ly 2 0 07 No te $ '00 0 $ '0 00 $ '0 00 $ '0 00 (A) 4,039,131 3,891,162 4,039,131 3,891,162 3,384,916 unvested employee inc entive shares (2007: 0) (B) (13,885) - (13,885) - Stapled Preference Shar es (SPS) 3,000,000 stapled preference shares (2007: 3,000,000) (C) 293,163 293,163 299,278 299,278 (D) * * * * 4,318,409 4,184,325 4,324,524 4,190,440 Debentures 281 debent ures fully paid (2007: 281) Total contributed equity * Amount is less than $10 00 80 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 RECO NCILIATIONS Reconc iliations of each c lass of contributed equity at the beginning and end of the c urrent financial year are set out below: Consolidated ( A) ORDINARY SHARES Balance at beginning of the financial year Dividend reinves tment plan issue - 27 September 2007 Dividend reinves tment plan issue - 21 March 2007 Dividend reinves tment plan issue - 6 October 2006 Conversion of PRESSES - 27 July 2006** Share iss ue - 25 July 2006 Acquisition of Border Mail Share iss ue - 9 May 2007 Acquisition of Rural Press Share iss ue - 7 August 2007 Adjustment to Rural Press acquisition share issue Share iss ue - 27 September 2007 Merrill Lynch final dividend underwriting Share iss ue costs 2 9 Ju n e 2 00 8 1 Ju ly 20 07 29 Jun e 2 0 08 1 Ju ly 2 0 07 No . of sh ar es N o. o f s ha re s $ '0 00 $ '0 00 1,479,640,401 939,067,152 3,891,162 1,248,334 12,820,970 - - - - - 900 21,081,977 - - 4,135,813 12,278,486 66,348,490 4,858,517 452,951,943 - - - 56,156 - - - - - 5 91,808 - - 19,728 48,008 250,000 19,920 2,305,525 - - (353) Balance at end of the financial year 1,513,544,248 1,479,640,401 4,039,131 3,891,162 ( B) UNVESTED EMPLOYEE INCENTIVE SHARES Balance at beginning of the financial year Share acquisition - 22 February 2008 Share acquisition - 25 February 2008 Balance at end of the financial year ( C) STAPLED PREFERENCE SHARES ( SPS) Balance at beginning of the financial year Share iss ue costs Balance at end of the financial year ( D) DEBENTURES Balance at beginning of the financial year Balance at end of the financial year - 1,700,000 1,684,916 3,384,916 - - - - - (6,969) (6,916) (13,885) - - - - 3,000,000 - 3,000,000 - 3,000,000 3,000,000 293,163 - 293,163 293,167 (4) 293,163 281 281 281 281 * * * * Total contributed equity 4,318,409 4,184,325 ** On 27 July 2006 the Company converted all 2,500,000 PRESSES into 66,348,490 fully paid ordinary shares TERMS AND CO NDITIO NS OF CONTRIBUTED EQ UITY ( A) Ordinary Shares Ordinary shares entitle the holder to receive dividends as dec lared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus ass ets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person, or by proxy, at a meeting of the Company. 81 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Dividend Reinvestment Plan Fairfax Media Limited introduced a Dividend Reinvestment Plan (DRP) to eligible shareholders during the financial year ended 30 June 2004. The DRP will apply to the payment of the final dividend for the year ended 29 J une 2008 to be paid on 2 October 2008. The last date for the receipt of an election notice for partic ipation in the plan for the final dividend is 2 September 2008. Under the terms of the DRP eligible shareholders are able to elect to reinvest their dividends in additional Fairfax shares, free of any brokerage or other transaction c osts. Shares are is sued and/or transferred to DRP participants at a predetermined price, less any discount that the directors may elect to apply from time to time. The DRP is sue price in relation to the final dividend for the financial year ended 29 June 2008 will be based on the arithmetic average of the daily volume weighted average s ale price of Fairfax Media Limited shares traded on the Australia Securities Exchange during the period 4 September 2008 to 17 September 2008 inclus ive, excluding any trades that do not qualify under the terms of the DRP. During the financial year ended 29 June 2008, 12,820,970 ordinary shares (2007: 16,414,299 ordinary shares) were iss ued under the terms of the DRP. ( B) Unvested Em ployee Incent ive Shares Shares in Fairfax Media Limited are held by the Executive Employee Share Plan Trust for the purpose of issuing shares under the Long Term Incentive Plan. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per s hare at shareholder meetings. ( C) Stapled Preference Shares (SPS) The SPS (FXJPB), which was issued on 23 March 2006 for a face value of $100 per share, is a stapled security comprising a fully paid SPS Preference Share issued by the Company, Fairfax Media Limited and a fully paid unsecured note issued by Fairfax Group Finance New Zealand Limited, a wholly owned entity of the Company. Holders of the SPS are not entitled to vote. Distribution payments are at the dis cretion of directors however distributions, in the form of interest on the notes, are expected to be paid semi-annually in arrears each April and October, and rank in preference to ordinary shareholders and equally with preferenc e shareholders . The distribution rate is calculated as the sum of the six month bank bill swap rate and the margin, which is determined by the issuers or adjusted to the step-up margin. Dis tributions are non-cumulative. Total dividend payment in the year to SPS holders was $25,618,128 (2007: $25,630,749). The SPS are perpetual however Fairfax has the right to repurchase the SPS for cash or convert the SPS into a variable number of ordinary shares from April 2011 or earlier in certain circums tances (an assignment event). In the event an assignment event occurs, the SPS are ‘unstapled’ and the unsecured notes assigned to a wholly owned Fairfax subsidiary. The SPS holders would continue to hold a listed SPS preference share issued by the Company and discretionary dividends on the preference shares, which may be franked. The two securities may not be traded separately prior to an ass ignment event and an assignment event does not itself give the Company the right to repurchase or convert the SPS. Holders are never entitled to both interest on the unsecured notes and dividends on the SPS preference shares at the s ame time. ( D) Debentures Debenture holders terms and conditions are disclosed in Note 1(U). 82 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 24. Reserves As set revaluation reserve, net of tax Foreign currency translation reserve, net of tax Cashflow hedge reserve, net of tax Net investment hedge reserve, net of tax Share-based payment reserve, net of tax Total reserves (A) Asset revaluation r eserve Balance at beginning of the financial year Net unrealised (losses)/gains on available for sale investment Transfer to retained earnings Revaluation - joint venture Tax effect of net los s on available for sale investment Balance at end of the financial year (B) Foreign currency translation reserve Balance at beginning of the financial year Net exchange differences on currency translation, net of tax Balance at end of the financial year (C) Cashflow hedge r eserve Balance at beginning of the financial year Effective portion of changes in value of cashflow hedges Tax effect of net changes on cashflow hedges Balance at end of the financial year (D) Net investment hedge reserve Balance at beginning of the financial year Effective portion of changes in value of net investment hedges Tax effect on net investment hedges Balance at end of the financial year (E) Share-based payment reserve Balance at beginning of the financial year Share-based payment expense Transfer to Share T rus t to fund acquisition of shares Balance at end of the financial year NATURE AND PURPO SE OF RESERVES C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 No te $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 (A) (B) (C) (D) (E) (801) (201,881) 15,307 (438) 1,750 - 48,984 (6,739) (24,719) (1,943) (186,063) 15,583 - - - - 1,750 1,750 - - - - (1,943) (1,943) - (801) - - - 7,676 953 (9,230) 887 (286) (801) - 48,984 (129,287) (250,865) 178,271 (201,881) 48,984 (6,739) 31,079 (9,033) 15,307 (1,314) (7,755) 2,330 (6,739) (24,719) 34,654 (10,373) (4,494) (28,893) 8,668 (438) (24,719) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1,943) 4,429 (736) 1,750 595 822 (3,360) (1,943) (1,943) 4,429 (736) 1,750 595 822 (3,360) (1,943) (A) Asset revaluation r eserve The asset revaluation reserve is used t o rec ord increments and decrements on the revaluation of non-current assets. From 1 July 2004, changes in the fair value of investments classified as available for sale investments are recognised in the asset revaluation reserve, as described in Note 1(M). 83 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (B) Foreign currency translation reserve The foreign currenc y trans lation reserve is used to record exchange differences arising on translation of foreign controlled entities and assoc iated funding of foreign controlled entities , as described in Note 1(F). (C) Cashflow hedge r eserve The hedging reserve is used to record the portion of gains and losses on a hedging instrument in a cash flow hedge that is determined to be an effective hedge, as des cribed in Note 1(N). Refer to futher disclos ures at Note 16. (D) Net investment hedge reserve The net investment hedge reserve is used to record gains and losses on a hedging instruments in a fair value hedge, as described in Note 1(F). Refer to futher disclosures at Note 16. (E) Share-based payment reserve The share-based payments reserve is used to recognise the fair value of shares issued but not vested and transfers to fund the acquisition of Share Trust shares , as described in Note 1(T)(ii). 25. Retained profits Balance at beginning of the financial year Transfer from ass et revaluation res erve Net prof it for the financ ial year Transfer from minority interest Ac tuarial (loss)/gain on defined benefit plans, net of tax Tax benefits recognis ed directly in equity Reclassification of tax benefits to equity Total available for appropriation C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 No te $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 748,164 717,414 730,731 227,583 - 9,230 - - 386,878 263,510 59,186 721,585 - (4,315) 8,427 7,833 619 1,459 - - - - - - - - - - 1,146,987 992,232 789,917 949,168 Dividends paid 6 (325,000) (244,068) (299,382) (218,437) Balance at end of the financial year 821,987 748,164 490,535 730,731 84 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 26. Minority interest Interest in: Contributed equity Res erves Retained profits Balance at end of the financial year RECO NCILIATION Balance at beginning of the financial year Ac quisition of controlled entities Ac quisition of minority interest balances in previously controlled entities Transfer to retained earnings Share of profit/(loss) for the period Distribution to minority interest Exchange differences Balance at end of the financial year C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 4,898 8,585 (2,482) 5,692 8,438 (1,208) 11,001 12,922 12,922 1,587 (3,636) - 612 (570) 86 11,001 4,718 10,836 - (619) (1,889) (124) - 12,922 - - - - - - - - - - - - - - - - - - - - - - - - Consolidated Consolidated 29 June 2008 1 July 2007 ¢ per share ¢ per share 27. Earnings per share Basic earnings per share After significant and non-recurring items less SPS dividend (net of tax) 24.6 22.7 Diluted earnings per share After significant and non-recurring items (net of tax) Earnings reconciliation - basic Net profit attributable to members of the Company Less Dividends on SPS (net of tax) Basic earnings after significant and non-recurring items less SPS dividend Earnings reconciliation - diluted Net profit attributable to members of the Company 24.1 23.0 Consolidated Consolidated 29 June 2008 1 July 2007 $'000 $'000 386,878 (17,164) 263,510 (17,942) 369,714 245,568 386,878 263,510 85 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Weighted average number of ordinary shares used in calculating basic EPS SPS Weighted average number of ordinary shares used in calculating diluted EPS C on so li da te d C on so li da ted 29 Ju ne 20 0 8 1 Ju ly 20 07 N u mbe r N um be r '0 0 0 '0 00 1,505,829 99,208 1,082,093 64,670 1,605,037 1,146,763 28. Commitments O PERATING LEASE COMMITMENTS - GROUP AS LESSEE The Group has entered into commercial leases on office and warehouse premises, motor vehicles and office equipment. Future minimum rentals payable under non-cancellable operating leases as at the period end are as follows: C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 No te $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 Within one year Later than one year and not later than five years Later than five years Total operating lease commitments 49,682 140,014 326,224 46,895 163,383 378,737 515,920 589,015 - - - - The Group is currently leasing the Spencer Street premises for the period 15 June 2007 to 31 March 2010. There are two six month extensions available. Election to renew twelve months prior to the end of the term will not have an additional cost as sociated with it. Election to renew the lease six and three months prior to the end of the term will cost $150,000 and $200,000 respectively, payable in six equal ins talments . FINANCE LEASE COMMITMENTS - GROUP AS LESSEE The Group has a finance lease for plant and machinery with a carrying amount of $33.7m (2007: $35.0m). The lease has an average lease term of s even years (2007: eight years) and a weighted average interest rate of 13.4% (2007: 13.4%). Future minimum lease payments under the finance lease together with the present value of the net minimum lease payments are as follows: Within one year Later than one year and not later than five years Later than five years Minimum lease payments Less future finance charges Total finance lease liability Classified as: Current interest bearing liabilities Non-current interest bearing liabilities Total finance lease liability 86 5,076 20,303 11,420 36,799 5,076 20,303 16,495 41,874 (8,269) (10,557) 28,530 31,317 3,194 25,336 28,530 2,880 28,437 31,317 21(C) - - - - - - - - - - - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 CONTINGENT RENTALS UNDER FINANCE LEASE A component of the finance lease payments are contingent on movements in the consumer price index. At balance date, the contingent rent payable over the remaining lease term of eight years is $27.6 million (2007: $30.9 million). CAPITAL COMMITMENTS At 29 June 2008, the Group has commitments principally relating to the purchase of property, plant and equipment. Commitments contracted for at reporting date but not recognised as liabilities are as follows: Consolidated Consolidated Company Company 29 June 2008 1 July 2007 29 June 2008 1 July 2007 Note $'000 $'000 $'000 $'000 28,999 18,545 - 47,544 21,783 10,711 - 32,494 - - - - - - - - Within one year Later than one year and not later than five years Later than five years Total capital commitments 29. Contingencies EARN O UT AGREEMENTS The Group has earn out agreements which represent contingent liabilities at 29 June 2008 relating to the following acquisitions: - InvestSMART Financial Services Pty Ltd and Go East Furniture Company Pty Ltd - Countrycars.com.au Pty Ltd Additional cash consideration of up to $71.4 million will be payable by the Group if the above businesses achieve specified financial performanc e criteria. The amount of the earn outs are based on the earnings before interest, tax, depreciation and amortisation (EBITDA) of the acquired business. The earn out targets cover 12 month periods up to 30 September 2010. A liability for these earn outs has not been rec ognised at 29 June 2008 as the amount of the earn out is subject to a variety of factors including market behaviour, c ompetition, trading volumes and activity and cannot be reliably determined at this stage. When the earn out is probable and can be reliably measured, the liability will be ac counted for as an additional acquisition cost and added to the carrying amount of the inves tment as goodwill. G UARANTEES Under the terms of ASIC Clas s Order 98/1418 (as amended), the Company and certain controlled entities (refer Note 30), have guaranteed any deficienc y of funds if any entity to the class order is wound-up. No such deficiency exists at balance date. DEFAMATIO N From time to time, entities in the Group are sued for defamation and similar matters in the ordinary cours e of business. At the date of this report, there were no legal actions against the consolidated entity, other than thos e rec ognised at Note 22, that are expected to result in a material impac t. 87 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 30. Controlled entities The following entities were c ontrolled as at the end of the financial year: Fairfax Media Limited CONTROLLED ENTITIES 5AU Broadcasters Proprietary Limited ACN 002 642 266 Pty Limited ACN 101 806 302 Pty Ltd Agricultural Publishers Pty Limited AIPD Pty Limited As sociated Newspapers Ltd Australian Property Monitors Pty Limited Blenheim Films Limited Border Mail Printing Pty Ltd Bridge Printing Office Pty Limited Broadcast Investments Holdings Pty Limited Bundaberg Broadcas ters Pty Limited Canweb Printing Pty Limited Carnival (Charles Dickens) Limited Carnival Film & Televis ion Ltd Carpentaria News papers Pty Limited Central Dis tricts Field Days Limited Commerce Australia Pty Ltd Communication Associates Limited Constellar Press & Printing Pty Limited Country Publis hers Pty Limited CountryCars .com.au Pty Ltd Creative House Publications Pty Limited Cudgegong News papers Pty Limited Darrall Macqueen Artis t Management Limited Darrall Macqueen Limited Darrall Macqueen West Limited David Syme & Co Pty Limited Debt Retrieval Agenc y Limited Depotsound Limited Digital Radio Australia Pty Limited Es perance Holdings Pty Limited Examiner Properties Pty Limited F@rming Online Pty Limited Fairfax Business Media (South Asia) Pte Limited Fairfax Business Media Pte Limited Fairfax Business Media Sdn. Bhd. Fairfax Business Publications (Hong Kong) Ltd Fairfax Community Network Limited Fairfax Community Newspapers Pty Limited Fairfax Corporation Pty Limited 88 N o te s (a) (a) (a),(b) (a) (a) (a) (a) (b) (a) (a) (b) (a) (b) (b) (a) (a) (a) (a) (b) (b) (b) (a) (b) (a),(b) (a) (a) (a) (a) (a) Co u ntry of Inco rp or ati on Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom Australia Australia Australia Australia Australia United Kingdom United Kingdom Australia New Zealand Australia New Zealand Australia Australia Australia Australia Australia United Kingdom United Kingdom United Kingdom Australia New Zealand United Kingdom Australia Australia Australia Australia Singapore Singapore Malaysia Hong Kong Australia Australia Australia Ow n ers hi p i nte re st 20 0 8 % 20 07 % 100 100 100 100 100 100 100 75 100 100 100 100 100 75 75 100 100 75 100 100 100 100 100 100 75 75 75 100 100 75 100 100 100 100 100 100 100 100 100 100 100 93 - 100 100 100 100 100 - 76 100 - 93 100 - - 100 100 75 100 100 100 100 - 100 - - - 100 100 - - 100 100 100 100 100 100 100 100 100 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Fairfax Digital Australia & New Zealand Pty Ltd Fairfax Digital Limited Fairfax EEC Limited Fairfax Group Finance New Zealand Limited Fairfax News Network Pty Limited Fairfax Media Group Finance Pty Limited Fairfax Media Management Pty Limited Fairfax Media Publications Pty Ltd Fairfax New Zealand Finance Limited Fairfax New Zealand Holdings Limited Fairfax New Zealand Limited Fairfax Print Holdings Pty Limited Fairfax Printers Pty Limited Fairfax Radio Network Pty Ltd Fairfax Regional Printers Pty Limited Fairfax Radio Syndication Pty Limited Fantasports Australia Pty Limited Farm Progress Companies, Inc Farm Progress Holding Co, Inc Farm Progress Insurance Services, Inc Financial Essentials Pty Ltd Go East Furniture Company Pty Limited Golden Mail Pty Limited Harris and Company Pty Limited Harris Enterprises Pty Limited Harris Print Pty Limited Harris Publications Pty Limited Hunter Distribution Network Pty Limited Illawarra Newspaper Holdings Pty Limited Indiana Prairie Farmer Insurance Services, Inc InvestSMART Financial Services Pty Limited InvestSMART Limited J&R Graphics Pty Limited John Fairfax & Sons Limited John Fairfax (UK) Limited John Fairfax (US) Limited John Fairfax Limited Lanson Investments Pty Limited Large Publications Pty Ltd Leeton Newspapers Pty Ltd Lime Digital Pty Limited Macleay Valley Happynings Pty Limited Mayas Pty Limited Mayas Unit Trust Media Investments Pty Limited Melbourne Community Newspapers Pty Ltd Merredin Advertiser Pty Limited Notes (a) (a) (a) (a) (a) (a) (a) (a) (a),(b) (a) (a),(b) (b) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Country of Incorporation Australia Australia United Kingdom New Zealand Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia United States United States United States Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Australia New Zealand Australia Australia United Kingdom United States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest 2008 % 2007 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 79 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 - - 100 100 100 - - 66 100 100 100 100 100 100 100 - - 100 100 100 100 100 93 79 100 100 100 100 100 100 100 100 89 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Metropolis Media Pty Ltd Micosh Pty Ltd Milton Ulladulla Publishing Co. Pty Limited Mistcue Pty Limited Mountain Press Pty Limited NE Investments Pty Ltd Newcastle Newspapers Pty Ltd North Australian News Pty Limited Northern Newspapers Pty Limited NZ Rural Press Limited Old Friends Limited Online Services International Limited Oxford Scientific Films Limited Personal Investment Direct Access Pty Limited Port Lincoln Times Pty Limited Port Stephens Publishers Pty Ltd Port Stephens Publishers Trust Primetime Limited Pro-Ag Pty Limited Propaganda Print Pty Ltd Queensland Community Newspapers Pty Limited Radio 4BH Brisbane Pty Limited Radio 2UE Sydney Pty Limited Radio 4BC Brisbane Pty Limited Radio 1278 Melbourne Pty Limited Radio 3AW Melbourne Pty Limited Radio 6PR Perth Pty Limited Radio 96FM Perth Pty Limited Real Estate Publications Australasia Pty Limited Real Estate Publications Australasia Trust Regional Printers Pty Limited Regional Publishers (Tasmania) Pty Limited Regional Publishers (Victoria) Pty Limited Regional Publishers (Western Victoria) Pty Ltd Regional Publishers Pty Limited Notes (a) (a) (a) (a) (a) (b) (a) (a) (b) (a) (a) (a),(b) (a),(b) (a),(b) (a),(b) (b) (a),(b) (a),(b) (a) (a) (a) (a) (a) Riverina Newspapers (Griffith) Pty Ltd (a),(b) Rosemary and Thyme Enterprises Limited RP Interactive Pty Limited RPL Technology Pty Limited RSVP.com.au Pty Limited Rural Press (North Queensland) Pty Limited Rural Press (USA) Limited Rural Press Ltd Rural Press Printing (Victoria) Pty Limited Rural Press Printing Pty Limited Rural Press Queensland Pty Limited Rural Press Regional Media (WA) Pty Limited Rural Press Share Plan Pty Limited Rural Press USA Inc 90 (b) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand United Kingdom Australia Australia Australia Australia United Kingdom Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom Australia Australia Australia Australia United States Australia Australia Australia Australia Australia Australia United States Ownership interest 2008 % 100 100 60 65 88 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 55 55 100 100 100 100 100 100 75 100 100 100 100 100 100 100 100 100 100 100 100 2007 % 100 100 60 65 88 100 100 100 100 100 100 100 - 100 100 100 100 - 100 100 100 - - - - - - - 55 55 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Rural Publishers Pty Limited S.A. Regional Media Pty Limited Satellite Interactive Marketing Pty Limited Satellite Marketing Australia Pty Limited Satellite Music Australia Pty Limited Snowy Mountains Publications Pty Limited Southern Cross View Pty Limited Southern Star Group Limited Southern Star Group Inc Southern Star Entertainment Pty Limited Southern Star Entertainment UK Plc Southern Star Film Investments Pty Limited Southern Star Films Sales Pty Limited Southern Star International Limited Southern Star Productions No. 1 Pty Limited Southern Star Productions No. 2 Pty Limited Southern Star Productions No. 3 Pty Limited Southern Star Productions No. 4 Pty Limited Southern Star Productions No. 5 Pty Limited Southern Star Productions No. 6 Pty Limited Southern Star Productions No. 7 Pty Limited Southern Star Productions No. 8 Pty Limited Southern Star Productions No. 9 Pty Limited Southern Star Productions No. 10 Pty Limited Southern Star Productions No. 11 Pty Limited Notes (a) (a) (a),(b) (a),(b) (a),(b) (a),(b) (a),(b) (b) (a),(b) (b) (a),(b) (a),(b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) Southern Star Operations Pty Limited (a),(b) Southern Star Sales (UK) Limited Southern Star Singapore Pte Ltd Southern Star Singapore No. 2 Pte Limited SS Group Funds Pty Limited Stayz Limited Stayz Pty Limited Stock Journal Publishers Pty Limited Suzannenic Pty Limited The Advocate Newspaper Proprietary Limited The Age Company Ltd The Age Print Company Pty Ltd The Barossa News Pty Limited The Border Morning Mail Ltd The Examiner Newspaper Pty Limited The Federal Capital Press of Australia Pty Limited The Independent News Pty Ltd The Miller Publishing Co, Inc The Murrumbidgee Irrigator Pty Ltd The Printing Press Pty Limited The Queanbeyan Age Pty Limited The Text Media Group Pty Ltd (b) (b) (b) (b) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia United States Australia United Kingdom Australia Australia United Kingdom Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom Singapore Singapore Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Ownership interest 2008 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2007 % 100 100 - - - 100 - - - - - - - - - - - - - - - - - - - - - - - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 91 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 The Text Newspaper Company Pty Limited TheVine.com.au Pty Ltd The Wagga Daily Advertiser Pty Ltd The Warrnambool Standard Pty Ltd Tofua Holdings Pty Limited Trade Me Limited Tricom Group Pty Limited Victorian Lifestyle Property Pty Limited West Australian Rural Media Pty Limited Western Australian Primary Industry Press Pty Ltd Western Magazine Pty Limited Western Magazine Settlement Trust Whyalla News Properties Pty Limited Winbourne Pty Limited Notes (a) (a) (a) (a),(b) (a) (a) (a) (a) Country of Incorporation Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest 2008 % 100 100 100 100 100 100 100 100 100 100 75 75 100 100 2007 % 100 - 100 100 100 100 - 100 100 100 75 75 100 100 (a) The Company and the controlled entities incorporated within Australia are party to Class Order 98/1418 (as amended) issued by the Australian Securities & Investment Commission. These entities have entered into a Deed of Cross Guarantee dated June 2008 under which each entity guarantees the debts of the others. These companies represent a ‘Closed Group’ for the purposes of the Class Order and there are no other members of the ‘Extended Closed Group’. Under the Class Order, these entities have been relieved from the requirements of the Corporations Act 2001 with regard to the preparation, audit and publication of accounts. (b) These companies were acquired as part of the Southern Cross acquisition. Refer to Note 31 for further details. DEED OF CROSS GUARANTEE Fairfax Media Limited and certain wholly-owned entit ies (the “Closed Group”) identified at (a) above are parties to a Deed of Cross Guarantee under ASIC Class Order 98/1418 (as amended). Pursuant to the requirements of that Class Order, a summarised consolidated income statement for the period ended 29 June 2008 and consolidated balance sheet as at 29 June 2008, comprising the members of the Closed Group after eliminating all transact ions between members are set out below: ( A) BALANCE SHEET Current assets Cash and cash equivalents Trade and other rec eivables Inventories Derivative assets As sets held for sale Other current assets Total curr ent assets 92 2 0 08 $ '0 00 20 07 $ '0 00 40,634 413,447 38,395 3,314 1,096 11,610 323,885 331,919 38,928 8 500 - 508,496 695,240 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Non-current assets Receivables Investments accounted for using the equity method Available for sale investments Held to maturity investments Intangible assets Property, plant and equipment Derivative assets Pension asset Deferred tax assets Other financial assets Other non-current assets Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Derivative liabilities Provisions Current tax liabilities Total current liabilities Non-current liabilities Interest bearing liabilities Derivative liabilities Deferred tax liabilities Provisions Other Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity (B) INCOME STATEMENT Total revenue Share of net profits of associates and joint ventures Expenses before finance costs Finance costs Net profit from continuing operations before income tax expense Income tax expense Net profit from continuing operations after income tax expense 2008 $'000 2007 $'000 517,084 43,926 3,547 14,686 636,584 15,536 - 16,014 4,829,520 3,957,807 780,222 59,403 4,858 107,080 1,277,473 8,890 692,256 165 9,292 97,402 1,484,297 - 7,646,689 6,909,353 8,155,185 7,604,593 269,023 15,816 919 111,630 2,018 399,406 224,307 10,178 1,344 131,596 20,353 387,778 2,352,638 2,160,827 149,295 116,042 44,052 2,881 90,448 79,972 37,986 335 2,664,908 2,369,568 3,064,314 2,757,346 5,090,871 4,847,247 4,318,409 4,184,325 137,334 635,128 (25,988) 688,910 5,090,871 4,847,247 2,322,237 1,589,096 8,478 2,577 (1,874,469) (104,699) (1,238,551) (41,420) 351,547 (95,254) 311,702 (49,322) 256,293 262,380 93 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 31. Acquisition and disposal of controlled entities ( A) SOUTHERN CROSS BROADCASTING The consolidated entity gained control over the following entities during the year as part of the Southern Cross Broadcasting acquisition: En tity o r b us in es s ac qu ir ed P rin ci pa l a ctiv ity Southern Star Group Limited Southern Star Films Sales Pty Limited Southern Star Operations Pty Limited SS Group Funds Pty Limited ACN 002 642 266 Pty Limited Southern Star Group Inc Southern Star Film Investments Pty Limited Southern Star Entertainment Pty Limited Southern Star Productions No. 1 Pty Limited Southern Star Productions No. 2 Pty Limited Southern Star Productions No. 3 Pty Limited Southern Star Productions No. 4 Pty Limited Southern Star Productions No. 5 Pty Limited Southern Star Productions No. 6 Pty Limited Southern Star Productions No. 7 Pty Limited Southern Star Productions No. 8 Pty Limited Southern Star Productions No. 9 Pty Limited Southern Star Productions No. 10 Pty Limited Southern Star Productions No. 11 Pty Limited Southern Star Singapore Pte Ltd Southern Star Singapore No. 2 Pte Limited Southern Star Entertainment UK Plc Southern Star Sales (UK) Limited Primetime Limited Oxford Scientific Films Limited Southern Star International Limited Darrall Macqueen Limited Darrall Macqueen Artis t Management Limited Darrall Macqueen West Limited Carnival Film & Televis ion Ltd Carnival (Charles Dickens) Limited Blenheim Films Limited Rosemary and Thyme Enterprises Limited Depotsound Limited Southern Cross View Pty Limited Tricom Group Pty Limited Southern Cross Emedia Pty Limited ** * Fantasports Australia Pty Limited Tricom Radio Holdings Pty Limited * Radio 2UE Sydney Pty Limited Talk Radio Network Pty Limited *** 3AW Southern Cross Radio Pty Limited * United Broadcast Holdings Pty Limited *** 94 ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** D a te o f Ac qu is itio n 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 Ow ne rsh ip In te res t 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 75% 75% 75% 75% 75% 75% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Entity or business acquired Principal activity Broadcast Investments Holdings Pty Limited 1278 Southern Cross Radio Pty Limited * 96FM Southern Cross Radio Pty Limited * 6PR Southern Cross Radio Pty Limited * Radio 4BC Brisbane Pty Limited Queensland Radio 2000 Pty Limited * Southern Cross Syndication Pty Limited * Satellite Marketing Australia Pty Limited Satellite Music Australia Pty Limited Satellite Interactive Marketing Pty Limited Digital Radio Australia Pty Limited ** ** ** ** ** ** ** ** ** ** ** Date of Acquisition 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 9 November 2007 * These company names were subsequently changed post acquisition to be consistent with those of the consolidated entity. ** The principal activities of the companies acquired are television production and distribution, radio broadcasting and music subscription services. *** These entities were subsequently liquidated post acquisition. Consideration paid for the acquisition of the Southern Cross Broadcasting entities consisted of $532.4 million in cash. (B) OTHER ACQUISITIONS The consolidated entity gained control over the following entities or publishing assets during the year as part of other acquisitions: Entity or business acquired Central District Times Border Mail Printing Pty Limited Principal activity Newspaper publishing Printing facility InvestSMART Financial Services Pty Limited Online fund manager InvestSMART Limited Go East Furniture Company Pty Limited Dormant Dormant The Guardian NZ Life & Leisure Creative House Publications Pty Limited Star Broadcasting Network Pty Limited Horse Deals Financial Essentials Pty Ltd TheVine.com.au Pty Ltd Mail Newspapers The World The Cut The Weather Company Pty Ltd Newspaper publishing Magazine publishing Magazine publishing Radio broadcasting Magazine publishing Financial education services Online youth website Newspaper publishing Magazine publishing Magazine publishing Online weather website Date of Acquisition 29 August 2007 6 September 2007 28 September 2007 28 September 2007 28 September 2007 1 December 2007 10 December 2007 20 December 2007 21 December 2007 29 February 2008 29 February 2008 16 April 2008 18 April 2008 30 May 2008 4 June 2008 27 June 2008 Ownership Interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Ownership Interest (i) (ii) 100% 100% 100% (iii) (iv) 60% (v) (vi) (vii) 100% 70% (viii) (ix) (x) 75% 95 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (i) (ii) The publis hing ass ets of Central Distric t Times in New Zealand were acquired, including the Central District Times masthead. On 25 July 2006, the consolidated entity gained control over Border Mail Printing Pty Limited via the acquisition of a 75.5% interest in this company. On 6 September 2007, the consolidated entity acquired the remaining 24.5% interest in this company resulting in an ownership interest of 100%. (iii) The publis hing ass ets of The Guardian in Blacktown NSW were acquired (inc luding The Guardian masthead) in exchange for the Newcastle and Lake Macquarie Pos t and the Hunter Post mastheads. (iv) (v) (vi) The publis hing ass ets of NZ Life & Leis ure in New Zealand were ac quired, including the NZ Life & Leisure masthead. The consolidated entity ac quired a 60% interest in Creative House Publications Pty Limited, which includes the Focus Magazine masthead. The remaining 7% minority interest was acquired in Star Broadcasting Network Pty Limited resulting in an ownership interest of 100%. (vii) (viii) The publis hing ass ets of Horse Deals were acquired, including the Horse Deals masthead. The publis hing ass ets of Mail Newspapers in New Zealand were ac quired, including the Napier Mail, Hastings Mail and the Hawkes Bay Country Sc ene mastheads. The publis hing ass ets of The World in New Zealand were acquired, including The World masthead. The publis hing ass ets of The Cut in New Zealand were acquired, including The Cut masthead. (ix) (x) For additional information refer to Note 32. ( C) DISPOSALS The consolidated entity disposed of its 100% interest in Star Broadcasting Network Pty Limited on 28 May 2008. 96 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 32. Business combinations ( A) RURAL PRESS On 9 May 2007 Fairfax Media Limited acquired 100% of the issued share capital of Rural Press Limited. At 1 July 2007, the purchase price allocation for this business combination was based on provisional information. During the f inancial year ended 29 June 2008, the purchase price alloc ation was finalised. The impact of this was a dec rease to goodwill of $32.5 million The fair value of the identifiable assets and liabilities of the Rural Press entities as at the date of acquisition were: R eco g ni se d o n a cq ui si tio n Ac qu ire e 's ca rry in g a mo un ts $'0 0 0 $ '0 00 Fair value of net assets acquired Cash and cash equivalents Receivables Inventories Investments accounted for using the equity method Available for sale investments Property, plant and equipment Intangible as sets Deferred tax ass ets Total assets Payables Current tax liabilities Interest bearing liabilities Provisions Deferred tax liabilities Total liabilities Fair value of identifiable net assets Outside equity interest in net assets Goodwill arising on acquisition Total identifiable net assets and goodwill Consideration Purchase c onsideration - cash Purchase c onsideration - shares Costs direc tly attributable to the acquisition Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow 8,438 95,560 14,693 16,796 985 234,346 1,549,029 15,772 1,935,619 52,463 13,640 413,307 24,300 37,018 540,728 1,394,891 (8,995) 1,348,258 2,734,154 422,426 2,305,530 6,198 2,734,154 8,438 (428,624) (420,186) ( B) SOUTHERN CROSS BROADCASTING On 9 November 2007 certain assets and liabilities of Southern Cross Broadcasting were acquired. For details of the purchase consideration and a full listing of entities acquired refer to Note 31(A). The purchase allocation has not been finalised and provisional accounting has been applied. The assets and liabilities acquired were: 8,438 95,530 14,693 8,550 456 192,803 445,642 15,412 781,524 51,700 6,240 413,307 24,300 4,699 500,246 281,278 - - 281,278 97 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Value of net assets acquir ed Cash and cash equivalents Receivables Inventories Investments accounted for using the equity method Property, plant and equipment Intangible as sets As sets available for sale Other current assets Current tax assets Deferred tax ass ets Total assets Payables Interest bearing liabilities Provisions Other non current liabilities Deferred tax liabilities Total liabilities Value of identifiable net assets Outside equity interest in net assets Goodwill arising on acquisition Total identifiable net assets and goodwill Consideration Purchase c onsideration - cash Costs direc tly attributable to the acquisition Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow R eco g ni se d Ac qu ire e 's o n a cq ui si tio n ca rry in g a mo un ts $'0 0 0 $ '0 00 17,784 72,815 963 5,505 30,145 148,269 3,324 17,896 3,012 25,973 325,686 77,817 347 10,932 1,177 7,582 97,855 227,831 - - 227,831 17,784 72,230 963 5,605 30,145 148,291 3,324 17,896 3,012 5,505 304,755 77,817 347 10,932 1,177 8,256 98,529 206,226 (257) 330,325 536,294 532,374 3,920 536,294 17,784 (536,294) (518,510) For the period since acquisition, being 9 November 2007 to 29 June 2008, the Southern Cross Broadcasting entities have contributed net profit after income tax expense of $21.8 million. Synergies derived in other parts of the Group as a result of the Southern Cross Broadcasting acquisition have not been incorporated into the above result. The total revenue for Southern Cross Broadcasting had the acquis ition instead taken place on 2 J uly 2007, would have been $263.7 million. The total net profit after income tax expense, had the acquisition instead taken place on 2 July 2007, would have been $28.4 million. ( C) OTHER ACQUISITIONS DURING THE PERIO D Other acquisitions, none of which were individually significant to the consolidated entity, are lis ted in Note 31(B). For some of these acquisitions, the purchas e allocation has not been finalised and provisional accounting has been applied. The assets and liabilities acquired were: 98 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Value of net assets acquir ed Cash and cash equivalents Receivables Inventories Property, plant and equipment Intangible as sets Deferred tax ass ets Total assets Payables Provisions Current tax liabilities Total liabilities Value of identifiable net assets Outside equity interest in net assets Outside equity interest in net assets settled Goodwill arising on acquisition Total identifiable net assets and goodwill Consideration Purchase c onsideration - cash Purchase c onsideration - non cash Costs direc tly attributable to the acquisition Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow 33. Employee benefits ( A) NUMBER OF EMPLOYEES R eco g ni se d Ac qu ire e 's o n a cq ui si tio n ca rry in g a mo un ts $'0 0 0 $ '0 00 2,025 1,005 73 1,038 8,632 - 12,773 852 153 276 1,281 11,492 - - - 11,492 2,025 995 73 4,738 30,502 452 38,785 852 650 276 1,778 37,007 (1,176) 3,636 29,464 68,931 64,889 2,670 1,372 68,931 2,025 (66,261) (64,236) As at 29 June 2008 the consolidated entity employed 9,800 full time employees (2007: 9,474) and 2,106 part-time and casual employees (2007: 1,942). This includes 2,353 (2007: 2,348) full-time employees and 488 (2007: 299) part-time and casual employees in New Zealand. ( B) EMPLOYEE SHARE PLANS The Company has three employee share plans at balance date. Information relating to each plan is set out below: 1. Fairfax Exempt Employee Share Plan This plan is open to all permanent full-time and part-time Aus tralian employees with more than twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary s acrifice up to $1,000 of pre tax salary per annum f or purchase of is sued Fairfax shares at the market pric e on the open market of the ASX. The shares are purchased by an independent trustee company on pre-fixed dates. 99 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 2. Fairfax Defer red Employee Share Plan This plan is open to all permanent full-time and part-time Aus tralian employees with more than twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary s acrifice a minimum of $3,000 and up to a maximum of 25% of salary per annum for purc hase of issued Fairfax shares at the market price on the open market of the ASX. The shares are purc hased by an independent trustee company on pre-fixed dates. 3. Long Ter m Incentive Scheme 2006 - 2007 Equity-based incentive schemes Under the 2006-2007 EBIS, which applied for bonus es earned in the 2006 and 2007 financial years, one third of the annual bonus earned by senior exec utives reporting to the CEO was deferred. The deferred amount was remitted to the trustee of the Employee Share Plan to purchases shares on market and alloc ates the shares inside the Plan to the relevant executive. Each executive’s allocated shares vest three years after the allocation date subject to ongoing employment requirements. 2008 Equity-based incentive scheme The long term incentive plan is available to certain permanent full-time and part-time employees of the consolidated entity. Under this plan, the cash value of a percentage of an eligible employee’s annual total fixed remuneration will be in the form of rights to Fairfax shares , which are beneficially held in a trust. The shares will vest if the eligible employee remains in employment three calendar years from the date the rights are allocated and certain perf ormance hurdles are satisfied. If the allocation does not vest at the end of year three, a re-test of the performanc e hurdles oc curs in the fourth year. There are currently no cash settlement alternatives. Dividends on the allocated shares during the vesting period are paid directly to the eligible employee and the Company does not have any recourse to dividends paid. 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 34. Remuneration of auditors During the financial year the following amounts were paid or payable for services provided by the auditor of the Company and its related parties: Audit services Ernst & Young Australia Audit and review of financial reports Affiliates of Ernst & Young Australia Audit and review of financial reports KPMG Australia Audit and review of financial reports Affiliates of KPMG Aus tralia Audit and review of financial reports Total audit services Other assurance services Ernst & Young Australia Regulatory and contractually required audits Other Affiliates of Ernst & Young Australia Regulatory and contractually required audits Other KPMG Australia Other C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 $ $ $ $ 1,788,000 991,000 1,788,000 991,000 360,000 358,000 360,000 358,000 - - 683,229 19,454 - - 683,229 19,454 2,148,000 2,051,683 2,148,000 2,051,683 296,000 106,075 268,600 242,895 - - 8,240 175,425 230,402 29,723 271,641 30,000 - 50,000 - - - - - - Total other assurance ser vices 662,200 863,136 8,240 175,425 Total remuneration for assurance services 2,810,200 2,914,819 2,156,240 2,227,108 Non assurance services Ernst & Young Australia Other s ervices Affiliates of Ernst & Young Australia Other s ervices KPMG Australia Other s ervices Total non assurance services Total remuneration of auditors 42,632 15,450 11,413 4,903 - 398,692 54,045 419,045 - - - - - - 287,337 287,337 2,864,245 3,333,864 2,156,240 2,514,445 For the 2007 financial year KPMG performed audit services at legacy Rural Press Limited entities in the Group. Fees for audit services provided to the legacy Rural Press companies are included in this note to provide a comprehensive disclosure regarding fees paid to audit firms for audit services in the 2007 financial year. 101 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 35. Director and executive disclosures ( A) EQUITY INSTRUMENT DISCLO SURES RELATING TO KEY MANAGEMENT PERSONNEL Ba la n ce Gra nte d a s On e xerc ise N e t c ha n ge Ba la n ce Po st ye ar- en d Pos t y ea r-e nd Pos t y ea r-e nd 1 Jul y 2 00 7 re mu ne ra tio n o f o p ti on Oth e r 2 9 Ju n e 2 00 8 a cq ui siti on s di sp os al s b al an ce (i) Shareholdings Directors RJ Walker MD Burrows RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk R Savage P Young 1,014,300 45,712 29,540 13,801 216,501,147 1,210,113 47,252 324,405 - 12,367 Key management per sonnel B McCarthy** G Hambly J Matthews J W ithers S Narayan Total 1,074,384 114,619 - 3,296 22,981 220,413,917 Directors RJ Walker MD Burrows RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk P Young Key Management Personnel B McCarthy** G Hambly J Matthews J W ithers S Narayan Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19,530 8,943 10,551 38,647 1,033,830 54,655 40,091 52,448 (18,365) 216,482,782 1,202,238 2,412,351 (1,184) 46,875 19,996 12,816 (21,907) 28,195 12,676 - 34,907 46,068 371,280 19,996 25,183 1,052,477 142,814 12,676 3,296 57,888 28,297 - 3,989 3,547 3,103 3,989 3,325 - 3,324 - - - - - - 1,393,918 221,807,835 49,574 - - - - - - - - - - - - - - - - 1,062,127 54,655 44,080 55,995 216,485,885 2,416,340 49,393 371,280 23,320 25,183 1,052,477 142,814 12,676 3,296 57,888 221,857,409 B al an ce Gra nte d as On e xer cis e Ne t ch an ge Bal an ce 3 0 Jun e 2 0 06 r emu n era tio n o f op tio n Othe r 1 Jul y 2 00 7* 424,791 33,552 21,053 6,456 - - 39,336 100,000 4,369 - 96,415 - 3,296 2,247 731,515 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 589,509 12,160 8,487 7,345 1,014,300 45,712 29,540 13,801 216,501,147 216,501,147 1,210,113 1,210,113 7,916 224,405 7,998 47,252 324,405 12,367 1,074,384 1,074,384 18,204 - - 20,734 114,619 - 3,296 22,981 219,682,402 220,413,917 * In the case of retired directors, th e closing b alance represents the num ber of shares at the date the director retired from the Board. ** In addition, the McCarthy Family Superannuation Fund in which B McCart hy h as an interest, holds 410,550 (2007: 4 10,550) shares in the C om pany. 102 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Stapled Preference Shar es (SPS) There were no SPS held, acquired or disposed of in the financial year ended 29 June 2008 by direc tors or key management personnel. ( B) RIGHTS OVER SHARE HO LDINGS OF DIRECTORS AND KEY MANAGEMENT PERSO NNEL Details of s hares provided as remuneration is in section 5.2 of the remuneration report. Directors DE Kirk Key management per sonnel B McCarthy G Hambly J Matthews J W ithers S Narayan Total *** Includes forfeitures Directors DE Kirk Key management per sonnel B McCarthy G Hambly J Matthews J W ithers S Narayan Total *** includes forfeit ures Ope ni ng Ba la n ce Gra nte d a s Ne t ch an ge C lo sin g Bal an ce 1 Jul y 2 00 7 re mu ne ra tio n Othe r * ** 29 Ju ne 20 08 116,297 623,214 - 292,299 99,446 3,323 - 80,651 91,649 - - - (50,577) - 739,511 292,299 129,520 94,972 - 120,613 195,518 (59,283) 256,848 339,679 1,283,331 (109,860) 1,513,150 Ope ni ng Ba la n ce Gra nte d a s Ne t ch an ge C lo sin g Bal an ce 3 0 Ju n e 2 00 6 re mu ne ra tio n Othe r * ** 1 Ju ly 20 07 - - 139,915 - - 149,901 116,297 - 12,460 3,323 - 24,921 - - (52,929) - - (54,209) 116,297 - 99,446 3,323 - 120,613 289,816 157,001 (107,138) 339,679 ( C) LOANS TO KEY MANAGEMENT PERSONNEL (i) Aggregates for key management personnel There were no loans issued to directors of Fairfax Media Limited or to other key management personnel of the Group, including their personally related parties, during the financial period ended 29 June 2008 (2007: nil). (ii) Individuals with loans above $100,000 dur ing the financial year There are no outstanding loans above $100,000 for the financial years ended 29 June 2008 and 1 July 2007. 103 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( D) OTHER TRANSACTIONS WITH KEY MANAG EMENT PERSONNEL A number of directors of Fairfax Media Limited also hold directorships with other corporations which provide and receive goods or services to and from the Fairfax Group in the ordinary course of bus iness on normal terms and conditions. None of these directors derive any direct personal benefit from the transactions between the Fairfax Group and these corporations. Transactions were entered into during the financial year with the directors of Fairfax Media Limited and its controlled entities or with director-related entities, which: • occurred within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those whic h it is reasonable to expect would have been adopted if dealing with the director or director-related entity at arm’s length in the same circumstances; • do not have the potential to adversely affect decisions about the allocation of scarce resources or discharge the responsibility of the directors; or • are minor or domestic in nature. During the year Fairfax Media Limited entered into arms length trans actions with Lazard LLC resulting in fees paid to Lazard for the year of $3.3 million (2007: $3.3million). Mr Mark Burrows, who resigned as Fairfax Group Deputy Chairman on 31 J anuary 2008, is Managing Director of Lazard LLC and Chairman of Lazard Australia. 36. Related party transactions ( A) ULTIMATE PARENT Fairfax Media Limited is the ultimate parent company. ( B) CONTROLLED ENTITIES Interests in controlled entities are set out in Note 30. ( C) KEY MANAGEMENT PERSO NNEL Disclos ures relating to key management personnel are set out in Note 35. ( D) TRANSACTIONS WITH RELATED PARTIES The following transactions occurred with related parties on normal market terms and conditions: Consolidated 29 June 2008 1 July 2007 Company 29 June 2008 1 July 2007 Sa le s to Purc ha se s Amo un t ow e d Amo un t ow ed r el ate d fr om r el ate d b y re la te d to re la ted pa rtie s $' 00 0 pa rtie s $'0 0 0 pa rtie s $'0 0 0 p a rtie s $ '0 00 4,573 100 13,736 10,578 - - 20 - 322 198 - - 239 311 - - Fairfax Media Limited has undertaken transac tions with its controlled entities during the year inc luding the issue and receipt of loans and management fees. On consolidation, all such transactions have been eliminated in full. 104 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 37. Notes to the cash flow statements ( A) RECONCILIATION OF NET PROFIT AFTER INCOME TAX EXPENSE TO NET CASH INFLO W FROM OPERATING ACTIVITIES Net prof it for the financ ial year 386,878 263,510 59,186 721,585 C o ns ol id ate d C o nso l id ate d C o mp an y C o mp an y 2 9 Ju ne 2 00 8 1 J ul y 20 0 7 29 Ju ne 20 0 8 1 Ju ly 20 07 No te $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 Non-cash items Depreciation and amortisation and asset impairment Amortis ation of PRESSES issue costs Share of profits of associates and joint ventures not received as dividends or distributions Straight-line rent adjustment Net (gain)/loss on disposal of property, plant and equipment Net gain on disposal of investments Net gain on disposal of other assets Fair value adjustment to derivatives Net foreign currency (gain)/loss Share based payment expense Non-cash superannuation expense/(income) Impairment of non-current assets Changes in oper ating assets and liabilities, net of effects from acquisitions Decrease/(increase) in trade receivables (Increase)/decrease in other receivables Decrease in inventories Decrease in other assets (Decrease)/increase in payables (Decrease)/increase in provisions Increase/(decrease) in tax balances 3(B) 108,295 111,281 9,514 - 464 (27) 5,080 (2,430) - (1,400) (1,115) (5,410) 4,429 1,461 1,382 377 (18,455) 3,785 6,286 (37,350) (34,023) 1,913 (1,723) 169 (41,859) (13,227) (6,310) (892) 214 822 (156) 17,204 (4,939) (9,848) 3,472 - 4,910 64,869 (23,081) - - - 42 - - - - 4,429 - - 785 1,279 - - 1,264 1,259 (53,391) 12,635 464 - - 5 - - - - 822 - 3,046 (477) (158) - - (4,335) 457 (27,396) Net cash inflow from operating activities 419,676 364,880 24,367 706,648 ( B) RECONCILIATION OF CASH AND CASH EQUIVALENTS Reconc iliation of cash at end of the financial year (as shown in the Statement of Cash Flows) to the related items in the financial statements is as follows: Cash on hand and at bank Bank overdraft Total cash at end of the financial year 93,864 - 93,864 366,307 - 366,307 680 - 680 687 - 687 ( C) NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends satisfied by the issue of shares under the dividend reinvestment plan are shown in Note 23(A). 105 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 38. Financial and capital risk management Financial risk management The Group's principal financial instruments, other than derivatives, comprise cash, short term deposits, bills of exchange, bank loans and capital markets issues. The main purpose of these financial instruments is to manage liquidity and to raise finance for the Group's operations. The Group has various other financial instruments, such as trade and other receivables and trade and other payables, which arise directly from its operations. The Group uses derivatives in accordance with Board approved policies to reduce the Group's exposure to fluctuations in interest rates and foreign exchange rates. These derivatives create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivative instruments that the Group uses to hedge risks such as interest rate and foreign currency movements include: • • • • cross currency swaps; interest rate swaps; forward foreign currency contracts; and interest rate option contracts. The Group's risk management activities for interest rate and foreign exchange exposures are carried out centrally by Fairfax Media Group Treasury department. The Group Treasury department operates under policies as approved by the Board. The Group Treasury department operates in co-operation with the Group's operating units so as to maximise the benefits associated with centralised management of Group risk factors. Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of net debt and total equity balances. The capital structure of Group entities is monitored using debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio. The ratio is calculated as debt divided by EBITDA. Debt is calculated as total interest bearing liabilities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return equity to shareholders, issue new shares or sell assets to reduce debt. The Group continuously reviews the capital structure to ensure: • • • • where excess funds arise with respect to the funds required to enact the Group's business strategies, consideration is given to sufficient finance for the business is maintained at a reasonable cost; sufficient funds are available for the business to implement its capital expenditure and business acquisition strategies; distributions to shareholders are maintained within stated dividend policy requirements; and possible returns of equity to shareholders. The Group has a dividend payout policy of approximately 80% of net profit through the economic cycle, subject to the cash needs of the business. During 2008, the Group's strategy was to maintain the debt to EBITDA ratio around 3.0 to 3.5 times (2007: 3.0 to 3.5 times) and maintain an investment grade credit rating. The debt to EBITDA ratio for the Group at 29 June 2008 and 1 July 2007 is as follows: Interest bearing liabilities - current Interest bearing liabilities - non-current Total interest bearing liabilities EBITDA * Debt to EBITDA ratio Note 21 21 Consolidated Consolidated 2008 $'000 2007 $'000 15,816 12,237 2,496,133 2,335,498 2,511,949 840,573 2,347,735 747,000 3.0 3.1 * For the purposes of the debt to EBITDA ratio, operating EBITDA is adjusted for specific items of a non-recurring nature. In respect of the first 12 month period after the acquisition of any acquired business, EBITDA will include acquired EBITDA in respect of the acquired business for any period not covered in the consolidated EBITDA of the Group. 106 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Risk fact ors The key financial risk factors that arise from the Group's activities, including the Group's policies for managing these risks are outlined below. Market risk is the risk that the fair value or future cas h flows of the Group's financial instruments will fluc tuate because of changes in market prices. The market risk factors to which the Group is exposed to are discussed in further detail below. ( A) INTEREST RATE RISK Interest rate risk refers to the risks that the value of a financial instrument or future cash flows associated with the instrument will fluctuate due to movements in market interest rates. Interest rate risk arises from interest bearing financial ass ets and liabilities that the Group utilises. Non-derivative interest bearing assets are predominantly short term liquid assets. Long term debt issued at fixed rates exposes the Group to fair value interest rate risk. The Group's borrowings which have a variable interest rate attached give rise to cas h flow interest rate risk. The Group's risk management policy for interest rate ris k seeks to reduce the effects of interest rate movements on its asset and liability portfolio through management of the exposures. The Group maintains a mix of foreign and local currency fixed rate and variable rate debt, as well as a mix of long term debt versus short term debt. The Group primarily enters into interest rate swap, interest rate option and cross currency swap agreements to manage these risks. The Group designates which of its financial assets and financial liabilities are expos ed to a fair value or cash f low interest rate risk, such as financial assets and liabilities with a fixed interest rate or financial assets and financial liabilities with a floating interest rate that is reset as market rates change. The Group hedges the currency risk on all foreign currency borrowings by entering into c ross currency s waps , which have the economic effect of converting foreign currency borrowings to local currency borrowings . The derivative c ontracts are carried at fair value, being the market value as quoted in an active market. Refer to Note 16 for further details of the Group's derivative financial instruments and details of hedging activities. At balance date, the Group had the following mix of financial as sets and financial liabilities exposed to interest rate risks: Consolidated As at 29 June 2008 Financial assets Cash and cash equivalents Trade and other rec eivables Available for sale investments Held to maturity inves tments Other financial assets Derivatives Total financial assets Fl oa tin g ra te $' 00 0 93,864 - - 14,686 - 21,544 130,094 Fixe d ra te $'0 0 0 - - - - - 37,860 37,860 N on - in tere st be ar in g $'0 0 0 - 482,355 3,547 - 122 - 486,024 Tota l $ '0 00 93,864 482,355 3,547 14,686 122 59,404 653,978 107 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Floating rate $'000 Fixed rate $'000 Non- interest bearing $'000 Total $'000 - - 330,045 330,045 1,022,527 26,729 - - 28,530 24,884 492,947 570,249 199,682 - - 146,401 1,077,786 94,390 1,434,163 19,737 - - - - - - - - 1,047,411 519,676 570,249 199,682 28,530 146,401 2,511,949 114,127 1,172,176 1,453,900 330,045 2,956,121 Floating rate $'000 366,307 - - 16,014 - - 382,321 Non- interest bearing $'000 - 392,713 1,492 - 17,061 - Total $'000 366,307 392,713 1,492 16,014 17,061 165 411,266 793,752 Fixed rate $'000 - - - - - 165 165 - - 289,519 289,519 1,109,593 - - - 31,317 28,544 257,434 554,976 199,589 - - 166,282 1,140,910 86,360 1,206,825 4,088 - - - - - - - - 1,138,137 257,434 554,976 199,589 31,317 166,282 2,347,735 90,448 1,227,270 1,210,913 289,519 2,727,702 Financial liabilities Payables Interest bearing liabilities: Bank borrowings and loans Senior notes Eurobonds Medium term notes Finance lease liability Redeemable preference shares (RPS) Total interest bearing liabilities Derivatives Total financial liabilities Consolidated As at 1 July 2007 Financial assets Cash and cash equivalents Trade and other receivables Available for sale investments Held to maturity investments Other financial assets Derivatives Total financial assets Financial liabilities Payables Interest bearing liabilities: Bank borrowings and loans Senior notes Eurobonds Medium term notes Finance lease liability Redeemable preference shares (RPS) Total interest bearing liabilities Derivatives Total financial liabilities 108 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 Company As at 29 June 2008 Financial assets Cash and cash equivalents Trade and other rec eivables Total financial assets Financial liabilities Payables Total financial liabilities Company As at 1 July 2007 Financial assets Cash and cash equivalents Trade and other rec eivables Total financial assets Financial liabilities Payables Total financial liabilities Fl oa tin g ra te $' 00 0 Fixe d ra te $'0 0 0 N on - in tere st be ar in g $'0 0 0 Tota l $ '0 00 680 - 680 - - - 398,566 398,566 - 1,274,487 1,274,487 680 1,673,053 1,673,733 - - 15,900 15,900 15,900 15,900 Fl oa tin g ra te $' 00 0 Fixe d ra te $'0 0 0 N on - in tere st be ar in g $'0 0 0 Tota l $ '0 00 687 - 687 - - - 398,566 398,566 - 1,356,325 1,356,325 687 1,754,891 1,755,578 - - 14,640 14,640 14,640 14,640 Sensitivity analysis The table below shows the effect on net profit and equity after income tax if interest rates at balance date had been 10% higher or lower with all other variables held constant, taking into account all underlying exposures and related hedges. Concurrent movements in interest rates and parallel shifts in the yield curves are assumed. A sensitivity of 10% has been selected as this is considered reasonable given the current level of both short term and long term Australian interest rates. A 10% s ensitivity would move short term interest rates at 29 June 2008 from around 7.82% to 8.60% representing a 78 basis point shift. In 2008, 92% (2007: 92%) of the Group's debt, taking into ac count all underlying exposures and related hedges was denominated in Australian Dollars; therefore, only the movement in Australian interest rates is used in this sensitivity analysis. Based on the sensitivity analysis, if interest rates were 10% higher, net profit would be impacted by the interest expense being higher on the Group's net floating rate Australian Dollar positions during the year. Consolidated If interest rates were 10% higher with all other variables held constant - increase/(decrease) If interest rates were 10% lower with all other variables held constant - increase/(decrease) Imp a ct on p ost- ta x pr ofit Imp ac t o n eq ui ty 2 00 8 $' 00 0 20 0 7 $'0 0 0 20 0 8 $'0 0 0 20 07 $ '0 00 (12,455) (2,759) (1,761) (1,427) 12,455 2,759 1,761 1,427 109 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( B) FOREIGN CURRENCY RISK Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign c urrency rates. The Group's foreign currency exchange risk arises primarily from: • borrowings denominated in foreign currency; and • firm commitments and/or highly probable forecast transactions for rec eipts and payments settled in foreign currencies and prices dependent on foreign currencies respec tively. The Group is expos ed to foreign exchange ris k from various currency exposures, primarily with respect to: • United States Dollars; • New Zealand Dollars; • Euro; • British Pounds Sterling; • Swiss Franc s; • Singapore Dollars; and • Malaysian Ringgit. Forward foreign exchange contracts are used to hedge the Group's known non-debt related foreign currency risks. These contracts generally have maturities of less than twelve months after the balance sheet date and consequently the net fair value of the gains and losses on thes e contracts will be transferred from the cash flow hedging reserve to the income statement at various dates during this period when the underlying exposure impacts earnings. The derivative contracts are c arried at fair value, being the market value as quoted in an active market. The Group's risk management policy for foreign exchange is to only hedge known or highly probable future transactions. The policy only permits hedging of the Group's underlying foreign exchange exposures. Benefits or costs arising from currency hedges for revenue and expense transactions that are designated and documented in a hedge relationship are brought to account in the income statement over the lives of the hedge transactions depending on the effectiveness testing outcomes and when the underlying exposure impacts earnings. For transactions entered into that hedge specific c apital or borrowing commitments, any cost or benefit resulting from the hedge forms part of the initial asset or liability carrying value. When entered into, the Group formally designates and documents the financ ial instrument as a hedge of the underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. The Group formally assess es both at the inception and at least semi-annually thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in either the f air value or cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying expos ure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. Any ineffective portion of a financial instrument's c hange in fair value is immediately recognised in the income statement and this is mainly attributable t o financial instruments in a fair value hedge relationship. Derivatives entered into and not documented in a hedge relationship are revalued with the changes in fair value recognis ed in the income statement. All of the Group's derivatives are straight forward over-the-counter instruments with liquid markets. Refer to Note 16 for further details of the Group's derivative financial instruments and details of hedging activities. Sensitivity analysis The tables below show the effect on net profit and equity after income tax as at balance date from a 10% weaker/stronger base currency movement in exchange rates at that date on a total derivative portfolio with all other variables held cons tant. A sensitivity of 10% has been selected as this is considered reasonable given the current level of exchange rates and the volatility observed both on a historical basis and market expectations for potential future movement. The Group's foreign c urrency risk from the Group's long term borrowings denominated in foreign currencies has no significant impact on profit from foreign currency movements as they are effectively hedged. 110 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (a) AUD / NZD Comparing the Australian Dollar exchange rate against the New Zealand Dollar, a 10% weaker Australian Dollar would result in an exchange rate of 1.1354 and a 10% stronger Australian Dollar in an exchange rate of 1.3878 based on the year end rate of 1.2616. This range is considered reasonable given over the last five years, the Australian Dollar exchange rate against the New Zealand Dollar has traded in the range of 1.0421 to 1.2692. Consolidated If the AUD exchange rate was 10% weaker against the NZD with all other variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the NZD with all other variables held constant - increase/(decrease) * Hedging reserves includes both the cash flow hedge reserve and net investment hedge reserve Impact on post-tax profit (hedging reserves) * Impact on equity 2008 $'000 368 81 2007 $'000 2008 $'000 2007 $'000 903 (26,392) (21,971) (994) 21,797 17,976 (b) AUD / USD Comparing the Australian Dollar exchange rate against the United States Dollar, a 10% weaker Australian Dollar would result in an exchange rate of 0.8645 and a 10% stronger Australian Dollar in an exchange rate of 1.0566 based on the year end rate of 0.9605. This range is considered reasonable given over the last five years, the Australian Dollar exchange rate against the United States Dollar has traded in the range of 0.6339 to 0.9653. Consolidated If the AUD exchange rate was 10% weaker against the USD with all other variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the USD with all other variables held constant - increase/(decrease) Impact on post-tax profit (cash flow hedge reserve) Impact on equity 2008 $'000 116 (95) 2007 $'000 2008 $'000 2007 $'000 - - 1,836 782 (1,509) (602) (c) AUD / EUR Comparing the Australian Dollar exchange rate against the Euro, a 10% weaker Australian Dollar would result in an exchange rate of 0.5472 and a 10% stronger Australian Dollar in an exchange rate of 0.6688 based on the year end rate of 0.6080. This range is considered reasonable given over the last five years, the Australian Dollar exchange rate against the Euro has traded in the range of 0.5607 to 0.6460. Consolidated If the AUD exchange rate was 10% weaker against the Euro with all other variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the Euro with all other variables held constant - increase/(decrease) Impact on post-tax profit (cash flow hedge reserve) Impact on equity 2008 $'000 - (53) 2007 $'000 16 1 2008 $'000 2007 $'000 (787) 906 643 (755) 111 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 (d) NZD / EUR Comparing the New Zealand Dollar exchange rate against the Euro, a 10% weaker New Zealand Dollar would result in an exchange rate of 0.4349 and a 10% stronger New Zealand Dollar in an exchange rate of 0.5316 based on the year end rate of 0.4833. This range is considered reasonable given over the last five years, the New Zealand Dollar exchange rate against the Euro has traded in the range of 0.4721 to 0.6127. Im pa ct o n p os t-tax p rofi t (c as h flo w h ed g e re se rve ) Imp a ct on e qu ity 2 0 08 $ '0 00 2 00 7 $ '00 0 20 08 * $ '00 0 20 07 * $' 00 0 - - - - 923 (393) (753) 481 Consolidated If the NZD exchange rate was 10% weaker against the Euro with all other variables held constant - increase/(dec rease) If the NZD exchange rate was 10% stronger against the Euro with all other variables held constant - increase/(dec rease) * Amounts disclosed in Australian Dollar terms The Company is not exposed to any foreign currency risks on borrowings . ( C) CREDIT RISK Credit risk is the risk that a c ontracting entity will not complete its obligations under a financial instrument and cause the Group to make a financial loss. The Group has exposure to credit risk on all financial assets inc luded in the Group's balance sheet. To help manage this risk, the Group: • has a polic y for establishing c redit limits for the entities it deals with; • may require collateral where appropriate; and • manages expos ures to individual entities it either transacts with or enters into derivative contracts with (through a system of credit limits). The Group is expos ed to c redit risk on financial instruments and derivatives. For credit purposes, there is only a credit risk where the contrac ting entity is liable to pay the Group in the event of a closeout. The Group has policies that limit the amount of credit exposure to any financial institution. Derivative counterparties and cash transactions are limited to financial ins titutions that meet minimum credit rating c riteria in accordanc e with the Group's policy requirements. The Group's credit risk is mainly concentrated across a number of customers and financial institutions. The Group does not have any significant credit ris k exposure to a single or group of customers or individual institutions. Financial assets are considered impaired where there is objective evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Factors considered when determining if an impairment exists include ageing and timing of expec ted receipts and the credit worthiness of counterparties. A provision for doubtful debts is created for the difference between the assets carrying value and the present value of estimated future cash flows. The Group's trading terms do not generally include the requirement for customers to provide collateral as security for financial assets. Refer to Note 7 for an ageing analysis of trade receivables and the movement in the provision for doubtful debts. All other financial assets are not impaired and are not past due. Based on the c redit history of thes e classes, it is expected that these amounts will be received when due. ( D) LIQUIDITY RISK Liquidity risk is the risk that the Group cannot meet its financial commitments as and when they fall due. To help reduce this risk the Group: 112 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 • • • has a liquidity policy which targets a minimum level of committed facilities and cash relative to EBITDA; has readily accessible funding arrangements in plac e; and staggers maturities of financial instruments. The contractual maturity of the Group's f ixed and floating rate derivatives, other f inancial assets and other financial liabilities are shown in the tables below. The amounts represent the future undiscounted principal and interest cash flows and therefore may not equate Cross currency swaps - foreign leg (fixed)** 67,392 214,812 to the values disclosed in the balance sheet. As at 29 June 2008 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance leas e liability Redeemable Preference Shares (RPS) Derivatives - inflows* Cross currency swaps - foreign leg (variable)** Forward foreign currency contracts ** Derivatives - outflows* Cross currency swaps - AUD leg (fixed)** Cross currency swaps - AUD leg (variable)* * Cross currency swaps - NZD leg (variable)** Forward foreign currency contracts ** As at 1 July 2007 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance leas e liability C ons olida ted C om pa ny (N om ina l c as h flows) (N om ina l ca s h flows) 1 ye ar o r le ss $ '00 0 1 to 2 y ea rs $' 00 0 2 to 5 ye ars $ '0 00 M ore tha n 5 ye ars $ '00 0 1 ye ar o r le ss $ '00 0 1 to 2 y ea rs $' 00 0 (330,045) - - - (15,900) (101,272) (513,356) (640,431) (27,178) (72,787) (72,787) (972,424) (512,577) (7,847) (9,210) (8,144) (26,397) (22,023) (156,630) - - 875 139,721 875 - 764,822 2,624 - 485,651 26,927 - (32,703) (205,950) (256,549) (154,866) (51,758) (22,632) (137,044) (51,758) (22,632) (522,428) (67,897) (194,354) (293,491) - - - C ons olida ted C om pa ny (N om ina l c as h flows) (N om ina l ca s h flows) 1 ye ar o r le ss $ '00 0 1 to 2 y ea rs $' 00 0 2 to 5 ye ars $ '0 00 M ore tha n 5 ye ars $ '00 0 1 ye ar o r le ss $ '00 0 1 to 2 y ea rs $' 00 0 (289,519) (90,865) (57,709) - (89,366) (57,709) - (1,199,488) - (38,547) (14,640) - (963,177) (255,989) (7,673) (7,920) (25,732) (31,566) Redeemable Preference Shares (RPS) (10,776) (10,776) (180,168) - Derivatives - inflows* Cross currency swaps - foreign leg (fixed)** Cross currency swaps - foreign leg (variable)** Forward foreign currency contracts ** Derivatives - outflows* Cross currency swaps - AUD leg (fixed)** Cross currency swaps - AUD leg (variable)* * Cross currency swaps - NZD leg (variable)** Forward foreign currency contracts ** 54,754 54,754 924,394 255,989 - 22,379 (23,792) (30,430) (23,616) (24,227) - - - - (23,792) (426,853) (510,840) (30,430) (23,616) - (70,849) (354,516) - - - - - - * For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. ** Contractual amounts to be exchanged representing gross cash flows to be exchanged. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 113 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( E) FAIR VALUE The carrying amounts and fair values of financial assets and financial liabilities at balance date are: Consolidated Financial assets Cash and cash equivalents Receivables Derivative assets Available for sale investments Held to maturity inves tments Other financial assets Financial liabilities Payables Interest bearing liabilities - bank borrowings - Eurobonds - senior notes - medium term notes - lease liability - Redeemable Preference Shares (RPS) Derivatives Company Financial assets Cash and cash equivalents Receivables Financial liabilities Payables C arry in g v al ue Fa ir va lu e Ca rry in g va lu e Fa ir va lu e 2 0 08 $ '0 00 2 00 8 $ '00 0 2 00 7 $ '00 0 2 00 7 $' 00 0 93,864 482,355 62,936 3,547 14,686 122 657,510 93,864 482,355 62,936 3,547 14,686 122 657,510 366,307 392,713 173 1,492 16,014 17,061 793,760 366,307 392,713 173 1,492 16,014 17,061 793,760 330,045 330,045 289,519 289,519 1,047,411 1,047,411 1,138,137 1,138,137 570,249 519,676 199,682 28,530 146,401 122,257 573,296 522,280 200,000 38,897 148,623 122,257 554,976 257,434 199,589 31,317 166,282 91,792 557,295 258,922 200,000 41,398 169,496 91,792 2,964,251 2,982,809 2,729,046 2,746,559 680 1,673,053 680 1,673,053 687 1,754,891 687 1,754,891 1,673,733 1,673,733 1,755,578 1,755,578 15,900 15,900 15,900 15,900 14,640 14,640 14,640 14,640 Market values have been used to determine the fair value of listed available for sale investments. The fair value of the senior notes and lease liabilities have been calculated by discounting the future cash flows by interest rates for liabilities with similar risk profiles. The discount rates applied range from 5.75% to 13.38%. The carrying value of all other balances approximate their fair value. 114 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 39. Segment reporting The economic entity operates predominantly in two geographic segments, Australia and New Zealand, and predominantly in one business segment, publishing. The publishing business comprises news, information and entertainment publishing and advertising sales in newspaper, magazine and electronic formats. ( A) RESULTS BY G EOGRAPHIC SEGMENT 29 June 2008 Segment revenue Total revenue Au stra li a N ew Zea la n d Un a ll oca te d $' 00 0 $'0 0 0 $'0 0 0 C on so li da ted e nti ty $ '0 00 2,322,100 2,322,100 586,863 586,863 25,044 25,044 2,934,007 2,934,007 Share of net profits of assoc iates and joint ventures 8,493 242 - 8,735 Total segment revenue 2,330,593 587,105 25,044 2,942,742 Segment profit from continuing operations before income tax expense Unallocated expenses 498,738 - 211,310 - 25,044 (211,919) 735,092 (211,919) Net profit from continuing operations before income tax expense 498,738 211,310 (186,875) 523,173 Income tax expense Net profit after income tax expense Signific ant items, net of tax - - (135,683) (135,683) 498,738 211,310 (322,558) 387,490 8,427 - - 8,427 Net profit after income tax expense excluding significant items 507,165 211,310 (322,558) 395,917 1 July 2007 Segment revenue Total revenue 1,614,488 558,292 5,760 2,178,540 1,614,488 558,292 5,760 2,178,540 Share of net profits of assoc iates and joint ventures 2,659 302 - 2,961 Total segment revenue 1,617,147 558,594 5,760 2,181,501 Segment profit from continuing operations before income tax expense Unallocated expenses (including PRESSES) 255,731 - 193,696 - 5,759 (116,964) 455,186 (116,964) Net profit from continuing operations before tax 255,731 193,696 (111,205) 338,222 Income tax expense Net profit after income tax expense Signific ant items, net of tax* - - (76,601) (76,601) 255,731 193,696 (187,806) 261,621 7,260 - - 7,260 Net profit after income tax expense excluding significant items 262,991 193,696 (187,806) 268,881 * Significant items at 1 J uly 2007 include minority interest s hare of $3.0 million. 115 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 ( B) ASSETS AND LIABILITIES BY GEO GRAPHICAL SEGMENT 29 June 2008 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets 1 July 2007 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets C on so li da ted Au stra lia Ne w Zea la nd $'0 00 $ '0 00 e nti ty $ '0 00 6,489,637 1,674,903 550,518 110,913 6,014,016 1,869,244 487,250 84,573 8,164,540 128,561 8,293,101 661,431 2,666,336 3,327,767 4,965,334 7,883,260 117,282 8,000,542 571,823 2,467,725 3,039,548 4,960,994 ( C) OTHER DETAILED SEGMENT DISCLOSURES Equity method investments included in s egment assets Ac quisition of property, plant and equipment, intangible assets and other non-current assets Depreciation Amortis ation Non-cash expenses other than depreciation and amortis ation Au stra li a N ew Zea la n d Au stra li a N ew Zea la nd 2 9 Ju ne 2 00 8 2 9 Ju ne 20 0 8 1 Ju l y 20 0 7 1 Ju ly 20 07 $' 00 0 $'0 0 0 $'0 0 0 $ '0 00 43,926 1,764 16,332 2,146 115,508 73,764 20,367 97,345 34,540 10,930 3,234 13,302 68,251 62,072 19,650 167,083 36,583 10,096 2,193 10,559 116 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 29 June, 2008 40. Events subsequent to balance sheet date Subsequent to year end, NZ$45.2 million (A$35.2million) was paid to the previous owners of Trade Me Limited as part of the second year earn out agreement. A provision was recognised as at 29 June 2008 (refer Note 22) and has been ac counted for as an additional acquisition cost and added to the carrying amount of the investment in Trade Me Limited as goodwill. On 20 August 2008, the Company announced it had agreed to sell, subject to regulatory approvals, Southern Star Group Limited's 75% interest in UK based Carnival Film & Television Ltd together with certain library and distribution rights of Carnival productions currently held by Southern Star, for a total sale price of approximately £22.3 million. The proceeds are expected to rec over the carrying values at balanc e date based on the preliminary purc hase accounting. Subsequent to year end, the Group announced a business improvement program and initiatives to improve the overall productivity and performance of the busines s. The restructure is expected to deliver around $50 million in annualised cost savings with approximately $25 million flowing in to the 2009 financial year. It is anticipated that there will be a one off cost in the 2009 financial year of approximately $50 million. 117 Directors’ Declaration In accordanc e with a resolution of the directors of Fairfax Media Limited, we state that: 1. In the opinion of the directors: (a) The financial report and the additional disclosures included in the Directors' Report designated as audited, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company's and consolidated entity's financ ial position as at 29 June 2008 and of their performance for the period ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declaration required to be made to the directors in accordance with s ection 295A of the Corporations Act 2001 for financial period ended 29 June 2008. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the 3. closed group identified in Note 30 will be able to meet any obligations or liabilities to whic h they are or may become subject to, by virtue of the Deed of Cross Guarantee. On behalf of the Board Ronald Walker Chairman David Kirk Chief Exec utive Officer and Director 26 September 2008 118 Shareholder Information Fairfax Media Limited TWENTY LARG EST HOLDERS O F SECURITIES AT 4 SEPTEMBER 2008 ORDINARY SHARES (FXJ) National Nominees Limited Marinya Media Pty Ltd J P Morgan Nominees Australia Limited HSBC Cus tody Nominees (Australia) Limited RBC Dexia Investor Services Australia Nominees Pty Limited Citic orp Nominees Pty Limited Cogent Nominees Pty Limited ANZ Nominees Limited Citic orp Nominees Pty Limited Citic orp Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Citic orp Nominees Pty Limited UBS Nominees Pty Ltd Australian Foundation Investment Company Limited Argo Investments Limited RBC Dexia Investor Services Australia Nominees Pty Limited AMP Life Limited Citic orp Nominees Pty Limited Citic orp Nominees Pty Limited STAPLED PREFERENCE SECURITIES (SPS) (FXJPB) J P Morgan Nominees Australia Limited National Nominees Limited Cogent Nominees Pty Limited Pan Australian Nominees Pty Limited & Pan Australian Nominees Pty Limited Citic orp Nominees Pty Limited ANZ Nominees Limited Goldman Sachs J B Were Pty Ltd HSBC Cus tody Nominees (Australia) Limited - A/C 3 Citic orp Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Questor Financial Services Limited Cogent Nominees Pty Limited Equity Trustees Limited HSBC Cus tody Nominees (Australia) Limited Mleq Nominees Pty Limited CS Fourth Nominees Pty Ltd ANZ Trustees Limited Executor Trustee Australia Limited Perpetual Trustees Consolidated Limited Australian Executor Trustees Limited DEBENTURES National Financial Services Corp. N um be r o f s ec ur itie s 220,373,027 211,632,469 124,566,785 99,331,265 69,930,683 53,410,854 51,329,679 35,984,128 29,835,552 19,061,605 14,974,833 13,073,715 10,226,846 10,007,763 9,704,628 9,661,961 9,229,651 9,209,774 8,607,719 8,514,999 1,018,667,936 609,417 310,300 249,076 227,061 165,772 162,472 150,000 95,774 78,980 66,158 54,233 48,700 25,750 20,099 20,000 18,500 14,000 13,380 12,930 10,940 2,353,542 281 % 14.56% 13.98% 8.23% 6.56% 4.62% 3.53% 3.39% 2.38% 1.97% 1.26% 0.99% 0.86% 0.68% 0.66% 0.64% 0.64% 0.61% 0.61% 0.57% 0.56% 67.30% 20.31% 10.34% 8.30% 7.57% 5.53% 5.42% 5.00% 3.19% 2.63% 2.21% 1.81% 1.62% 0.86% 0.67% 0.67% 0.62% 0.47% 0.45% 0.43% 0.36% 78.45% 100 121 Shareholder Information Fairfax Media Limited O PTIONS There were no options exercis able at the end of the financial year. SUBSTANTIAL SHAREHO LDERS Substantial s hareholders as shown in substantial shareholder notices received by the c ompany as at 4 September 2008 are: Marinya Media Pty Ltd Perpetual Limited Commonwealth Bank of Australia Maple-Brown Abbott Limited 452 Capital Pty Limited Portfolio Partners Limited and Aviva Group entities Lazard Asset Management Pacific Co National Australia Bank Limited Group DISTRIBUTION SCHEDULE OF HO LDINGS AT 4 SEPTEMBER 2008 Ord in ary Sh are s 216,519,035 111,919,395 111,604,183 103,258,293 91,502,444 47,144,759 76,230,110 76,191,251 No . o f se cu ri tie s 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total number of holders Number of holders holding les s than a marketable parcel VO TING RIGHTS No . of ord in a ry No . of S PS sha re ho ld e rs ho ld e rs N o. o f d eb en tu re h ol de rs N o. o f o p tio n ho l de rs 11,904 24,742 7,692 5,577 402 50,317 1,309 895 98 26 4 7 1,030 - 1 - - - - 1 - - - - - - - - Voting rights of ordinary shareholders are governed by Rules 5.8 and 5.9 of the Company’s Constitution which provide that every member present personally or by proxy, attorney or representative shall on a show of hands have one vote and on a poll, shall have one vote for every share held. SPS, debentures and options do not carry any voting rights. 122 Five Year Performance Summary Fairfax Media Limited and Controlled Entities Total revenue Revenues from operations Earnings before depreciation, interes t and tax (EBITDA) Depreciation Earnings before interest and tax Net interest expense Profit before tax Income tax expense/(benefit) Net prof it attributable to members of the Company Net prof it before s ignificant items Total equity Total ass ets Total borrowings Number of shares and debentures Number of shareholders Number of PRESSES holders Number of SPS holders EBITDA to operating revenue Basic earnings per share Basic earnings per share before significant items Operating cash flow per share Dividend per share Dividend payout ratio Interest cover based on EBITDA before significant items Gearing Return on equity A IF RS 2 00 8 2,934.0 2,900.9 818.3 108.3 710.0 186.9 523.2 135.7 386.9 395.3 4,965.3 8,293.1 2,511.9 1,513.5 50, 184 - 1,010 28.2 24.6 25.1 27.7 20.0 81.3 4.4 50.6 8.0 AIFR S 2 00 7 2,178.5 2,111.4 560.7 111.3 449.4 111.2 338.2 76.6 263.5 267.8 4,961.0 8,000.5 2,347.7 1,479.6 50,843 - 733 26.6 22.7 23.2 24.7 20.0 88.1 5.3 47.3 5.4 $m $m $m $m $m $m $m $m $m $m $m $m $m m % cents cents cents cents % Times % % AIFR S AIFR S R es tate d A GAAP 20 0 6 20 0 5 20 04 1,909.9 1,907.8 1,880.2 1,873.4 1,783.0 1,767.7 493.5 79.8 413.7 97.1 316.6 88.5 227.5 234.3 2,136.8 4,087.1 1,507.9 939.1 40,301 - 564 26.0 24.4 24.5 30.7 19.5 79.9 5.1 70.6 11.0 511.4 80.1 431.3 76.6 354.7 90.8 263.2 237.6 2,168.7 3,592.8 1,048.4 924.5 38,089 5,835 - 27.5 26.6 25.8 37.2 23.5 88.3 6.5 42.2 11.0 433.0 85.3 347.7 71.9 275.8 (1.0) 276.0 207.6 2,068.7 3,531.2 1,117.6 906.9 37,899 5,984 - 24.5 29.1 21.4 24.1 16.5 56.7 6.3 52.7 13.3 123 Directory Fairfax Media Limited ANNUAL GENERAL MEETING The annual general meeting will be held at 10.30am on Thursday 13 November 2008 at the Palladium at Crown, Level 1, Crown Towers, 8 Whiteman Street, Southbank, Melbourne VIC 3006. FINANCIAL CALENDAR For financial year 2007/08 STOCK EXCHANGE LISTING The Company’s ordinary shares are listed on the Australian Stock Exchange - “FXJ”. The Stapled Preference Securities (Fairfax SPS) are listed on the Australian Stock Exchange– “FXJPB”. The NZ redeemable preference shares are listed on the New Zealand Debt Exchange – “FXFFA”. Books close for final dividend Final dividend paid Stapled preference security dividend Annual general meeting 2 September 2008 2 October 2008 31 October 2008 13 November 2008 Estimated for financial year end 2008/09 WEBSITE Corporate information and the Fairfax annual report can be found via the Company’s website at www.fxj.com.au. The Company’s family of websites can be accessed through www.fairfax.com.au. Interim result and dividend announcement Books close for interim dividend Interim dividend paid Stapled preference security dividend Preliminary final result and dividend announcement Final dividend paid Stapled preference security dividend Annual general meeting February 2009 March 2009 April 2009 April 2009 August 2009 October 2009 October 2009 November 2009 COMPANY SECRETARY Gail Hambly REGISTERED OFFICE Level 5, 1 Darling Island Road, Pyrmont NSW 2009 Ph: +61 2 9282 2833 Fax: +61 2 9282 1633 SHARE REGISTRY Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Ph: 1300 888 062 (toll free within Australia) Ph: +61 2 8280 7670 Fax: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au Website: www.linkmarketservices.com.au IMPORTANT INFORMATION ABOUT THE FAIRFAX ANNUAL REPORT A soft copy of the annual report is available at www.fxj.com.au. To obtain a hard copy of the report, contact Link Market Services - see contact details under Share Registry. REMOVAL FROM ANNUAL REPORT MAILING LIST Shareholders who do not wish to receive a copy of the annual report should advise Link Market Services Limited in writing, by fax or email - see Share Registry. CONSOLIDATION OF SHAREHOLDINGS Shareholders who wish to consolidate their separate shareholdings into one account should advise the Share Registry in writing. DIRECT PAYMENT TO SHAREHOLDERS' ACCOUNTS The Company pays dividends by direct credit to shareholders' bank accounts or participation in the Dividend Reinvestment Plan. The Company no longer issues cheques except in exceptional circumstances. A direct credit form can be downloaded or obtained from the Share Registry by going to www.fxj.com.au and clicking on Shareholder Info Service, or by contacting the Share Registry. Payments are electronically credited on the dividend date and confirmed by a mailed payment advice. Shareholders are advised to notify the Share Registry (although it is not obligatory) of their tax file number so that dividends can be paid without tax being withheld. 124 Publications and Websites FAIRFAX MEDIA AUSTRALIAN PUBLICATIONS Metropolitan Newspapers The Sydney Morning Herald The Sun-Herald The Age The Sunday Age The Canberra Times Community Newspapers (NSW) The Herald –Newcastle Illawarra Mercury Central Coast Sun Weekly Lakes Mail Port Stephens Examiner Wollongong Advertiser St George & Sutherland Shire Leader Cooks River Valley Times Auburn Review The Campbelltown Macarthur Advertiser Camden Advertiser Wollondilly Advertiser Fairfield City Champion Liverpool City Champion Bankstown-Canterbury Torch Blacktown City Sun Parramatta Sun Penrith City Star St Mary’s Star Hills News South Western Rural Northern News Sun Guardian Community Newspapers (VIC) Melbourne Weekly Magazine The Melbourne Times Melbourne Weekly Bayside Emerald Hill Weekly Melbourne Weekly Eastern Heidelberg & Diamond Valley Weekly Northern Weekly Hume Weekly (Melbourne’s Weekly Magazine) CITY Knox Journal Maroondah / Yarra Ranges Journal The Journal Monash Journal Cranbourne Journal Berwick / Pakenham Journal Macedon Ranges / Sunbury Telegraph Werribee Banner / Point Cook Banner Moreland Community News Moonee Valley Community News The Mail /Altona Laverton Mail/ Williamstown Advertiser Melton / Moorabool Express Telegraph The Advocate / North-West Advocate Frankston / Hastings Independent Mornington and South Peninsula Mail Chelsea, Mordialloc, Mentone Independent Holiday Magazine Holiday Bass Coast & Gippsland Regional Publishing (NSW) Armidale Express Armidale Express Extra Armidale: InTune Magazine Batemans Bay Post/Moruya Examiner Bathurst Western Advocate Bathurst Western Times Bega District News Bellingen Shire Courier Sun Blayney Chronicle Blue Mountains Gazette Blue Mountains Wonderland Bombala Times Boorowa News Border News Bowral Highlands Post Bowral: Property Press Bowral: Southern Highland News Braidwood Tallaganda Times Camden Haven Courier Canowindra News Central Western Daily Cessnock Advertiser Cobar Age Coffs Harbour Independent Coleambally: Colypoint Observer Colour World Cooma Monaro Express/Jindabyne Summit Sun Cootamundra Herald Country Leader Cowra Guardian Crookwell Gazette Daily Liberal Dubbo Daily Liberal Dubbo Mailbox Shopper Dungog Chronicle Eastern Riverina Observer Eden Imlay Magnet Eurobodalla Shire Independent Eurobodalla TV Guide Express Extra Forbes Advocate Forster: Great Lakes Advocate Gilgandra Weekly Glen Innes Examiner Gloucester Advocate Goodiwindi Argus Goulburn Post Goulburn: The Post Weekly Great Lakes Advocate Grenfell Record Griffith: The Area News Guyra Argus Harden Murrumburrah Express Hastings Gazette Hawkesbury Courier Hawkesbury Gazette Henty: Eastern Riverina Chronicle Hunter Valley News Hunter Valley Town + Country Junee: Southern Cross Inverell Times Kempsey: Macleay Argus Kempsey: Macleay Valley Happenings Laurieton: Camden Haven Courier Leeton: The Irrigator Lightning Ridge News Lithgow Mercury Macksville: Midcoast Observer Macleay Argus Macleay Valley Happynings Mailbox Shopper Maitland: Lower Hunter Star Maitland Mercury Manning Great Lakes Extra Manning River Times Merimbula News Weekly Midcoast Happenings Midstate Observer Moree: Border News Moree Champion Moruya Examiner Mudgee Guardian Mudgee Weekly Muswellbrook Chronicle Muswellbrook: Hunter Valley News Nambucca Guardian News Nambucca Heads: Hibiscus Happynings Narooma News Narromine News Newcastle Star News of the Area Newsweekly North Coast SeniorLifestyle North Coast Town + Country Magazine Northern Daily Leader Nowra: Shoalhaven + Nowra News Nowra: South Coast Register Nyngan Observer Oberon Review Orange Central Western Daily Orange Midstate Observer Parkes Champion Post Port Macquarie Express Port Macquarie News Port Macquarie: Hastings Happenings Queanbeyan Age Sapphire Coaster Scone Advocate Shoalhaven and Nowra News Singleton Argus Snowy Times South Coast Register South Coast Senior Lifestyle South Coast Weekly South East Town + Country Southern Weekly Magazine Summit Sun Sussex Inlet Times Tallaganda Times Tamworth: Northern Daily Leader Tamworth Times Taree: Manning Great Lakes Extra Taree: Manning River Times Tea Gardens/Hawks Nest: NOTA Tenterfield Star The Australian Senior The Magnet 125 Publications and Websites The Rural Thornton: Weekend Hunter Star Town & Country Ulladulla: Milton Ulladulla Times Upper Hunter TV Guide Wauchope: Hastings Gazette Wagga Wagga: Daily Advertiser Wagga Wagga: Weekend Advertiser Wagga Wagga: The Rural Wagga Wagga: The Riverina Leader Walcha News Warren Advocate Wellington Times Western Advocate Western Times Western Magazine Wingham Chronicle Yass Tribune Young Witness Regional Publishing (VIC, TAS, SA, WA) Ararat Advertiser Ballarat Courier Ballarat News Bendigo Advertiser Bendigo Miner Colac Extra Corangamite Extra Country Mail – Albury/Wodonga Gippsland Farmer Gippsland Times Gippsland Times Hepburn Shire Advocate Latrobe Valley Express Moe & Narracan News Morwell Press Centre Stawell Times News The Border Mail, Albury/Wodonga The Express – Albury/Wodonga The Great Southern Tourist News - Victoria The Moyne Gazette The Warrnambool Extra The Warrnambool Standard Traralgon Journal Wimmera Mail Times East Coast & Diary News Launceston Advertiser Launceston Examiner Meander Valley News Northern Midlands Community News Sunday Examiner, Tasmania Tamar Community Times Tasmanian Independent Publishing Tasmanian Travelways Central Coast Times, Burnie Devonport Times The Advocate, Burnie Western Herald, North West Tasmania Barossa and Light Herald Eyre Peninsula Tribune, Cleve Flinders News, SA Murray Valley Standard On The Coast, Victor Harbor Port Lincoln Times Roxby Downs Sun The Islander, Kangaroo Island 126 The Northern Argus, Clare Valley The Recorder, Port Pirie The Transcontinental, Port Augusta Victor Harbor Times West Coast Sentinel, Ceduna Whyalla News Augusta Margaret River Mail Avon Advocate, Northam Bunbury Mail Busselton-Dunsborough Mail Central Districts Advocate, Northam Collie Mail Donnybrook Bridgetown Mail Esperance Express Golden Mail, Kalgoorlie Harvey Mail Mandurah Mail Merredin-Wheatbelt Mercury Murray Mail Senior Post, WA The Wagin Argus Xpress Magazine, WA Agricultural and Queensland Regional Publishing National Australasian Flowers Australian Cotton Outlook Australian Dairyfarmer Australian Farm Journal Australian Horticulture Australian Landcare Australian Nursery Manager Country Music Capital News Dairy Info. Guide Directory of Australian Country Music Flower Register Good Fruit + Vegetables Horse Deals Hortguide Irrigation and Water Resources Lotfeeding National GrapeGrowers and Vignerons Official Guide to Tamworth Country Music Festival Turfcraft New South Wales Farm Equipment Trader Farming Small Areas NSW Ag Today The Land Queensland North Queensland Register Queensland Country Life Queensland Grains Outlook Queensland Smart Farmer South Australia Smart Farmer Stock Journal The Grower Victoria Stock and Land Western Australia Farm Weekly Ripe Field Days and Events Commonwealth Bank Ag-Quip Elders FarmFest Farming Small Areas Expo Hunks and Spunks Murrumbidgee Farm Fair Northern and Southern Beef Weeks NSW Beef Spectacular Pro-Ag Queensland Country Life Beef Week Star Maker Quest Tamworth Country Music Festival New Zealand Agricultural Publishing Ag Trader Horticulture News Lifestyle Farmer New Zealand Grapegrower Straight Furrow The Dairyman Field Days Central District Field Days Queensland Regional Publishing d'fine Redland Lifestyle Goondiwindi Argus Senior Lifestyle Bayside Southern Bay News The Bayside Bulletin The Northwest Star The Redlands Directory The Redland Times USA Agricultural Publications American Agriculturist Californian Farmer Carolina-Virginia Farmer Dakota Farmer Direct-fed Microbila, Enzyme + Forage Additive Compendium The Farmer The Farmer-Stockman Feedstuffs Feed Additive Compendium Annual Feedstuffs Reference Issue Farm Futures Indiana Prairie Farmer Kansas Farmer Michigan Farmer Mid-South Farmer Missouri Ruralist Nebraska Farmer Ohio Farmer Prairie Farmer Southern Farmer Tack 'n' Togs Wallaces Farmer (Iowa) Western Farmer-Stockman Wisconsin Agriculturist Farm Shows Farm Progress Show Hay Expo Husker Harvest Days New York Farm Show Publications and Websites TRADEME www.trademe.co.nz www.trademeproperty.co.nz www.trademejobs.co.nz www.tradememotors.co.nz www.travelbug.co.nz www.findsomeone.co.nz www.findsomeone.com.au www.findsomeone.ca www.safetrader.co.nz www.smaps.co.nz FAIRFAX BUSINESS MEDIA Australia Publications The Australian Financial Review The Australian Financial Review – Weekend Edition AFR BOSS The Australaian Financial Review Magazine AFR Smart Investor Life&LeisureLuxury Life & Leisure The Sophisticated Traveller Asset BRW CFO MIS Australia Online www.afr.com www.afrmarketwrap.com www.brw.com.au www.misaustralia.com www.afrsmartinvestor.com.au www.afrmagazine.com www.afrboss.com www.cfoweb.com.au www.assetmag.com.au Data Connect4 MarketBase AssetLink Fairfax Business Research Education Financial Essentials Asia Publications MIS Asia MIS Asia 100 Strategic 100 CIO Asia Computerworld Singapore Computerworld Malaysia Asia On-line www.mis-asia.com New Zealand Publications CIO Computerworld NZ Gear Guide NZ PCWorld Resellernews MIS100 New Zealand On-line www.cio.co.nz www.computerworld.co.nz www.jobuniverse.co.nz www.pcworld.co.nz www.reseller.co.nz FAIRFAX RADIO NETWORK Metropolitan News Talk 2UE Sydney 3AW Melbourne 4BC Brisbane 6PR Perth Metropolitan Music Magic 1278 Melbourne 4BH Brisbane 96fm Perth Regional 4BU & Hitz FM Bundaberg 5RM & Magic FM the Riverland 5CC & Magic FM Port Lincoln 5AU / 5CS & Magic FM Spencer Gulf Narrowcast KIX AM / FM Bundaberg Hervey Bay, Maryborough, Gladstone, Rockhampton, Mackay, Townsville, Emerald,the Coalfields, Spencer Gulf, the Claire Valley, Port Lincoln and the Riverland FAIRFAX DIGITAL News www.smh.com.au www.Theage.com.au www.Brisbanetimes.com.au www.WAtoday.com.au www.Sunherald.com.au Fairfax Digital Regional Network (formerly Yourguide.com.au) www.farmonline.com.au www.lifeislocal.com.au www.ruralpress.com www.agquip.com.au www.autoguide.com.au www.businessquickfind.com.au www.buyersguide.com.au www.canberratimes.com.au www.examiner.com.au www.farmonline.com.au www.farmprogress.com www.feedstuffs.com www.fridaymag.com.au www.holidaysaway.net www.jobsguide.com.au www.lifestyle-farmer.co.nz www.localdirectory.com.au www.plantorder.com www.propertyguide.com.au www.river949.com.au www.rpinteractive.com.au www.ruralbookshop.com.au www.ruralpropertyguide.com.au www.ruralpresssales.com www.tackntogs.com www.yourguide.com.au Business and Finance www.Businessday.com.au www.Mysmallbusiness.com.au www.Investsmart.com.au www.Tradingroom.com.au www.Moneymanafger.com.au www.Execstyle.com.au Lifestyle and Entertainment www.Cuisine.com.au www.Birsbanetimes.com.au/ goodfoodguide www.Essentialbaby.com.au www.Thevine.com.au Sport www.Rugbyheaven.com.au www.Realfooty.com.au wwwLeaguehq.com.au Travel/Accommodation www.stayz.com.au Property www.Domain.com.au www.apm.com.au (Australian Property Monitors) 127 Publications and Websites Automotive www.Drive.com.au www.Countrycars.com.au www.Autoguide.com.au Dating www.rsvp.com.au Employment www.mycareer.com.au www.thebigchair.com.au Video Fairfax Digital Video FAIRFAX MAGAZINES Good Weekend Sunday Life the(sydney)magazine theage(melbourne)magazine Travel + Leisure Australia Television Style HQ Collection – Custom Publishing The Chase Fashion Capital Queens Plaza FAIRFAX NEW ZEALAND Metropolitan Newspapers The Dominion Post The Christchurch Press Waikato Times Regional Newspapers Manawatu Standard Taranaki Daily News The Marlborough Express The Nelson Mail The Southland Times The Timaru Herald National Newspapers Sunday Star-Times Sunday News Turf Digest, Best Bets The Independent 128 Mid Canterbury Herald Taieri Herald The Christchurch Mail The Invercargill Eye The Leader – Nelson City Leader The Leader – Richmond & Waimea Leader The Marlborough Midweek The Mirror The Northern Outlook The Saturday Express Waitaki Herald Websites www.stuff.co.nz www.rugbyheaven.co.nz www.businessday.co.nz www.nzx.com www.cuisine.co.nz www.nzhouseandgarden.co.nz www.nzgardener.co.nz Real Estate and Motoring Auto Xtra Location – Waikato Edition North Shore & Hibiscus Coast Homes Outlook Real Estate Property Weekly South Eastern Otago Southern Homes West & Central Homes Magazines Alive Avenues Boating New Zealand Cuisine Fish & Game New Zealand New Zealand Fishing News New Zealand Gardener New Zealand Growing Today New Zealand Horse & Pony New Zealand Trucking NZ Autocar NZ House & Garden NZ Life & Leisure Real Sky Sport The Magazine Stars (host Sunday News) Sunday (host Sunday Star-Times) The Cut The TV Guide Truck & Machinery Trader World Your Weekend Community Newspapers Auckland & Northland Community Newspapers Auckland City Harbour News Central Leader Dargaville & Districts News East & Bays Courier Eastern Courier Look North Manukau Courier North Harbour News North Shore Times Northern News Nor-West News Papakura Courier Rodney Times The Bay Chronicle Waiheke MarketPlace Western Leader Whangarei Leader Waikato/Bay of Plenty/Hawke’s Bay Community Newspapers Cambridge Edition Franklin County News Hamilton Press Hauraki Herald HB Country Scene Matamata Chronicle North Waikato News Piako Post Rotorua Review Ruapehu Press Rural Delivery South Waikato News Taupo Times The Hastings Mail The Napier Mail Urban & Country Taranaki/Manawatu Community Newspapers Central District Times Central Districts Farmer Feilding Herald North Taranaki Midweek Rangitikei Mail South Taranaki Star The Tribune Wellington Community Newspapers Horowhenua Mail Kapi-Mana News Kapiti Observer The Hutt News The Wellingtonian Upper Hutt Leader Wairarapa News The New Zealander (International) South Island Community Newspapers Central Canterbury News Clutha Leader D-Scene High Country Herald Kaikoura Star Motueka-Golden Bay News Newslink Otago Southland Farmer 

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