Fairfax Media Limited
Annual Report 2009

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Annual Report 2009 ABN 15 008 663 161 Building on our strengths Australasia’s most diversified media company 434 publications 284 websites 15 radio stations 24 printing centres Annual General Meeting The annual general meeting will be held at 10.30am on Tuesday, 10 November 2009 at the Four Seasons Hotel, 199 George Street, Sydney NSW 2000. Table of 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 Statement Notes to the Financial Statements Income tax expense 1. Summary of significant accounting policies 2. Revenues 3. Expenses 4. Significant items 5. 6. Dividends paid and proposed and finance costs 7. Receivables Inventories 8. 9. Assets held for sale 10. Other assets 11. Investments accounted for using the equity method 12. Available for sale investments 13. Held to maturity investments 14. Intangible assets 15. Property, plant and equipment 16. Derivative financial instruments 17. Pension assets 18. Deferred tax assets and liabilities 19. Other financial assets 20. Payables 21. Interest bearing liabilities 22. Provisions 23. Contributed equity 24. Reserves 25. Retained profits 26. Minority interest 27. Earnings per share 28. Commitments 29. Contingencies 30. Controlled entities 31. Acquisition and disposal of controlled entities 32. Business combinations 33. Employee benefits 34. Remuneration of auditors 35. Director and executive disclosures 36. Related party transactions 37. Notes to the cash flow statements 38. Financial and capital risk management 39. Segment reporting 40. Events subsequent to balance sheet date Directors’ Declaration Independent Audit Report Shareholder Information Five Year Performance Summary Directory Publications and Websites 2 4 6 8 13 14 23 32 34 35 36 37 38 54 55 56 57 58 59 60 60 60 61 63 64 64 68 71 75 78 80 80 80 82 84 87 88 89 89 90 91 92 98 99 101 102 103 106 107 108 119 123 124 125 127 129 130 131 Chairman’s Report Faced with some of the toughest trading conditions in advertising markets ever experienced in Australia, particularly during the second half of the financial year, the Board and management team have, I believe, delivered the best possible result in these difficult circumstances. On an underlying trading basis, earnings before depreciation, interest and tax total $605.0 million, 27.2% below the level reported last year. In this climate, the creditable result reflects the Board undertaking the investments in Fairfax Digital in Australia and the acquisitions of Trade Me in New Zealand, Rural Press and Southern Cross Radio and the earnings that these companies have contributed to our overall results. When taking into consideration the Impairment and Significant Items charges that are further detailed in the Accounts, the Company reported a net loss after tax of $380.0 million. The masthead, licences and goodwill impairment charges which totalled $513 million have been closely reviewed by the Board and take into consideration the fall in value of our newspaper and other businesses as a result of the present environment As shareholders may also be aware, we announced in May this year that Directors’, the CEO and generally direct reports to the CEO have accepted fee and salary freezes. This position will continue until economic conditions improve. When I reported to you last year, I wrote extensively about the steps that we had taken to better position ourselves as one of the world’s pre-eminent media companies. Some years ago, the Board made a conscious decision to diversify the Company outside the mainstream revenue provided by the Australian Financial Review, Sydney Morning Herald, The Age and smaller regional papers we owned. As a result of this diversification, we have largely withstood the downturn in traditional media that has been experienced throughout the global market. Today, as a result of the decisions made by our Board and management, we are one of the most diversified media companies globally, with a range of media assets that complement each other. We are a strong, multi-disciplined media company with some of the finest media assets in the world. In future years, the way we distribute our very valuable content will continue to evolve and, as a result, enhance shareholder wealth which we strive to achieve as a team. Over this past year we have also undertaken a number of steps to strengthen the balance sheet of the Company, including: • • • • The successful raising of $624 million in additional equity The sale of the Southern Star TV Production and Distribution business for $108.4 Announcing in December 2008 a temporary reduction in the dividend payout ratio Ensuring that we maintain strong operating cash flows. These actions have reduced the net debt of the Company by $734 million over the financial year. In December 2008, the Board addressed the pressures created by the economic decline and announced the Company would temporarily reduce the dividend payout ratio to approximately 20% of underlying earnings in order to preserve capital and facilitate debt reduction. 2 Chairman’s Report During the year, the Company has distributed dividends representing over 16% of earnings, excluding impairment and significant items. In view of the economic environment, Directors have resolved to retain funds in the business and not pay a final dividend. The Board will continue to look very closely at the dividend issue but at this stage intends to retain the existing payout ratio until economic and financial conditions permit a change. The Board conducts a review of its structure, composition and performance annually. The Board may seek external advice to assist in the review process. During this financial year a review of Board performance was conducted with the assistance of an external consultant and the results and recommendations were discussed at the Board and various recommendations implemented. During the year we also had a change to the Chief Executive Officer and Managing Director of the Company following the resignation of David Kirk in December 2008. In his more than three years in the role, David had been an outstanding CEO. He and his team, in partnership with the Board, led the complete re-positioning of the company, from a metropolitan newspaper publishing business to a diversified media business. He represented the interests of Fairfax Media externally with vigour, good humour and passion. I and the Board thank David for his valuable contribution. Brian McCarthy was appointed Chief Executive Officer and Managing Director. Brian is an excellent choice given his deep and extensive media experience and highly successful track record as Managing Director of Rural Press Limited for 13 years. Brian is the right person with the right experience at this time to run our diverse Company. Ms Julia King will be retiring from the Board at the conclusion of the upcoming Annual General Meeting. We are very grateful for her valued contributions during her 14 years as a Director and wish her all the best in the future. I would like to thank my fellow Board members for their continued support during the year and congratulate Roger Corbett on his appointment as Deputy Chairman of the Company. Roger is Chairman of the Audit and Risk Committee and an excellent Director. His contributions at a Board level have been invaluable. Both Roger and I will be putting ourselves forward for re-election at the upcoming Annual General Meeting and we look forward to your continued support. I also want to thank our staff for their dedication and commitment to the Company and shareholders. Shareholders can be assured that we take our environmental responsibilities seriously. A sub-committee of the Board has been established to monitor and direct our efforts in environmentally friendly practices. A great deal has already been achieved within the Company to create an environmentally friendly culture. Our new office buildings located in Sydney and soon in Melbourne will have the highest environmental ratings possible. We encourage our staff to utilise public transport and cycling to work by establishing specific bus arrangements and providing secure bicycle facilities in our offices and we have a number of initiatives planned to further reduce our carbon footprint. In closing I would like to stress that your Board and management team is committed to growing shareholder value and we are confident that our unique mix of media assets, excellent management team and ongoing focus on operational excellence will be of benefit to shareholders in the years to come. Ronald J. Walker, AC CBE Chairman 3 Chief Executive Officer’s Report It is a great pleasure to report to Fairfax Media Limited shareholders in my first year as Chief Executive Officer and Managing Director. Fairfax Media is Australasia's most diversified media company with 434 publications, 284 websites, 15 radio licences and 24 printing centres in Australia, New Zealand and the United States. From this base of quality media assets, it is our goal to provide readers, customers, employees and shareholders with all the benefits of being associated with Fairfax Media. Over the past financial year, the Company has faced a business environment unprecedented in its long history. Three factors have had a major impact on Fairfax: • • • the speed of the economic slowdown, especially in the second half cuts to discretionary advertising responding to the online challenges Even with these factors, the underlying earnings before depreciation, interest and tax (EBITDA) of $605 million was slightly above market consensus. The net loss after tax of $380 million included impairment and significant items. Operating cash flow of over $384 million reflected the fundamental strengths of the Company. Despite the poor market conditions, we recorded a creditable result, and our achievements are a reflection of the calibre of our management and staff. We place on record our appreciation for their contribution to this result. During the 2009 year we have undertaken major initiatives to strengthen Fairfax Media for the future. These initiatives were first, to strengthen the balance sheet of the Company. A decision was taken in late February 2009 to raise equity and to use the proceeds from the raising to pay down a substantial portion of the syndicated Australian Dollar banking facility that Fairfax Media had in place. The 3 for 5 accelerated non-renounceable pro-rata entitlement offer was successfully completed in April 2009, raising a total of $624.6 million. These funds, combined with the sale of the Southern Star business and the operating cash flows generated this year, has reduced net debt to $1.78 billion, being $734 million lower than the level at June 2008. Second, a new management structure was implemented. This new structure provides for improved business opportunities by grouping operations around core functions such as metropolitan, regional and community mastheads, printing, business media, and online. The structure facilitates improvement in the way print and online work together, both commercially and editorially, for the benefit of our audiences and customers. The attitudes and culture of our people are very important and this new structure, combined with our excellent Management Development Programme, allows us to mentor, train and develop our employees to meet the challenges of the media environment. Third, a number of new business opportunities were pursued. For example, we have now bundled the sales of both our print and online metropolitan classifieds together in one team allowing our sales staff to sell both an online and/or print advertisement. We made these changes following feedback from customers who wanted one sales relationship across our print and online products. In regional markets, we started the roll-out of our My Career and Drive classified brands across our mastheads and online sites. This followed the successful integration of Domain in regional markets the previous year. 4 Chief Executive Officer’s Report We announced the launch of a website, the nationaltimes.com.au to showcase opinion and commentary of Australia's political and national affairs. This website revives The National Times brand, which was synonymous with intelligent and thought-provoking journalism. It will feature the best of our opinion writers, commentary and analysis, coupled with guest commentaries from politicians, academics and other public figures. To further strengthen and broaden national coverage of federal politics, we have merged the Canberra bureau of our metropolitan newspapers The Sydney Morning Herald and The Age. While each masthead has maintained a small dedicated staff, a team of reporters working across both papers has been created to enrich our coverage. Fourth, the cost base of the Company needed to be lower and a number of wide-ranging cost initiatives were undertaken. By utilising technology, changing business processes and a programme of continuous improvement, we have successfully reduced costs during the year by 4.3%. In the second half, costs are down 7.5% on the previous corresponding period on a like-for-like basis. These are but a few examples of business processes implemented in Fairfax Media Limited in the 2009 year. The impact of the economic downturn had a greater impact upon our business units during the second half of the year, The publishing operations, which make up approximately 80% of the Company’s revenues, were impacted by lower classified and display advertising revenues. This flowed through to lower EBITDA. In the online businesses. Fairfax Digital increased revenue with EBITDA down slightly as we continued to invest in new websites. In New Zealand the TradeMe business increased revenue and EBITDA. Revenue and EBITDA for the Printing and Broadcasting business units were down on a like-for-like basis. Across the Company we continue to focus on the occupational health and safety of staff. Our work safety programmes and resources have reduced lost time injuries during the year. In the year under review we assisted numerous communities, organisations and charities through support, sponsorships and partnerships. Importantly, the Company continues to invest in new technology in line with the needs of the business. In conclusion, I believe the broad range of initiatives undertaken, the quality of our media assets, our diversified business base and the commitment of our management and staff places Fairfax Media in a wonderful position to benefit from any improvement in economic conditions. Brian McCarthy Chief Executive Officer and Managing Director 5 Board of Directors Board of Directors MR RONALD WALKER, AC CBE NON-EXECUTIVE CHAIRMAN, APPOINTED TO THE BOARD 4 FEBRUARY, 2003 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 WAM Interactive Limited. Mr Walker served two terms as Lord Mayor of Melbourne from 1974 to 1976. Mr Walker is currently the Chairman, Australian Grand Prix Corporation; Member, Formula One Commission UK; Director, Football Federation Australia; Chairman, Microsurgery Foundation at St Vincent’s Hospital and Director, Australian Tissue Engineering Centre at St Vincent’s Hospital. He 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; and Chairman, Melbourne 2006 Commonwealth Games. 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, APPOINTED TO THE BOARD 4 FEBRUARY, 2003 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 and a Director of PrimeAg Australia Limited. He is also the President of the University of Sydney Medical Foundation; Chairman of the Council and Member of the Executive of Shore School; Chairman of the Salvation Army Advisory Board; a Director of Outback Stores; a member of the Dean’s Advisory Group of the Faculty of Medicine at the University of Sydney; a member of the Advisory Committee of the Australian Graduate School of Management; and Chairman of the Advisory Committee of the Westmead Children’s Hospital. MR DAVID EVANS NON-EXECUTIVE DIRECTOR, APPOINTED TO THE BOARD 22 JUNE, 2005 Mr Evans has over three decades of experience in the television industry in Australia, the US and the UK. Mr Evans is also on the Board of Directors of Village Roadshow Limited and BSkyB in the UK. 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, also in the USA. MR JOHN B FAIRFAX, AO NON-EXECUTIVE DIRECTOR, APPOINTED TO THE BOARD 9 MAY, 2007 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 The Girls and Boys Brigade, Patron since 2008 of The Red Room Company Limited and Trustee of Reuters Founders Share Company Limited since 2005. Previously Mr Fairfax was Deputy Chairman of Fairfax (then John Fairfax Limited) from 1985 – 87 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, APPOINTED TO THE BOARD 9 MAY, 2007 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, Chairman of Elaine Education Pty Limited and a member of UTS Faculty of Business Executive Council. MRS JULIA KING NON-EXECUTIVE DIRECTOR, APPOINTED TO THE BOARD 17 JULY, 1995 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 BRIAN MCCARTHY CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR, APPOINTED TO THE BOARD 10 DECEMBER, 2008 Mr McCarthy commenced as CEO and Managing Director of Fairfax Media Limited in December 2008. Prior to joining the Board of Fairfax Media Limited, Mr McCarthy occupied the position of Deputy Chief Executive Officer and Chief Executive Officer Australia, Fairfax Media Limited from May 2007 to December 2008. Mr McCarthy was the Managing Director and CEO of Rural Press Limited from 1994 until its merger with Fairfax Media Limited in 2007. Mr McCarthy has extensive experience in the media industry. He joined Regional Publishers in 1976 and later became General Manager of Upper Hunter Publishers Pty Limited. Mr McCarthy was the General Manager of The Maitland Mercury between 1984 and 1987 and General Manager - Special Projects for Rural Press Limited between 1987 and 1994. Mr McCarthy was a Director of Pacific Area Newspaper Publishers’ Association from 1993-2001. He has been a Director of The Newspaper Works Limited since 2006, a newspaper industry body. MR ROBERT SAVAGE NON-EXECUTIVE DIRECTOR, APPOINTED TO THE BOARD 25 JUNE, 2007 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 Chairman 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, APPOINTED TO THE BOARD 16 SEPTEMBER, 2005 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, 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 28 June 2009 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 BRIAN MCCARTHY Chief Executive Officer and Managing Director Appointed to the Board on 10 December 2008 MR ROBERT SAVAGE Non-Executive Director MR PETER YOUNG, AM Non-Executive Director MR DAVID KIRK, MBE MR ROGER CORBETT, AO Non-Executive Director MR DAVID EVANS Non-Executive Director MR JOHN B FAIRFAX, AO Non-Executive Director MR NICHOLAS FAIRFAX Non-Executive Director MRS JULIA KING Non-Executive Director Company Secretary Executive Director and Chief Executive Officer Resigned as CEO and from the Board on 5 December 2008. A profile of each Director at the date of this report is included on pages 6 and 7 of this report. ALTERNATE DIRECTOR 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 and the Privacy Committee for the Law Council of Australia, a member of the Advisory Board for the Centre of Media and Communications Law at the Melbourne Law School and a member of the Institute of Chartered Secretaries and Administrators and Chartered Secretaries Australia. Ms Hambly is also a Director of theatre company, Company B Limited. 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, and radio broadcasting. Television production and distribution was a principal activity up until the completion of the sale of the Southern Star Group in April 2009. 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 loss attributable to the consolidated entity for the financial year was $380,050,000 (2008 Profit: $386,878,000). 8 Directors’ Report Dividends A final 75% franked dividend of 10 cents per ordinary share and debenture in respect of the year ended 29 June 2008 was paid on 2 October 2008. This dividend was shown as approved in the previous annual report. An interim 75% franked dividend of 2 cents per ordinary share and debenture in respect of the year ended 28 June 2009 was paid on 19 March 2009. The Board has not approved the payment of a final dividend in respect of the year ended 28 June 2009. Distributions to holders of Stapled Preference Securities (SPS) were paid as follows: $4.8138 per share paid 31 October 2008 and $3.3580 per share paid 30 April 2009. Review of operations Revenue for the Group decreased 11% to $2,610 million generating a net loss after tax of $380.1 million (2008: profit $386.9 million). Earnings per share decreased to a loss of 21.6 cents (2008: profit 22.9 cents). Further information is provided in the Management Discussion and Analysis Report on page 32. 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 20 August 2008, the Company agreed to sell Southern Star Group Limited's 75% interest in UK-based Carnival Film & Television Ltd to NBC Universal together with certain library and distribution rights of Carnival productions for a total sale price of approximately £22.3 million. • On 20 January 2009, the Company agreed to sell the Southern Star television production and distribution business to Endemol for $75 million plus an earn-out. The sale completed on 6 April 2009. The Company retained ownership of Southern Star Factual, the UK-based natural history, science and documentary production business. • On 3 April 2009, the Company successfully completed the 3 for 5 accelerated non-renounceable pro-rata entitlement offer that was announced in February 2009, raising a total of $624.6 million. The Company used the proceeds of the entitlement offer to pay down a substantial part of a syndicated bank facility maturing in 2011 and 2012. • On 27 May 2009, Fairfax Media Group Finance Pty Limited settled on the purchase and cancellation of $32.3 million of its fixed rate A$ medium term notes due 27 June 2011. 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 2 – 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 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 2008-09 financial year. The consolidated entity’s level of carbon emissions for the 2008-09 financial year is expected to be under the threshold level that would require the Company to report under the National Greenhouse and Energy Reporting legislation this year. The Company expects that it will need to report on the Group’s total carbon emissions in the 2009-10 financial year. The Group’s main source of carbon emissions overall is from electricity consumption at its larger sites. The relocation of staff from the Darling Park headquarters to One Darling Island in Pyrmont, a new, more energy efficient building during the last financial year, has resulted in reduced emissions. Additional efficiencies will be realised when The Age relocates to a new, more energy efficient building in the Southern Cross Station precinct in Melbourne at the end of calendar 2009. Other reductions in carbon emissions have been realised with the closure of certain printing facilities. 9 Directors’ Report Events after balance date There have not been any after balance date events. Remuneration Report A remuneration report is set out on pages 14 – 22 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 Post Post Post Closing Year End Year End Year End Balance Acquisition Disposals Balance Acquisitions Disposals Balance RJ Walker RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk * BK McCarthy R Savage P Young 1,035,251 40,091 52,448 969,610 59,115 109,934 216,482,782 18,943,999 2,412,351 1,480,130 46,068 21,135 - - - - - 1,110,791 857,489 1,480,703 2,004,861 99,206 162,382 235,426,781 3,892,481 67,203 487,577 1,755,326 953,196 350,000 2,358,522 19,996 21,415 27,903 109,702 - - 47,899 131,117 - - - - - - - - - - - - - - - - - - - - 2,004,861 99,206 162,382 235,426,781 3,892,481 67,203 487,577 2,358,522 47,899 131,117 TOTAL 222,976,519 23,532,213 1,830,703 244,678,209 - 244,678,209 *The closing and post year end balance represents the number of shares held by Mr Kirk at 5 December, 2008, when he resigned from the Board and forfeited unvested shares in the employee share plans. No Director holds options over shares in the Company. RJ Walker and P Young acquired stapled preference shares of 3,338 and 630 respectively during the period. 10 Directors’ Report Directors’ meetings The following table shows the number of Board and Committee meetings held during the financial year ended 28 June, 2009 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 11 11 11 11 11 11 3 8 11 11 11 10 9 10 11 11 3 7 9 11 6 6 - - 6 - - - 6 6 6 6 - - 6 - - - 5 6 2 - 2 - 2 2 - - - - 2 - 2 - 2 2 - - - - 6 6 6 6 - - - - - 6 5 5 6 6 - - - - - 6 R J Walker** R C Corbett D Evans JB Fairfax NJ Fairfax JM King DE Kirk* BK McCarthy* R Savage P Young * Mr Kirk and Mr McCarthy attend the Audit & Risk and Personnel Policy & Remuneration Committee meetings as invitees 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 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. 11 Directors’ Report 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 fees 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. 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 $272,840 • Overseas $268,946 Other assurance and non-assurance services: • Australia $119,814 • Overseas $24,311 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. Brian McCarthy Chief Executive Officer and Managing Director Ronald Walker Chairman 1 September, 2009 12 Auditor’s Independence Declaration 13 Remuneration Report 1. Introduction This report forms part of the Company’s 2009 Directors’ Report and describes the Fairfax Group’s remuneration arrangements for Directors and prescribed senior executives in accordance with the requirements of the Corporations Act 2001 and Regulations. The report also contains details of the equity interests of Fairfax Directors and prescribed senior executives. 2. Personnel Policy and Remuneration Committee The Board has a formal Charter for the Personnel Policy and Remuneration Committee (PPRC) which prescribes the responsibilities, composition and meeting rules of the Committee. Under the Charter, the Committee must be comprised of a majority of non- executive Directors who are independent. The members of the PPRC are Peter Young (Chairman), Roger Corbett, David Evans and John B Fairfax. All members except John B Fairfax are independent. 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 in consultation with the CEO; (b) oversee the development and implementation of employee remuneration programs, performance management and succession planning with the goal of attracting, motivating and retaining high quality people, in consultation with the CEO; (c) 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; (d) 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; (e) make recommendations to the Board on Directors’ fees and review and recommend the aggregate remuneration of non- executive Directors to be approved by shareholders; and (f) review the Group’s framework for compliance with occupational, health, safety and environmental regulation and its performance against the framework. The CEO attends PPRC meetings but not when his 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, until suspension of the Employee Share Plans in May 2009, each non-executive Director has sacrificed at least 25% of his or her annual Director’s fees for the purchase of shares in the Company’s Employee Share Plan. Under this Plan, shares are purchased on-market by an independent trustee that holds the shares on behalf of the Directors and employees who have salary sacrificed to participate in the Plan. Share acquisition dates are pre-set by the trustee. For the 2009-10 financial year, the proportion of the Directors’ fees sacrificed for share purchases may change depending on the provisions of the new legislation to govern employee share plans foreshadowed in the May 2009 Federal Budget. Directors have resolved that there will be no increase in directors fees for the 2009-10 year. 14 Remuneration Report At the date of this report, the Board has set Board and committee fees as follows: Chairman of the Board * 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 $ 336,000 120,000 40,000 30,000 30,000 20,000 30,000 20,000 * Ronald Walker, as Chairman of the Board, does not receive committee fees. The fees above do not include statutory superannuation payments. 3.1 RETIREMENT BENEFITS FOR NON-EXECUTIVE DIRECTORS 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 statutory superannuation contributions outlined above, non-executive Directors who did not have five years service on the Board as at 30 June 2004 are not eligible for other 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 McCarthy’s Executive Services Agreement with the Company include a base salary (including superannuation and other benefits except as set out below), which is currently $1.3 million per year. The base salary will increase to $1.5 million on 1 October, 2009. Mr McCarthy is also eligible for a 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 seven percent of the Performance Bonus is determined by achievement of financial targets for the Group. The remaining thirty three percent is based on other Key Performance Indicators set by the PPRC each year depending on the operational and strategic goals of the Group. In addition to the base salary and Performance Bonus, under the Long Term EBIS (details of which are set out in section 5.2 of this report), Mr McCarthy receives the equivalent of 100% 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. The terms are set out in a draft Executive Service Agreement, the signing of which has been delayed until clarification of the taxation treatment of shares allocated under employee share plans following the changes announced in the 2009 Federal Budget. 15 Remuneration Report 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. The PPRC aims to ensure that the executive remuneration framework 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; and • Be transparent and fair. The executive remuneration framework established by the PPRC comprises a mix of fixed and performance-based components: • A fixed remuneration package which includes base pay, superannuation and other benefits; and • Performance incentives. The combination comprises the executive’s total remuneration. The fixed remuneration package includes all employee benefits and related fringe benefits tax, for example, motor vehicle, parking and superannuation. It represents the total cost to the Company. 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 personal performance of the individual executive against objectives set at the beginning of the year. The CEO conducts performance reviews with his direct reports generally in July each year and presents the outcomes and proposed incentive payments to the PPRC. The PPRC reviews and approves the remuneration packages and bonus payments to the CEO’s direct reports annually, generally in August. On the recommendations of the CEO, the PPRC also reviews and approves the key performance indicators for the CEO’s direct reports for the following year. Performance evaluations in accordance with this framework have taken place for senior executives for the 2008-2009 financial year during July to August 2009. 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 after considering recommendations from the PPRC. 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 2009 was 20% of the executive’s fixed remuneration package and the maximum bonus opportunity was 50% of the fixed remuneration package. Generally, the bonus opportunity consists of three components: 20% is based on Group EBITDA and earnings per share, 60% is based on business unit financial performance and 20% is based on other key performance indicators (KPIs). For corporate executives whose duties are not confined to one business unit, generally 50% of the bonus opportunity is based on corporate financial performance. For the period ended 28 June 2009, the KPIs linked to the incentive plans for senior executives were based on Group performance, individual business unit performance and personal objectives. 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 and occupational health and safety targets. 16 Remuneration Report 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) Senior executives whose roles and skills are critical to the strategy of the Group are eligible to participate in the Company’s equity- based incentive scheme. 2006-2007 EBIS In 2006, the Company replaced the previous equity incentive scheme with a new scheme (the 2006-2007 EBIS) that was designed to more closely align shareholders’ interests with the Company’s remuneration principles. The 2006-2007 EBIS applied for bonuses earned in the 2006 and 2007 financial years. Under the 2006-2007 EBIS, 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 purchased shares on market and allocated shares in the Plan to the relevant executive. Each participating executive’s allocated shares vest three years after the allocation date subject to ongoing employment requirements and achievement of hurdles. 2008 AND ONGOING 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 operation for 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 to 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: 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% 17 Remuneration Report OTHER TERMS OF THE 2008 AND ONGOING LONG-TERM EBIS On termination of an executive’s employment, vesting rights will depend on the circumstances of the termination. If an executive resigns, unvested allocations will be forfeited however the Board has discretion to allow vesting. On termination for fraud or misconduct, allocations will be forfeited. If an executive 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. SUSPENSION OF THE 2008 AND ONGOING LONG-TERM EBIS The EBIS is presently suspended pending review of the revised tax treatment of employee share plans as a consequence of announcements made in the 2009 Federal Budget. The terms of the EBIS will be reviewed once the relevant legislation is enacted. 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 AIFRS AGAAP $m $m Cents Cents % 2009 2,600 241.3 12.4 2.0 (52.1) 2008 2,909 395.9 23.4 20.0 (34.7) Restated 2007 2006 2005 2,117.6 1,907.8 1,873.4 267.8 23.2 20.0 34.2 234.3 24.5 19.5 (5.70) 237.6 25.8 23.5 23.20 * TSR 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 at the time. The two key executives, Sankar Narayan and Gail Hambly received $300,000 each in Company shares, which were purchased on market by the trustee of the Employee Share Plan and held in the Plan until they vested. The shares vested over a three year period. Vesting was contingent on the executive continuing to be employed by the Company on the date of vesting and on achievement of the executive’s personal KPIs within his or her area of responsibility. The KPIs were 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% vested 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. 18 Remuneration Report 5.5 EXECUTIVE SERVICE AGREEMENTS The terms of employment of the CEO are set out in section 4 and this section 5.5 below. The remuneration and other terms of employment for the highest paid executives and key management personnel (disclosed in section 5.7 pursuant to section 300A of the Corporations Act) are set out in written agreements. Except for Ms Withers, who had a fixed term contract and who retired on 30 June 2009, 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. 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 in this section 5, executive salaries are reviewed annually. The executive service agreements do not require the Company to increase base salary, pay incentive bonuses or continue the executive’s participation in the equity-based incentive scheme. Key non-financial terms in the executive service agreements are set out below. Remuneration details are set out in sections 5.6 and 5.7. 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. Name of Executive Company Employee Termination Termination Notice Period Notice Period Post-Employment Restraint Brian McCarthy 12 months 6 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group Brian Cassell 12 months 4 months - 12 month no solicitation of employees or clients - 6 months no work for a competitor of the Fairfax Group 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 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 Termination Super- Long Service Total * Related Fees Benefits Bonus annuation Leave Expense RJ Walker RC Corbett D Evans JB Fairfax NJ Fairfax DE Kirk JM King 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 336,000 336,000 180,910 151,667 160,000 147,333 140,000 140,000 173,526 173,667 - - 150,000 150,000 - - - - - - - - - - 762,086 - - - - - - - - - - - 1,650,038 864,960 - - - - BK McCarthy 2009 R Savage P Young 2008 2009 2008 2009 2008 Total remuneration: Directors 2009 - - 1,200,000 298,220 1,224,776 780,000 150,000 152,977 175,564 154,000 - - - - - - - - - - - - - - - - - 4,122,808 - - - - - - - - - 30,240 30,240 16,282 13,650 14,400 13,260 12,600 12,600 15,617 15,630 26,923 50,000 13,500 13,500 100,000 100,000 13,500 13,768 15,801 13,860 366,240 366,240 197,192 165,317 174,400 160,593 152,600 152,600 189,143 189,297 4,911,817 - - - - - - 13,918 2,578,916 - - 163,500 163,500 63,839 1,662,059 46,570 2,151,346 163,500 166,745 191,365 167,860 - - Total n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 50% n/a n/a 34% 44% n/a n/a n/a n/a 1,466,000 1,962,086 298,220 4,122,808 258,863 63,839 8,171,816 2008 1,405,644 2,874,814 1,644,960 - 276,508 60,488 6,262,414 In addition to the remuneration in table 5.6 above Brian McCarthy’s total cost to the Company includes the amortised cost of the fair value of rights to shares issued of $407,408 (2008: $279,573) representing a total of $2,069,467 (2008: $2,430,919). David Kirk’s total cost to the Company of $72,842 includes a credit for the reversal of the prior year amortised cost of the fair value of rights to shares following his departure (2008: $834,967) representing a total of $4,984,660 (2008: $3,413,883). Non-Executive Directors are not participants in any performance related share arrangements (refer section 3 of the remuneration report). 20 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 Sankar Narayan Brian Cassell Gail Hambly Jack Matthews Joan Withers ** Title CEO Chief Financial Officer* Chief Financial Officer* Group General Counsel and Company Secretary CEO Fairfax Digital 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. * Sankar Narayan was replaced by Brian Cassell in May 2009. ** Joan Withers was replaced by Allen Williams on 1 July 2009 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 Termination Super- Long Service Total excluding Related Company Group Benefits Bonus Payment annuation Leave Expense shares Total S Narayan J Matthews G Hambly J Withers L Price B Cassell B McCarthy 2009 (cid:57) (cid:57) 627,178 2008 (cid:57) (cid:57) 734,642 2009 (cid:57) (cid:57) 576,554 2008 (cid:57) (cid:57) 547,363 2009 (cid:57) (cid:57) 490,855 2008 (cid:57) (cid:57) 490,993 (cid:57) 680,955 2009 (cid:57) 564,759 2008 2009 (cid:57) (cid:57) 164,531 2009 (cid:57) (cid:57) 500,000 2008 (cid:57) (cid:57) 1,224,776 - 1,197,843 55,899 - 1,880,920 288,000 75,000 155,000 92,125 150,000 - - - - - 65,396 13,426 1,101,464 48,445 46,114 59,145 5,850 705,849 3,950 752,427 8,327 650,452 59,045 36,017 736,055 - 162,580 174,382 - - - - 506,869 14,773 - - - 843,535 739,141 686,173 90,960 780,000 - - 100,000 8,395 699,355 100,000 46,570 2,151,346 n/a 43% 27% 31% 32% 38% n/a 24% 16% 26% 44% TOTAL 2009 3,040,073 258,085 1,867,292 278,262 22,572 5,466,284 2008 3,562,533 1,547,382 - 270,555 99,963 5,480,433 Amortised cost to the Company of the fair value of rights to shares issued: S Narayan $34,302 credit (2008 $317,053 expense), J Matthews $157,660 (2008:$106,687), G Hambly $180,874 (2008: $180,863), L Price $132,545 and B Cassell $122,632. Sankar Narayan’s total cost to the Company includes a credit for the reversal of the prior year amortised cost of the fair value of rights to shares following his departure. Total cost to the Company after inclusion of the amortised cost of the fair value of rights to shares: S Narayan $1,915,222 (2008: $1,418,517), J Matthews $863,510 (2008: $859,114), G Hambly $831,326 (2008: $916,918), J Withers $843,535 (2008: $739,141), L Price $818,718 and B Cassell $ 821,987. 21 Remuneration Report 5.8 OPTIONS During the year ended 28 June 2009: • no options were granted to Directors or key management personnel (2008:nil); • no options held by Directors or key management personnel vested (2008:nil); • no options held by Directors or key management personnel lapsed (2008:nil); and • no options held by Directors or key management personnel were exercised (2008:nil). 5.9 LOANS TO DIRECTORS AND KEY MANAGEMENT PERSONNEL During the year ended 28 June 2009, there were no loans to Directors or to key management personnel (2008: nil). 5.10 HEDGING RISK ON SECURITIES FORMING PART OF REMUNERATION The rules of the Employee Share Plans prohibit employees from creating any encumbrance on unvested share rights. Under the Board approved Fairfax Securities Trading Policy, Designated People (as defined on page 31) are not permitted to enter a financial transaction (whether through a derivative, hedge or other arrangement) which would operate to limit the economic risk of an employee’s holding of unvested Company securities which have been allocated to the employee as part of his or her remuneration. Employees who are found not to have complied with the Securities Trading Policy risk disciplinary sanctions which may include termination of employment. 22 Corporate Governance The Company’s compliance with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, 2nd edition (“ASX Recommendations”) is set out in the following table. Compliance Pages Principle 1: Lay solid foundations for management and oversight 1.1 Establish the functions reserved to the Board and those delegated to senior executives and disclose those functions 1.2 Disclose the process for evaluating the performance of senior executives 1.3 Provide the information indicated in the Guide to reporting on Principle 1 (cid:57) (cid:57) (cid:57) 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) 2.4 The Board should establish a nomination committee 2.5 Disclose the process for evaluating the performance of the Board, its committees and individual Directors (cid:57) (cid:57) 25 14-18 16 26 26 26 26 26 2.6 Provide the information indicated in Guide to reporting on Principle 2 (cid:57) 6-7, 11, 26-27 Principle 3: Promote ethical and responsible decision making 3.1 Establish a code of conduct and disclose the code or a summary of the code as to: • the practices necessary to maintain confidence in the Company’s integrity; the practices necessary to take into account their legal obligations and the reasonable • expectations of shareholders; and the responsibility and accountability of individuals for reporting and investigating reports • of unethical practices. 3.2 Establish a policy concerning trading in company securities by Directors, senior executives and employees and disclose the policy or a summary of that policy 3.3 Provide the information indicated in Guide to reporting on Principle 3 Principle 4: Safeguard integrity in financial reporting 4.1 The board should establish an audit committee 4.2 Structure the audit committee so that it: • consists of only non-executive Directors; • consists of a majority of independent Directors; • is chaired by an independent chair, who is not chair of the Board; and • has at least three members. 4.3 The audit committee should have a formal charter 4.4 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 executive level for that compliance and disclose those policies or a summary of those policies 5.2 Provide the information indicated in Guide to reporting on Principle 5 (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 27 27 27 31 27, 31 28 25 25 25 25 28 6-7, 11, 28 29 29 23 Corporate Governance Compliance Pages Principle 6: Respect the rights of shareholders 6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of the policy 6.2 Provide the information indicated in Guide to reporting on Principle 6 Principle 7: Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies (cid:57) (cid:57) (cid:57) 7.2 Board should require management to design and implement the risk management and (cid:57) 29 29 29-30 29-30 internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. 7.3 Board should disclose whether it has received assurance from the chief executive (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 7.4 Provide the information indicated in Guide to reporting on Principle 7 Principle 8: Remunerate fairly and responsibly 8.1 The Board should establish a remuneration committee 8.2 Clearly distinguish the structure of non-executive Directors’ remuneration from that of executive Directors and senior executives 8.3 Provide the information indicated in Guide to reporting on Principle 8 (cid:57) 29-30 (cid:57) (cid:57) (cid:57) (cid:57) 29-30 14 14-18 11, 14-15, 22 24 Corporate Governance The key corporate governance principles of the Fairfax Group are set out below. This section of the Annual Report, which is publicly available on the Company’s website at www.fxj.com.au, contains summaries of the Fairfax Board Charter, Nomination Committee Charter, Code of Conduct, Audit and Risk Committee Charter, Charter of Audit Independence, policy on market disclosure and shareholder communications, risk management policy and Securities Trading Policy (including policy on hedging unvested securities issued as part of remuneration). The Personnel Policy and Remuneration Committee Charter is summarised in the Remuneration Report. 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 (CEO); (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. Subject to the specific authorities reserved to the Board under the Board Charter and to the authorities delegated to the Board committees, the Board has delegated to the CEO responsibility for the management and operation of the Fairfax Group. The CEO is responsible for the day-to-day operations, financial performance and administration of the Fairfax Group within the powers authorised to him from time-to-time by the Board. The CEO may make further delegation within the delegations specified by the Board and is accountable to the Board for the exercise of these delegated powers. Membership of the Board and its committees at the date of this report is set out below. Director Membership Type Audit & Risk Nominations Remuneration COMMITTEE MEMBERSHIP Personnel Policy & RJ Walker DE Kirk* BK McCarthy* RC Corbett D Evans JB Fairfax N Fairfax JM King R Savage Independent Chair CEO CEO Independent Independent Non-Independent Non-Independent Independent Independent P Young Independent - - - Chair - - Member - Member Member Member - - - Member - Member Chair - - - - - Member Member Member - - - Chair * Mr Kirk resigned from the Company and the Board on 5 December, 2008. Mr McCarthy was appointed to the Board on 10 December, 2008. 25 Corporate Governance 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. 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. The Board has a Nominations Committee which reviews potential Board candidates when necessary. The Committee is comprised of a majority of non-executive Directors who are independent. The Committee may seek expert external advice on suitable candidates. The Board has adopted a formal Nominations Committee Charter. Under the Charter, the purpose of the Committee is to identify individuals qualified to become Board members and recommend them for nomination to the Board and its Committees; to ensure Board performance is reviewed regularly and to ensure the Board has an appropriate mix of skills. 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; and The Board should represent a broad range of expertise consistent with the Company’s strategic focus. Duties of the Nominations Committee include: • making recommendations to the Board on the size and composition of the Board; • • • • recommending individuals qualified to be Board members, taking into account such factors as it deems appropriate; identifying Board members to fill vacancies on the Committees; recommending the appropriate process for the evaluation of the performance of each director and the Board; and other duties delegated to it from time to time relating to nomination of Board or Committee members or corporate governance. The Board conducts a review of its structure, composition and performance annually. The Board may seek external advice to assist in the review process. During this financial year a review of Board performance was conducted with the assistance of an external consultant and the results and recommendations were discussed at the Board and various recommendations implemented. INDEPENDENT DIRECTORS Under the Board Charter, the majority of the Board and the Chair must be independent. A Director must notify the Company about any conflict of interest or potential material relationship. 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, criteria set out in the Board Charter and the ASX Recommendations. The Board has not set specific materiality thresholds, considering it more effective to assess any relationship on its merits on a case-by-case basis, and where appropriate with the assistance of external advice. The ASX Recommendations, in summary, state that the Board should consider whether the Director: • is a substantial shareholder or officer or associated with a substantial shareholder of the Company; • was employed in an executive capacity by the Group within the last three years; • within the last three years, was a principal of a material professional adviser or a material consultant or an employee materially associated with a service; 26 Corporate Governance • • is, or is associated with a material supplier or customer of the Group; and has a material contractual relationship with the Group other than as a Director. Mr John B Fairfax has a relevant share interest of approximately 9.7% 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 ASX Recommendations, neither is an independent Director. CODE OF CONDUCT All Directors, managers and employees are required to act honestly and with integrity. The Company has developed and communicated to all employees and Directors the Fairfax Code of Conduct. The Code assists in upholding ethical standards and conducting business in accordance with applicable laws. The Code also sets out the responsibility of individuals for reporting Code breaches. The Fairfax Code of Conduct aims 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 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 Code of Conduct is the Company’s range of 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. The Code of Conduct is a set of general principles relating to employment with Fairfax, covering the following areas: • • • • • • business integrity - conducting business with honesty, integrity and fairness; reporting concerns without fear of punishment; making public comments about the Company and disclosing real or potential conflicts of interest; professional practice - dealings in Fairfax shares; financial interests; protecting company assets and property; maintaining privacy and confidentiality; undertaking employment outside Fairfax; personal advantage, gifts and inducements, recruitment and selection; and company reporting; health, safety and environment; equal employment opportunity and anti-harassment; compliance with company policies; and implementation of and compliance with the Code of Conduct. The Code of Conduct is to be read in conjunction with the codes of ethics for each masthead and the other Fairfax policies as amended from time to time. 27 Corporate Governance 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 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 Fairfax Group and to monitor the quality and reliability of financial information for the Group. To carry out this role, the Committee: • • • recommends to the Board the appointment of 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; oversees policies and procedures aimed to ensure the Group has an effective business risk plan; ensures appropriate policies and procedures are in place for compliance with all legal, regulatory and ASX requirements; • • • • monitors compliance with regulatory and ethical requirements; • • • reviews the external audit process with the external auditor, including in the absence of management; reviews the performance of internal audit with input into the performance review and remuneration of the Internal Audit Manager; reviews and approves the internal audit plan and receives summaries of significant reports by internal audit; • meets with the Internal Audit Manager including in the absence of management if considered necessary; and • does anything else it considers necessary to carry out the above functions. Under its Charter, all members of the Committee must be non-executive Directors. Executives may attend by invitation. The Chair of the Committee is required to be independent and have relevant financial expertise and may not be the Chair of the Board. The members of the Audit and Risk Committee and details of their attendance at Committee meetings are set out on page 11. The Chair of the Committee may, at the Company’s expense, obtain external expert advice, obtain assistance and information from officers of the Group, and engage other support as reasonably required from time to time. CHARTER OF AUDIT INDEPENDENCE The Board has also adopted a Charter of Audit Independence which is posted on the Company’s website at www.fxj.com.au. The purpose of this Charter is to provide a framework for the Board and management to ensure that the external 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. The auditor is required to have regular communications with the Committee, at times without management present. Audit personnel must be appropriately trained, meet the required technical standards and maintain confidentiality. Restrictions are placed on non-audit work performed by the auditor. Non-audit fees above a fixed 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 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. 28 Corporate Governance MARKET DISCLOSURE AND SHAREHOLDER COMMUNICATIONS 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 the 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 or if the information would, or would be likely to, influence investors in deciding whether to buy, hold or sell Fairfax securities. The Chief Executive Officer, Chief Financial Officer, General Manager Investor Relations and Group General Counsel/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 communications 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. 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 Listing Rules and statutory reporting obligations, the Company actively encourages timely and ongoing shareholder communications. To ensure ready access for shareholders to information about the Company, Company announcements, annual reports, analyst and investor briefings, financial results and other information useful to investors such as press releases are placed on the Company’s website at www.fxj.com.au as soon as practical after their release to the ASX. Several years worth of historical financial information is available on the website. The results briefings given to analysts by senior management are webcast on the website. The full text of notices of meetings and the accompanying explanatory materials are posted on the website for each annual general meeting. The Chair’s and the Chief Executive Officer’s addresses, proxy counts and results of shareholder resolutions at the meeting are also posted on the website. At the annual general meeting, shareholders are encouraged to ask questions and are given a reasonable opportunity to comment on matters relevant to the Company. The external auditor attends the annual general meeting and is available to answer shareholder questions about the audit and the audit report. RISK MANAGEMENT AND INTEGRITY OF FINANCIAL REPORTING The Board has overseen the development of a risk management and internal compliance and control system. The system draws upon the ASX Corporate Governance Council’s Revised Supplementary Guidance to Principle 7 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 and internal compliance and control system are summarised as follows: • Risks are 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 and the effectiveness of the risk management system. 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. 29 Corporate Governance • 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 Company’s risk framework is overseen and monitored by both the Board and the Audit & Risk Committee. As part of the risk framework, specific policies and approval processes have been developed to cover key risk areas such as material investments and contracts, treasury, capital expenditure approval, occupational health and safety and environmental processes. The Company’s Internal Audit function comprises the Internal Audit Managers and a team of professionals who work through a schedule of prioritised risk areas across all the major business units to provide an independent risk assessment and evaluation of operating and financial controls. The Internal Audit function is independent from the external auditor and the Internal Audit Managers may meet with the Audit & Risk Committee in the absence of management. Internal Audit reports its results to each meeting of the Audit & Risk Committee and the Internal Audit Managers attend the meetings. The Board has received written assurances 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 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 28 June, 2009, and performance of the Company and consolidated entity for the period then ended as required by the Corporations Act 2001. (c) There are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable. (d) The financial records of the Company have been properly maintained in accordance with the Corporations Act 2001. (e) The statements made above regarding the integrity of the financial statements are founded on a sound system of financial risk management and internal compliance and control which, in all material respects, implements the policies adopted by the Board. (f) The risk management and internal compliance and control systems of the Company and consolidated entity relating to financial reporting compliance and operations objectives are operating efficiently and effectively, in all material respects. Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks. (g) Subsequent to 28 June 2009, no changes or other matters have arisen that would have a material effect on the operation of the risk management and internal compliance and control systems of the Company and consolidated entity. These statements to the Board are 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. REMUNERATION Information about the Board’s Personnel Policy and Remuneration Committee (PPRC), the PPRC Charter, the Company’s remuneration policies for non-executive Directors and the remuneration policies for the CEO and senior executives is set out in the Remuneration Report beginning on page 14. 30 Corporate Governance TRADING IN COMPANY SECURITIES Directors must not trade directly or indirectly in Fairfax securities while in possession of price sensitive information. Price sensitive information is information which has not been made public, 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 or which would be likely to influence an investment decision in relation to the securities. The Fairfax Securities Trading Policy regulates dealings by Directors and certain senior employees (“Designated People”) in Fairfax securities (including shares, convertible notes derivatives, and options). The purpose of the Policy is to ensure that Designated People comply with the legal and company-imposed restrictions on trading in securities whilst in possession of unpublished price sensitive information. The Policy sets out black out periods when no trading is to be undertaken and a process for authorisation of trading at other times. Designated People means Directors, the CEO, the Company Secretary, employees who report directly to the CEO and those employees who are notified that they are subject to the Policy. A Designated Person must not trade in breach of the Policy either directly or indirectly through another entity, such as a partner, child, nominee or controlled company acting on his/her behalf. Under the Policy, Designated People are prohibited from trading in Fairfax securities without approval under the Policy or when in possession of price-sensitive information about Fairfax. In addition, Designated People must not tip anyone else on Fairfax securities, engage in short term speculative trading in Fairfax securities or trade in Fairfax derivatives. Black-out periods occur before the announcement of the half-yearly and annual results, other trading updates and the annual general meeting during which Designated People will not be authorised to trade. Before trading outside black-out periods, Directors must obtain approval from the Chair (or the chairman of the Audit & Risk Committee for approvals for the Chair). Other Designated People must obtain approval from the Company Secretary who will consult with the Chair. Directors must notify the Company Secretary of any change in the Director’s interest in Company securities so as to ensure compliance with the disclosure requirements of the ASX Listing Rules. The Policy prohibits Designated People from entering into any financial transactions that operate to limit the economic risk of unvested Fairfax securities which have been allocated to an employee as part of his/her remuneration prior to the securities vesting. Any breach of this prohibition risks disciplinary sanctions. 31 Management Discussion & Analysis Report TRADING OVERVIEW Economic conditions during the past financial year have been very weak, which in turn resulted in large falls in advertising demand from the September/October period and accelerating particularly during the early part of the second half of the financial year. Volumes in all areas of the company’s activities were impacted to some degree. Publishing volumes were down and the rate of growth in the online transaction businesses was below previous levels. A consequence of the slowing conditions and volume reductions was general pressure on yields in most parts of the business. Australia and New Zealand advertising volumes followed similar patterns of decline. Classified advertising, particularly employment advertising, experienced the most significant volume decline with the major metropolitan publications experiencing greater falls than the regional and community titles. Radio experienced similar declines to the regional/community titles thus mitigating the full effects of the downturn on the major metropolitan titles. A significant amount of business restructuring was implemented during the year in anticipation of an extended economic downturn. Non recurring restructure and redundancy costs were incurred as a result with some benefit realised during the year and the full impact of the savings to be achieved in subsequent years. The downturn in trading also resulted in a non cash write down of the carrying value of the Group’s mastheads, licences and goodwill. These non recurring costs, together with write downs of the goodwill associated with the Southern Star television production business sold during the year, amounted to an after tax charge of $662 million in the year. Including these non recurring costs, the net loss attributable to members of the Company was $380 million. Excluding impairments and non recurring restructure charges, the underlying net profit after tax was $242 million, down from $395 million in the prior year. CASH FLOW Operating cash flow remains strong in relation to the Company’s profitability with $385 million generated during the year. Capital expenditure decreased slightly to $107 million compared to $115 million last year and well below the $117 million depreciation charge. The increase was mainly due to upgrades to printing plants in Australia and New Zealand and investments being made to improve both the editorial and financial systems across the Company. All of these investments meet our strict financial criteria and will generate significant benefits into the future. FINANCIAL POSITION Impairment charges and the equity raising completed in April 2009 have generated the major changes in the balance sheet over the past financial year. These changes have occurred in the Intangibles, Debt and Contributed Equity classification. Intangible assets have decreased by $604 million, largely reflecting the non cash impairment charges recognised this financial year. The impact of the decline in advertising volumes on earnings, coupled with the very uncertain trading outlook for calendar 2009, encouraged us to take action to strengthen the balance sheet via the issue of equity capital to shareholders. In April 2009 we completed a three for five accelerated non-renounceable pro-rata entitlement offer, raising a net $613 million. A total of 832.9 million shares were issued at a price of $0.75 with the proceeds applied to reduce borrowings. Existing debt facilities were retained however and funding flexibility has been maintained for the medium term in anticipation of capital markets returning to normal. The company also issued 5.5 million shares at $2.83 per share as part of the Dividend Reinvestment Plan, offset by the purchase of 5.0 million shares at various rates for the unvested employee incentive scheme. The Southern Star television production business was sold in April 2009 with the proceeds also applied to reduce outstanding drawings under loan facilities. With the net cash from operations after dividend payments, the cash from the equity raisings and the proceeds from the sale of Southern Star, the company’s net debt was reduced by $734 million over the course of the year. The Company remains well within all covenant limits at 28 June 2009. As can be seen from the graph below, the Company does not face any significant refinancing exposure for at least the next three years. 32 Management Discussion & Analysis Report ** A$300m SPS could be converted to equity in April 2011 * 2010 & 2011 maturities covered by over A$1,000m of cash and undrawn committed facilities AUD $m 1,000 750 500 250 0 Eurobond Issue US Private Placement III A$ Bank Syndication CBA Bank Facility NZD Redeemable Preference Share A$ Domestic MTN ASB NZ$ Facility US Private Placement II Chullora Financing 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Unfortunately, in May 2009 the company’s S&P credit rating was downgraded from BBB- to BB+ due to the impact of lower revenue levels and the uncertain advertising outlook. Although it will take a period of sustained compliance with S&P’s strict ratings metrics, the company believes it will be able to restore its investment grade rating in two to three years. DIVIDENDS Total ordinary dividends of $181.7 million were paid during the year, a decrease of $117.7 million on last year. These dividend payments are in line with the Board Policy announced in December 2008 whereby the dividend payout ratio was decreased to approximately 20% until the company’s trading performance and balance sheet position are improved. Dividends of $25.0 million were paid on the Stapled Preference Shares which was in line with the amount paid in 2008. No final dividend has been declared for the year. FRANKING With the combination of the downturn in trading levels and the restructuring and redundancy costs incurred, the company’s income tax payments in 2009 were substantially lowered. Accordingly, the level of franking credits has been significantly reduced and it is anticipated that dividends in the immediate future will be substantially unfranked. Franking levels are expected to be gradually restored to levels consistent with the proportion of Australian income during 2010. 33 Consolidated Income Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Revenue from operations Other revenue and income Total revenue and income Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note 2(A) 2(B) $'000 $'000 2,599,132 2,900,755 $'000 152 $'000 1,445 10,390 33,252 40,512 126,509 2,609,522 2,934,007 40,664 127,954 Share of net profits of associates and joint ventures 11(C) 2,050 8,735 - - Expenses from operations excluding impairment, depreciation, amortisation and finance costs Depreciation and amortisation 3(A) 3(B) (2,097,050) (2,097,973) (85,926) (86,003) (117,556) (108,295) (7,363) (9,514) Property, plant and equipment, intangible and investment impairment (569,091) (1,382) (214,000) Finance costs 3(C) (179,291) (211,919) (2) Net (loss)/profit from operations before income tax expense Income tax (expense)/benefit Net (loss)/profit from operations after income tax expense Net loss/(profit) attributable to minority interest Net (loss)/profit attributable to members of the Company Earnings per share (cents per share) Basic (loss)/earnings per share (cents per share) Diluted (loss)/earnings per share (cents per share) 5 26 27 27 - (5) 32,432 26,754 (351,416) 523,173 (266,627) (29,672) (135,683) 21,452 (381,088) 387,490 (245,175) 59,186 1,038 (612) - - (380,050) 386,878 (245,175) 59,186 (21.6) (21.6) 22.9 22.5 The above Income Statements should be read in conjunction with the accompanying Notes. 34 Consolidated Balance Sheets Fairfax Media Limited and Controlled Entities as at 28 June, 2009 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Derivative assets Assets held for sale Income tax receivable Other current assets Total current assets 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 assets 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 Pension liabilities Other non-current liabilities Total non-current liabilities Total liabilities NET ASSETS EQUITY Contributed equity Reserves Retained profits Total parent entity interest Minority interest TOTAL EQUITY Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 37(B) 69,124 93,864 1,680 680 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 17(A) 23 24 25 26 358,210 499,126 1,652,813 1,277,111 40,055 173 6,062 35,978 - 44,801 3,519 2,222 - 11,610 - - - 25,829 - - - - - - 509,602 655,142 1,680,322 1,277,791 2,474 46,668 2,157 13,216 3,683 45,690 3,547 14,686 398,566 401,122 - - - - - - 5,888,547 6,492,640 863,719 152,742 - 875,181 59,417 5,542 7,948 12,507 14,044 16,839 - - - - 114,907 128,561 10,706 9,200 1,175 - 122 8,890 2,924,215 - 3,143,723 - 7,085,605 7,637,959 3,353,942 3,584,928 7,595,207 8,293,101 5,034,264 4,862,719 330,045 14,946 15,900 300,479 183,557 26,757 128,692 2,454 15,816 1,006 159,837 5,456 - - 7,202 - 641,939 512,160 22,148 1,724,708 2,496,133 47,730 116,595 49,003 2,685 757 121,251 148,931 45,398 - 3,894 1,941,478 2,815,607 2,583,417 3,327,767 - - 9,867 401 - - 10,268 32,416 - - 7,385 14,279 37,564 - - 7,643 703 - - 8,346 45,910 5,011,790 4,965,334 5,001,848 4,816,809 4,928,122 4,318,409 4,934,237 4,324,524 (163,381) 237,604 (186,063) 821,987 3,987 63,624 1,750 490,535 5,002,345 9,445 4,954,333 11,001 5,001,848 - 4,816,809 - 5,011,790 4,965,334 5,001,848 4,816,809 The above Balance Sheets should be read in conjunction with the accompanying Notes. 35 Consolidated Statements of Recognised Income and Expense Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 Actuarial loss on defined benefit plans, net of tax Tax benefits recognised directly in equity Reclassification of tax benefits to equity Net income/(expense) recognised directly in equity Net (loss)/profit from continuing operations after income tax expense Total recognised income and expense for the financial period Total recognised income and expense attributable to minority interest Total recognised income and expense attributable Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 (8,021) (586) 22,046 24,281 28,219 (250,865) 833 (5,093) 7,502 - 22,854 (381,088) (358,234) 1,038 (801) (4,315) 8,427 7,833 (193,394) 387,490 194,096 (612) - - - - - - - - - - - - - - - (245,175) (245,175) - - 59,186 59,186 - to members of the Company (357,196) 193,484 (245,175) 59,186 The above Statements of Recognised Income and Expense should be read in conjunction with the accompanying Notes. 36 Consolidated Cash Flow Statement Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Cash flows from operating activities Receipts from customers (inclusive of GST) Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 2,957,559 3,192,965 - 673 Payments to suppliers and employees (inclusive of GST) (2,327,923) (2,461,003) (77,029) (76,173) Interest received Dividends and distributions received Finance costs paid Net income taxes paid 4,673 3,411 25,177 8,837 (182,962) (69,861) (209,511) (136,219) 40,512 - (2) 4,180 26,509 100,000 (6) (26,636) Net cash inflow/(outflow) from operating activities 37(A) 384,897 420,246 (32,339) 24,367 Cash flows from investing activities Payment for purchase of controlled entities, associates and joint ventures (net of cash acquired) Payment for purchase of businesses, including mastheads Payment for property, plant, equipment and software Proceeds from sale of property, plant and equipment Proceeds from sale of investments and other assets Payments for convertible notes Loans advanced to controlled entities Loans advanced to other parties Loans repaid by controlled entities (59,191) (586,735) (6,738) (8,189) - - (1,389) - (106,284) (115,403) (409) (7,031) 16,431 108,449 (1,100) - (17,056) - 5,181 6,481 - - - - 4 - - (400,316) - - - - - - - 150,085 Net cash (outflow)/inflow from investing activities (65,489) (698,665) (400,721) 141,665 Cash flows from financing activities Proceeds from issue of shares Proceeds from issue of shares to minority interest shareholders Share issue costs Payment for shares acquired by employee share trust Proceeds from borrowings and other financial liabilities Repayment of borrowings and other financial liabilities Repayment of medium term notes Payments of facility fees Dividends and distributions paid to shareholders including SPS* Dividends paid to minority interests in subsidiaries 624,640 91,808 624,640 91,808 80 (12,131) (12,443) - - (14,621) 22,511 352,763 (750,884) (150,149) - (12,131) (12,443) - - (14,621) - - - - - - - - - - (268,844) (570) (166,006) - (243,226) - (27,132) (1,908) (191,012) (461) Net cash (outflow)/inflow from financing activities (348,740) 10,387 434,060 (166,039) Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents at beginning of the financial year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the financial year 37(B) (29,332) (268,032) 1,000 93,864 4,592 69,124 366,307 (4,411) 680 - 93,864 1,680 (7) 687 - 680 * Under the terms of the DRP, $15.7 million (2008: $56.2 million) of dividends were paid via the issue of 5,558,472 ordinary shares (2008: 12,820,970 ordinary shares). A cash dividend payment of $166.0 million (2008: $243.2 million) was made to ordinary shareholders that did not elect to participate in the DRP. Total cash dividends for the year totalled $191.0 million (2008: $268.8 million); this includes $25.0 million (2008: $25.6 million) made to stapled preference shareholders (SPS). The above Cash Flow Statements should be read in conjunction with the accompanying Notes. 37 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 30 June 2008 to 28 June 2009 (2008: the period 2 July 2007 to 29 June 2008). Reference in this report to 'a year' is to the period ended 28 June 2009 or 29 June 2008 respectively, unless otherwise stated. (A) BASIS OF PREPARATION 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 Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. As at 28 June 2009, the consolidated entity has net current liabilities of $132.3 million. The consolidated entity has sufficient committed but unused facilities at the balance sheet date to finance its liabilities as and when they fall due, including maturing liabilities as disclosed in Note 21(B). In the opinion of the directors, Fairfax Media Limited will be able to continue to pay its debts as and when they fall due. As a result the financial report of the Company and its controlled entities has been prepared on a going concern basis. 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 assets which are measured at fair value. The carrying values of recognised 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. Comparatives Certain comparative amounts have been reclassified to be consistent with current year presentation. (B) PRINCIPLES OF CONSOLIDATION (i) Controlled entities The consolidated 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 consolidated entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of controlled entities by the Group (refer to Note 1(C)). All inter-entity transactions, 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. 38 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 consolidated financial statements as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in associates and joint ventures. (C) ACCOUNTING FOR ACQUISITIONS The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred 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 price 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. Transaction costs arising on the issue 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 cost of acquisition over the fair value of the net identifiable assets acquired represents goodwill (refer to Note 1(E)(i)). (D) IMPAIRMENT OF 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 circumstances indicate 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 which 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 discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 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 assesses 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 carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. (E) INTANGIBLES (i) Goodwill Goodwill represents the excess of cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is allocated to cash-generating units for the purposes of impairment testing (refer Note 1(D)). Goodwill is not amortised. 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 losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 39 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (ii) Other intangible assets Mastheads and tradenames The newspaper mastheads and tradenames have been assessed to have indefinite useful lives. Accordingly, 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 losses. 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 directors 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 assessed to have indefinite useful lives. Accordingly, 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 losses. 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 costs 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. These costs are amortised using the straight-line method over three to five years. Other Other intangibles, where applicable, are stated at cost less accumulated amortisation and impairment losses. The useful lives of the intangible assets are assessed 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 capitalised and are expensed in the income statement in the period the expenditure is incurred. 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 functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation and qualifying cash flow hedges, which are deferred in equity until disposal. Tax charges and credits attributable to exchange differences on borrowings are also recognised in equity. 40 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Translation differences on non-monetary items that are measured in terms of historical cost 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 using 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 each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement are translated at average exchange rates; and all resulting exchange differences 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 separate 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 acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (G) REVENUE RECOGNITION 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 services 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 recognised 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 financial asset. Revenue from the contribution of services and materials during the production of television programs and the licensing of copyright is recognised 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 accordance 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 basis in accordance with the agreement and is only brought to account where the amount of the royalty can be reliably estimated and collection is reasonably assured. (H) INCOME TAX AND OTHER TAXES The income 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 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 financial reporting purposes. 41 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Deferred income tax liabilities are recognised 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 business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect 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 reverse 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 losses 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 respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying 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 recognised net of the amount of GST except: (i) where the GST incurred on a purchase 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 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 recoverable 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 basis 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 Australian entities have implemented the tax consolidation legislation as of 1 July 2003. The current and deferred tax amounts for each member in the tax consolidated group (except for the head entity) have been allocated based on stand-alone calculations that are modified to reflect membership of the tax consolidated group. 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. 42 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate 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 losses or unused tax credits transferred to Fairfax Media Limited under the tax consolidation legislation. Assets or liabilities arising under tax funding arrangements with the tax consolidated 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 receiving substantially all the risks and rewards of ownership of the asset 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 finance lease obligation, net of finance charges, is included within interest bearing liabilities. The interest element is allocated to accounting periods during the lease 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. (iii) Onerous property costs Property leases are considered to be an onerous contract if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Where a decision has been made to vacate the premises or there is excess capacity and the lease is considered to be onerous, a provision is recorded. (J) CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, deposits held at call 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 OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost which is the original invoice amount less an allowance for any uncollectible amount. Collectability 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 collect the debts. Interest receivable on related party loans is recognised on an accruals basis. (L) INVENTORIES Inventories including work in progress 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 assessed as the cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity; and in the case of other inventories, cost is assigned by the weighted average cost method. 43 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Program copyright Expenditure incurred in relation to film and television program copyright is capitalised and allocated against future licensing revenue. Licensing revenue forecasts 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 FOR 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 prices and unrealised gains and losses arising from changes in the fair value are recognised in the asset revaluation reserve. The assets are included in non-current assets 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 loss, 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 consolidated entity classifies 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 those 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 the possibility it will be sold in the short term and the asset is subject 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 statement 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 amortised cost using the effective interest method. (iii) Other financial assets These assets are non-derivatives that are either designated or not classified 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 losses 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 financial 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 assets are measured at amortised cost 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 unless 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 financial liabilities other than derivatives are carried at amortised cost. 44 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 The Group uses derivative financial instruments such as forward foreign currency contracts, 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 recognised 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 loss 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 similar maturity profiles. The fair value of interest rate swap contracts 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 cash 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 asset 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 asset 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 recognised 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 consolidated 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 accounting. 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 arising from changes in fair value are taken directly to the income statement. (O) OTHER ASSETS Film investments Costs associated with acquiring film investments 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. 45 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Distribution advances and costs Advances 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 costs 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 assets, including internal labour and interest, are also capitalised 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 based upon the present value of expected future cashflows. Depreciation and amortisation Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Buildings Printing presses up to 60 years up to 20 years Other production equipment up to 15 years Other equipment 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 estimated 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 Group has a legal, equitable or constructive 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 can 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 balance date. 46 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Finance lease liabilities are determined in accordance 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 losses net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate. There were no borrowing costs capitalised during either of the past 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 provision 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 possible, 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 cost of share based payments is recognised over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each reporting date until vesting, the cumulative charge to the income statement is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest, taking into account 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 issued to employees for no cash consideration 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 which have not yet vested to the employee as at reporting date are offset against contributed equity of the Group (refer to Note 1(U)). 47 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (iii) Defined benefit superannuation plans Fairfax Media Limited and certain controlled entities participate in a number of superannuation plans. An asset or liability 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 cost. 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 accepts voluntary redundancy in exchange 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 encourage voluntary redundancy. (v) Bonus plans The Group recognises a provision and an expense for bonuses where contractually obliged or where there is a past 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 acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the Group reacquired its own equity instruments, e.g. 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 shares and rank equally with such shares 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 conversion 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. 48 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 financial 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 shares 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 subject 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. Business segments are the consolidated entity’s primary reporting format. (X) SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The carrying amounts of certain assets 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 estimation 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 carrying 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 course 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 using 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. These assumptions and the related carrying amounts are discussed in Note 17. 49 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (v) Held to maturity investments The Group follows the AASB 139 guidance on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments 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 reserve 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 consolidated 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 accordance with that Class Order, unless otherwise indicated. (Z) NEW ACCOUNTING STANDARDS AND UIG INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not mandatory for 28 June 2009 reporting periods. The Group and the Company's assessment of the impact of these new standards and interpretations is set out below: Reference Title Summary Application date of standard* Impact on Group financial report 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 January 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 January 2009 AASB 101 (Revised) and AASB 2007-8 Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards 1 January 2009 Introduces 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 reclassifications 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 standard so will have no direct impact on the amounts included in the Group's financial statements. The amendments may have an impact on the Group’s segment disclosures in fiscal 2010. These amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. The Group 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. These amendments are only expected to affect the presentation of the Group’s financial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the financial report. The Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements. Application date for Group* 29 June 2009 29 June 2009 29 June 2009 50 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Reference Title Summary 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 term '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. Application date of standard* 1 January 2009 Impact on Group financial report The 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. Application date for Group* 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 certain specified features, to classify those instruments as equity rather than financial liabilities. 1 January 2009 These 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 instruments as defined by the amendments. The Group has not yet concluded on which accounting policy to adopt. 29 June 2009 29 June 2009 1 July 2009 AASB 3 (Revised) Business Combinations AASB 127 (Revised) Consolidated and Separate Financial Statements Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate AASB 2008-3 Amendments to International Financial Reporting Standards 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. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively. 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 29 June 2009 If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or a loss in the Group’s income statement. 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 29 June 2009 1 January 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). The 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. 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. In addition, if the Group enters 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. 51 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Reference Title Summary Improvements to IFRSs Amendments to International Financial Reporting Standards IFRIC 16 Hedges of a Net Investment in a Foreign Operation AASB Int.17 and AASB 2008-13 Distributions of Non-cash Assets to Owners and consequential amendments to Australian Accounting Standards AASB 5 and AASB 110 AASB Int 18 Transfers of Assets from Customers The improvements project is an annual project that provides a mechanism for making non- urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. 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 ventures, associates or branches. The interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-offs, split offs or demergers and in-specie distributions Application date of standard* 1 January 2009 except for amendments to IFRS 5, which are effective from 1 July 2009. 1 January 2009 Impact on Group financial report The Group has not yet determined the extent of the impact of the amendments, if any. Application date for Group* 29 June 2009 29 June 2009 The Interpretation is unlikely to have any impact on the Group since it does not significantly restrict the hedged risk or where the hedging instrument can be held. 1 July 2009 The interpretation is unlikely to have any impact on the Group. 29 June 2009 This interpretation provides guidance on the transfer of assets such as items of property, plant and equipment or transfers of cash received from customers. The interpretation provides guidance on when and how an entity should recognise such assets and discusses the timing of revenue recognition for such arrangements and requires that once the asset meets the condition to be recognised at fair value, it is accounted for as an exchange transaction. Applies prospectively to transfers of assets from customers received on or after 1 July 2009 The Group has not yet determined the extent of the impact of the amendments, if any. 29 June 2009 AASB 2008-8 Amendments to Australian Accounting Standards - Eligible Hedged Items AASB 2009-2 Amendments to Australian Accounting Standard- Improving Disclosures about Financial Instruments (AASB 4,AASB 7, AASB 1023 & AASB 1038) The amendment to AASB 139 clarifies how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item is being hedged and (ii) inflation in a financial hedged item existed or was likely to exist. The main amendment to AASB 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy: - quoted prices in active markets for identical assets or liabilites(level1) - inputs other than quoted price included in level 1 that are observable for the asset or liability, either directly or indirectly; and- inputs for the assets or liabilities that are not based on observable market data. The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7. 1 July 2009 The Group has not yet determined the extent of the impact of the amendments, if any. 29 June 2009 1 January 2009 The Group has not yet determined the extent of the impact of the amendments, if any. 29 June 2009 52 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Application date of standard* 1 July 2009 Impact on Group financial report The Group has not yet determined the extent of the impact of the amendments, if any. Application date for Group* 29 June 2009 1 January 2010 No major impact expected on the Group. 28 June 2010 1 January 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 28 June 2010 Reference Title Summary AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project (AASB 2 and AASB 138 and AASB Intp 9 & 16) AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvement Project (AASB 5,8,101,117, 118, 136 & 139) Amendments to IFRS 2 Amendments to International Financial Reporting Standards The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. The main amendment of relevance is that made to IFRIC 16 which allows qualifying hedge instruments to be held by and entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements in AASB 139 that relate to a net investment hedge are satisfied. More hedge relationships will be eligible for hedge accounting as a result of the amendment. The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. The amendments clarify the accounting for group cash settled share based payment transactions in particular the scope of AASB 2 and the interaction between IFRS2 and other standards. An entity that receives goods or services in a share based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction and no matter whether the transaction is settled in shares or cash. The amendments also incorporate guidance previously included in IFRIC 2 and IFRIC 11/IFRS 2-Group and Treasury Share Transactions. As a result, IFRIC 8 & 11 have been withdrawn. *designates the beginning of the applicable annual reporting period unless otherwise stated 53 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 2. Revenues (A) REVENUE FROM OPERATIONS Revenue generated from sales of: Newspapers and magazines Broadcasting Television production Online and other Total revenue from sale of goods Revenue from printing and other services Total sales revenue (B) OTHER REVENUE AND INCOME Interest income Wholly owned controlled entities Other corporations Dividend/distribution revenue Wholly owned controlled entities Other corporations Net gain on sale of property, plant and equipment Net gain on foreign exchange Other Total other revenue and income Total revenue and income Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 1,977,187 2,276,638 106,320 57,046 359,371 77,538 98,176 327,508 2,499,924 99,208 2,779,860 120,895 2,599,132 2,900,755 - - - 152 152 - 152 - - - 1,445 1,445 - 1,445 - - 40,270 26,368 4,430 25,044 242 141 - 36 757 - 5,167 - 128 2,430 2,933 2,717 - - - - - 100,000 - - - - 10,390 33,252 40,512 126,509 2,609,522 2,934,007 40,664 127,954 54 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 3. Expenses (A) EXPENSES BEFORE IMPAIRMENT, DEPRECIATION, AMORTISATION AND FINANCE COSTS Staff costs excluding staff redundancy costs Staff redundancy costs Newsprint and paper Distribution and other production costs Promotion and advertising costs Rent and outgoings Repairs and maintenance Communication costs News services Computer costs Fringe benefits tax, travel and entertainment Royalties and copyright payments Professional fees Other Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 939,358 79,727 265,161 289,810 115,143 68,115 32,139 25,663 18,843 22,316 30,030 24,826 951,943 11,423 311,807 313,006 108,572 62,434 32,426 24,056 16,522 19,917 34,886 44,985 26,424 11,631 35,654 7,446 - - 158 3,989 2,051 1,931 70 7,005 1,126 123 - 2 343 1,538 6,769 931 31 5,884 2,263 10 40,849 145,070 35,947 130,049 10,614 20,804 9,942 15,190 Total expenses before impairment, depreciation, amortisation, and finance costs 2,097,050 2,097,973 85,926 86,003 (B) DEPRECIATION AND AMORTISATION Depreciation of freehold property Depreciation of plant and equipment Amortisation of leasehold property/buildings Amortisation of software Amortisation of customer relationships Total depreciation and amortisation (C) FINANCE COSTS Finance costs External corporations/persons Finance lease Total finance costs (D) DETAILED EXPENSE DISCLOSURES Operating lease rental expense Defined contribution fund expense Share based payments expense Net foreign exchange loss 5,199 80,227 2,905 27,307 1,918 4,860 79,834 2,303 19,385 1,913 117,556 108,295 174,503 4,788 207,124 4,795 179,291 211,919 48,965 58,222 2,237 2,152 43,583 56,053 4,429 - - 2,523 181 4,659 - 7,363 2 - 2 3,199 2,439 2,237 - - 7,183 41 2,290 - 9,514 5 - 5 507 2,460 4,429 - 55 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 4. Significant items The profit after tax from operations includes the following items where disclosure is relevant in explaining the financial performance of the consolidated entity. Property - Comprising: Property costs associated with the relocation from Darling Park to the new facility at One Darling Island, Pyrmont Onerous lease property costs * Income tax benefit Property loss, net of tax Intangible and investment impairments - Comprising: Impairment of mastheads, licences, goodwill and investments Loss on sale of Southern Star Group Income tax benefit Intangibles and investment impairments, net of tax - (2,398) (8,857) 2,657 (6,200) - 719 (1,679) - - - - (512,987) (38,721) 6,558 (545,150) - - - - (214,000) - - (214,000) Property, plant and equipment impairment and restructuring - Comprising: Impairment of property, plant and equipment Restructuring and redundancy charges Income tax benefit Property, plant and equipment impairment and restructuring, net of tax (23,228) (85,694) 32,668 (76,254) 778 (10,419) 2,893 (6,748) Gain on repurchase of medium term notes 5,167 - - - - - - Net significant and non-recurring items after income tax expense (622,437) (8,427) (214,000) * Onerous lease property costs include costs resulting from excess space due to restructure and relocation to new premises in the Group and the resulting write off of assets and fixtures that could not be relocated. - - - - - - - - - - - - - - 56 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 5. Income tax expense Income tax expense is reconciled to prima facie income tax payable as follows: Net (loss)/profit before income tax expense (351,416) 523,173 (266,627) 32,432 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 Prima facie income tax at 30% (2008: 30%) Tax effect of differences: Share of net losses/(profits) of associates and joint ventures Capital gains taxable/(not taxable) Non assessable dividends Over provision in prior financial years Overseas tax rate and accounting differentials (105,425) 156,952 (79,988) 9,730 21 9,397 (9) (1,476) (6,017) (74) - 1,652 - (8,592) (2,633) (5,763) (20,428) (13,876) - Temporary differences not recognised on intangible and other asset write-offs 151,004 - 64,200 Non-deductible items Non-deductible depreciation and amortisation Intragroup provision transfers Other Income tax expense/(benefit) Current income tax expense/(benefit) Deferred income tax expense/(benefit) Over provision in prior financial years 2,286 16 - 1,402 29,672 21,473 16,791 (8,592) 2,555 - - 252 135,683 156,532 (18,216) (2,633) 430 - (1,645) (338) (21,452) (21,673) 5,984 (5,763) - - (30,000) (2,396) - - 1,519 - (5,607) - (26,754) (20,548) (3,810) (2,396) Income tax expense/(benefit) in the income statement 29,672 135,683 (21,452) (26,754) 57 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 6. Dividends paid and proposed (A) ORDINARY SHARES Interim 2009 75% franked dividend: 2 cents - paid 19 March 2009 (2008: 75% franked 10 cents - paid 31 March 2008) 30,382 151,418 30,382 151,418 Final 2008 75% franked dividend: 10 cents - paid 2 October 2008 (2007: fully franked 10 cents - paid 27 September 2007) Total dividends paid - ordinary shares 151,354 147,964 151,354 147,964 181,736 299,382 181,736 299,382 (B) STAPLED PREFERENCE SHARES (SPS) SPS dividend: 2009: $3.3580 per share - paid 30 April 2009 2009: $4.8138 per share - paid 31 October 2008 2008: $4.3341 per share - paid 30 April 2008 2008: $4.0404 per share - paid 31 October 2007 Total dividends paid - SPS Total dividends paid 10,276 14,730 - - 25,006 - - 13,262 12,356 25,618 - - - - - - - - - - 206,742 325,000 181,736 299,382 (C) DIVIDENDS PROPOSED AND NOT RECOGNISED AS A LIABILITY Since balance date no dividends have been declared. (D) FRANKED DIVIDENDS Franking account balance as at balance date at 30% (2008: 30%) Franking credits that will arise from the payment of income tax payable balances as at the end of the financial year Company Company 2009 $'000 2008 $'000 1,158 10,030 - 7,927 Total franking credits available for subsequent financial years based on a tax rate of 30% 1,158 17,957 On a tax-paid basis, the Company’s franking account balance is approximately $1.2 million (2008: $10.0 million). The Company expects to have sufficient franking account credits arising from payment of income tax payable. 58 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 311,521 (9,839) 439,427 (9,515) 301,682 429,912 - - - - - - - 15,936 11,264 29,328 - 1,651,230 1,273,644 274 16,771 52,169 21 1,236 326 - 2,624 843 358,210 499,126 1,652,813 1,277,111 - 2,189 - 285 2,474 - 398,566 398,566 1,102 2,008 573 3,683 - - - - 2,008 548 398,566 401,122 * 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 IMPAIRED TRADE DEBTORS As at 28 June 2009, trade debtors of the Group with a nominal value of $9.8 million (2008: $9.5m) were impaired and fully provided for. Refer to Note 38(C) for the factors considered in determining whether trade debtors are impaired. As at 28 June 2009, an analysis of trade debtors that are not considered as impaired is as follows: Not past due Past due 0 - 30 days Past due 31 - 60 days Past 60 days Consolidated Consolidated Company Company 2009 $'000 158,656 115,251 14,246 13,529 2008 $'000 239,371 148,590 21,151 20,800 301,682 429,912 2009 $'000 2008 $'000 - - - - - - - - - - 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. 59 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 net realisable value Finished goods - at cost Work in progress - at cost Total inventories 9. Assets held for sale Freehold land and buildings Total assets held for sale Consolidated Consolidated 2009 $'000 9,515 5,982 - (5,691) 33 9,839 2008 $'000 5,711 4,081 2,469 (2,566) (180) 9,515 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 37,019 2,962 74 40,055 39,225 3,852 1,724 44,801 - - - - - - - - 6,062 6,062 2,222 2,222 - - - - A decision was taken prior to 28 June 2009 to sell two properties based in Australia and the UK. On remeasure of the properties at the lower of carrying amount and fair value less costs to sell, an impairment charge of $1.2 million was recognised against the assets. The sale of the Australian based property is due to settle in the next nine months. The UK property is being actively marketed. 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 60 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 - - - - - - - - 5,903 12,449 (6,742) 5,707 11,610 29,847 (20,957) 8,890 - - - - - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 11. Investments accounted for using the equity method Shares in associates Shares in joint ventures Total investments accounted for using the equity method (A)(i) (B)(i) 26,632 20,036 46,668 14,764 30,926 45,690 - - - - - - (A) INTERESTS IN ASSOCIATES Name of Company Principal Activity Australian Associated Press Pty Ltd News agency business and information service Place of Incorporation Australia Ownership interest 28 June 2009 29 June 2008 47.0% 47.0% Autobase Limited E-commerce: online vehicle dealer New Zealand 25.4% 25.4% automotive website Digital Radio Broadcasting Melbourne Digital audio broadcasting Australia 18.0% 18.0% Pty Ltd* Digital Radio Broadcasting Perth Digital audio broadcasting Australia 33.4% 33.4% Pty Ltd* Digital Radio Broadcasting Brisbane Digital audio broadcasting Australia 25.0% 25.0% Pty Ltd* Digital Radio Broadcasting Sydney Digital audio broadcasting Australia 11.3% 9.0% Pty Ltd* Earth Hour Limited Environmental promotion Executive Publishing Network Pty Ltd** Magazine publishing Guardian Print Limited Printing facility Australia 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 33.3% 30.0% 25.0% 50.0% 45.5% 49.2% 33.3% 30.0% 25.0% 50.0% 45.5% 49.2% NGA.net Pty Ltd Provider of e-recruitment software Australia 30.0% 30.0% to corporations Online Marketing Group Pty Limited*** E-commerce: Online marketing Perth FM Facilities Pty Ltd Rental of a transmission facility Times Newspapers Limited Newspaper publishing Australia Australia New Zealand 48.0% 33.3% 49.9% - 33.3% 49.9% * Investments in Digital Radio Broadcasting companies acquired on 28 April 2008. ** This company was deregistered on 22 July 2009. *** Investment was acquired on 22 October 2008. 61 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (i) Carrying amount of investment in associates Balance at the beginning of the financial year Investments in associates acquired during the year Adjustment for foreign exchange revaluation Share of associates' net (loss)/profit after income tax expense Dividends received/receivable from associates Investments in associates disposed during the year Balance at end of the financial year (ii) Share of associates' profits (Loss)/profit before income tax expense Income tax benefit/(expense) Net (loss)/profit after income tax expense (iii) Share of associates' assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities (B) INTERESTS IN JOINT VENTURES Consolidated Consolidated 28 June 2009 29 June 2008 $'000 $'000 14,764 12,641 19 (405) (387) - 13,545 100 (868) 2,427 (340) (100) 26,632 14,764 (450) 45 (405) 2,607 (180) 2,427 13,969 23,633 37,602 9,894 4,176 14,070 10,434 21,436 31,870 5,739 3,104 8,843 Name of Company Advantate Pty Ltd Principal Activity Place of Incorporation Ownership interest 28 June 2009 29 June 2008 E-commerce: Online Marketing Australia 50.0% 50.0% - - 50.0% 50.0% 50.0% - 50.0% 50.0% 50.0% 50.0% 49.0% 49.0% - 50.0% 50.0% 50.0% 50.0% 50.0% 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 Australia Fermax Distribution Company Pty Ltd** Letterbox distribution of newspapers Australia Gilgandra Newspapers Pty Ltd Newspaper publishing and printing Australia Gippsland Regional Partnership Newspaper publishing and printing Australia Hi-5 Operations Pty Ltd* Television program production Australia The Columbia Group Pty Ltd Newspaper publishing and printing Australia Torch Publishing Company Pty Ltd Newspaper publishing and printing Australia * Investment in joint venture was disposed of as part of the sale of the Southern Star Group on 6 April 2009. ** Investment was acquired on 2 July 2008. 62 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (i) Carrying amount of investment in joint ventures Balance at the beginning of the financial year Share of joint ventures' net profit after income tax expense Interests in joint venture acquired during the year Dividends received/receivable from joint venture Investment in joint venture disposed during the year Balance at end of the financial year (ii) Share of joint ventures' profits Revenues Expenses Profit before income tax expense Income tax expense Net profit after income tax expense (iii) Share of joint ventures' assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities (C) SHARE OF NET PROFITS OF ASSOCIATES AND JOINT VENTURES Profit before income tax expense Income tax expense Net profit after income tax expense Consolidated Consolidated 28 June 2009 29 June 2008 $'000 $'000 30,926 2,455 1,150 (3,023) (11,472) 20,933 6,308 12,053 (8,368) - 20,036 30,926 27,845 (24,477) 31,999 (23,991) 3,368 (913) 2,455 8,008 (1,700) 6,308 4,151 18,720 22,871 2,491 465 2,956 17,636 10,840 28,476 9,559 1,154 10,713 2,918 (868) 2,050 10,615 (1,880) 8,735 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 12. Available for sale investments Listed equity securities - at fair value Total available for sale investments 2,157 2,157 3,547 3,547 - - - - Available for sale investments consist of investments in ordinary shares and have no fixed maturity date. During the financial year, an impairment charge of $2.2 million (2008: $1.4 million) was recognised in the income statement in respect of several investments due to a significant decline in the share price of the investments during the financial year. 63 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 13. Held to maturity investments Bonds Total held to maturity investments 13,216 13,216 14,686 14,686 - - - - 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). 14. Intangible assets Mastheads and tradenames Software Customer relationships Radio licences Goodwill Total intangible assets Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 3,353,633 3,715,455 - - 61,726 12,380 62,250 14,298 132,217 2,328,591 146,245 2,554,392 7,948 14,044 - - - - - - 5,888,547 6,492,640 7,948 14,044 64 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 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 Period ended 29 June 2008 Balance at beginning of the financial year 17,000 16,411 3,788,983 53,136 2,255,513 6,131,043 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 - (6,369) 135,614 - - - - (200) (1,913) - 27,035 28,864 - 39,885 - (140,448) (106) 1,438 (19,385) (1,697) 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 Cost Accumulated amortisation and impairment 146,245 - 17,103 (2,805) 3,722,121 (6,666) 188,748 (126,498) 2,554,392 - 6,628,609 (135,969) Net carrying amount 146,245 14,298 3,715,455 62,250 2,554,392 6,492,640 Period ended 28 June 2009 Balance at beginning of the financial year 146,245 14,298 3,715,455 62,250 2,554,392 6,492,640 Additions Disposals Acquisition of business combinations Amortisation charge Impairment Exchange differences 27 - 10,406 - - - 662 - 1,723 3(B) - (1,918) - (27,307) (24,461) - - - (381,270) 17,063 - 85 (138,045) 6,530 26,345 - 27,034 (4,298) (93,692) (97,990) 4,651 (594) - 16,186 (29,225) (543,776) 23,678 At 28 June 2009, net of accumulated amortisation and impairment 132,217 12,380 3,353,633 61,726 2,328,591 5,888,547 At 28 June 2009 Cost Accumulated amortisation and impairment 156,678 (24,461) 17,103 (4,723) 3,732,273 (378,640) 211,432 (149,706) 2,435,308 (106,717) 6,552,794 (664,247) Net carrying amount 132,217 12,380 3,353,633 61,726 2,328,591 5,888,547 (ii) Company At 1 July 2007 Cost Accumulated amortisation and impairment Net carrying amount - - - - - - - - - 56,466 (35,049) 21,417 - - - 56,466 (35,049) 21,417 65 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 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 Period ended 28 June 2009 Balance at beginning of the financial year Additions Disposals Amortisation charge Intercompany transfers 3(B) At 28 June 2009, net of accumulated amortisation and impairment At 28 June 2009 Cost Accumulated amortisation and impairment Net carrying amount - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 21,417 1,833 (35) (2,290) (6,881) 14,044 53,392 (39,348) 14,044 14,044 576 (4) (4,659) (2,009) 7,948 53,776 (45,828) 7,948 - - - - - - - - - - - - - - - - - - Total $'000 21,417 1,833 (35) (2,290) (6,881) - 14,044 53,392 (39,348) 14,044 14,044 576 (4) (4,659) (2,009) - 7,948 53,776 (45,828) 7,948 (iii) Impairment 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 regions. The recoverable amount of each CGU which includes goodwill or indefinite life intangibles has been reviewed. The recoverable amount of each CGU is determined based on value-in-use calculations using a five year cashflow projection and a terminal value. This method resulted in a higher recoverable amount than the fair value less costs to sell method. These calculations use cash flow projections based on financial budgets approved by the Directors for the 2010 financial year, after an adjustment for central overheads. Cash flows beyond the 2010 period are extrapolated using the estimated growth rates stated at (v) below. The growth rates do not exceed the long-term average historical growth rate for the businesses in which the CGU operates. 66 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (iv) Allocation of goodwill and non-amortising intangibles to CGUs For the financial year ended 28 June 2009, the consolidated entity allocated goodwill and non-amortising intangibles to the following CGU Groups: Allocation of goodwill to CGU Groups New South Wales Metropolitan and Community Publications Victorian Metropolitan and Community Publications Regional Publications Business Publications Agricultural Publications New Zealand Publications Australian Digital New Zealand Digital Fairfax Radio Networks and Southern Star Group * Fairfax 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 Publications 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 * Southern Star Group was disposed of on the 6 April 2009. No goodwill or indefinite life intangibles are allocated to a CGU in the Company. Consolidated Consolidated 28 June 2009 29 June 2008 $'000 $'000 14,485 54,854 11,795 54,623 231,139 230,338 2,128 20,521 - 70,911 576,093 178,937 577,910 601,613 16,216 39,863 2,824 66,969 568,299 363,230 577,910 622,325 2,328,591 2,554,392 434,082 443,711 650,779 436,906 1,082,339 1,175,697 162,523 362,608 833,753 8,450 26,167 132,217 167,050 371,480 879,181 8,450 25,912 146,245 3,485,850 3,861,700 5,814,441 6,416,092 67 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (v) Key assumptions used for value-in-use calculations The key assumptions on which management has based its cashflow projections when determining the value-in-use calculations of the CGUs are as follows: • • • • • • no significant increase in budgeted gross margin or growth rate from the 28 June 2009 financial year for fiscal 2010. This is based on past performance, anticipated market conditions and expected efficiency improvements. growth rates of 3% for digital transaction CGUs, between 5% to 12.5% for publication CGUs and between 10% to 12.5% for combined online/publication CGUs for years 1 to 5. the weighted average growth rates used are consistent with forecasts included in industry reports. the budgeted exchange rate prevailing at balance date is used when converting foreign cashflows on foreign mastheads. The exchange rate of 1.30 has been applied to New Zealand mastheads. the post-tax discount rate applied to the cash flow projections was 9.8% (2008: 10.5%). a terminal value of 2.75% has been used (2008: 3%) for cashflows from year 6 onwards. (vi) Impact of possible change in key assumptions If the discount rate applied to the cash flow projections was increased to 10%, an aggregated impairment of $55.2 million would result across three CGUs. If a 10.5% discount rate was applied an aggregated impairment of $403.7 million would result across various CGUs. Management does not consider that there are any other reasonably possible changes in any of the key assumptions which would cause the carrying amount of any of the CGU Groups to exceed its recoverable amount. 15. Property, plant and equipment Freehold land and buildings At cost Provision for depreciation Total freehold land and buildings Leasehold buildings At cost Provision for depreciation Total leasehold buildings Plant and equipment At cost Provision for depreciation Total plant and equipment Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 272,176 (25,895) 266,515 (22,228) 246,281 244,287 - - - - - - 84,811 (20,560) 80,897 (18,325) 64,251 62,572 2,193 (414) 1,779 256 (116) 140 1,173,383 (710,076) 1,163,748 (679,664) 39,078 (29,248) 37,740 (26,268) 463,307 484,084 9,830 11,472 Capital works in progress - at cost 89,880 84,238 898 5,227 Total property, plant and equipment 863,719 875,181 12,507 16,839 68 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 RECONCILIATIONS Reconciliations of the carrying amount of each class of property, plant and equipment during the financial year are set out below: Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Total $'000 (i) Consolidated 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 65,094 519,611 860,044 1,683 (6,699) 25,329 (4,860) (1,096) - (6,298) 816 (89) 1,616 (2,303) (1,126) (1,082) (354) 37,089 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 Period ended 28 June 2009 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 Impairment Exchange differences At 28 June 2009, net of accumulated depreciation and impairment 3(B) 9 84,238 6,194 (402) - - - - - (150) 244,287 10,440 (478) 2,703 (5,199) (5,527) (235) (511) 801 62,572 6,248 (1,732) 442 484,084 81,572 (2,449) 1,823 875,181 104,454 (5,061) 4,968 (2,905) (80,227) (88,331) - (392) - 18 - 627 (22,566) 443 (5,527) - (23,077) 1,112 89,880 246,281 64,251 463,307 863,719 Following a review of recoverable amount based on a value in use assessment, an impairment charge of $22.6m has been recorded against printing press assets at one of the Group's Australian production facilities during the period. 69 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Total $'000 At 28 June 2009 Cost Accumulated depreciation and impairment 89,880 - 272,176 (25,895) 84,811 (20,560) 1,173,383 (710,076) 1,620,250 (756,531) Net carrying amount 89,880 246,281 64,251 463,307 863,719 5,332 - 5,332 5,332 (105) - - - 5,227 5,227 - 5,227 5,227 (4,329) - - - 898 898 - 898 - - - - - - - - - - - - - - - - - - - - - 582 (144) 438 438 - - (257) (41) 44,959 (27,566) 50,873 (27,710) 17,393 23,163 17,393 3,217 (7) (1,948) (7,183) 23,163 3,112 (7) (2,205) (7,224) 140 11,472 16,839 256 (116) 140 37,740 (26,268) 43,223 (26,384) 11,472 16,839 140 2,591 (634) (137) (181) 11,472 1,571 (197) (493) (2,523) 16,839 (167) (831) (630) (2,704) 1,779 9,830 12,507 2,193 (414) 1,779 39,078 (29,248) 42,169 (29,662) 9,830 12,507 3(B) 3(B) (ii) Company At 1 July 2007 Cost Accumulated depreciation and impairment Net carrying amount 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 Period ended 28 June 2009 Balance at beginning of financial year Additions/capitalisations Disposals Intercompany transfers Depreciation charge At 28 June 2009, net of accumulated depreciation and impairment At 28 June 2009 Cost Accumulated depreciation and impairment Net carrying amount 70 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 16. Derivative financial instruments Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 Current assets Forward contracts - cash flow hedges 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 Cross currency swap - cash flow hedge Share swap - fair value to profit and loss Forward contracts - cash flow hedges Total current derivative liabilities Non-current liabilities Interest rate swap - cash flow hedge Cross currency swap - fair value hedge Cross currency swap - cash flow hedge Cross currency swap - fair value to profit and loss Forward contracts - cash flow hedges 173 173 3,519 3,519 - 95,303 38,677 18,762 - 152,742 26,007 486 264 20,277 17,583 107 21,437 13 59,417 - 719 287 26,757 1,006 29,605 17,628 497 - - - 92,751 8,757 19,737 6 Total non-current derivative liabilities 47,730 121,251 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. (A) HEDGING ACTIVITIES (i) Cash flow hedges - interest rate and cross currency swaps At 28 June 2009, the Group held interest rate swaps 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. 71 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 At 28 June 2009, the notional principal amounts and period of expiry of the swaps are as follows: Pay fixed, receive floating - AUD$550m 15 June 2012 Maturity date Interest rate 2009 2008 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 contracts 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 28 June 2009, the Group 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 28 June 2009, the notional principal amounts and period of expiry of the swaps for each counterparty are as follows: Pay fixed, receive floating - AUD$59.5m Pay fixed, receive floating - AUD$59.5m Maturity date 10 July 2017 10 July 2017 Interest rate 2009 7.52% 7.46% 2008 7.52% 7.46% The contracts require settlement on interest receivable semi annually and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying Senior Notes. At 28 June 2009, the Group held a cross currency swap designated as hedging the future contracted interest payments on the NZD denominated Redeemable Preference Shares (RPS) issued in May 2005. The cross currency swap is being used to hedge a combination of future movements in interest rates and foreign currency exchange rates. At 28 June 2009, the notional principal amount and period of expiry of the swap are as follows: Pay fixed, receive floating - AUD$173.6m Maturity date 15 June 2010 Interest rate 2009 4.95% 2008 4.95% The contract requires settlement on interest receivable and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying RPS. At 28 June 2009, the Group held an interest rate swap designated as hedging the future contracted interest payments on AUD denominated bank borrowings. The interest rate swap is being used to hedge future movements in interest rates. At 28 June 2009, the notional principal amount and period of expiry of the swap are as follows: Pay fixed, receive floating - AUD$125m 12 October 2015 Maturity date Interest rate 2009 6.52% 2008 - The contract requires settlement on interest receivable and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying AUD denominated bank borrowings. At 28 June 2009, the above hedges were assessed to be highly effective with a combined unrealised loss in fair value of $6.4 million (2008: $19.3 million gain) recognised in equity for the period. During the period an unrealised loss of $2.0 million (2008: $0.2 million unrealised gain) was recognised in the income statement attributable to the ineffective portion of the cash flow hedges. During the year an unrealised loss of $1.9 million was transferred from equity to the income statement (2008: $1.3 million unrealised gain). 72 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (ii) Cash flow hedges - foreign exchange contracts At 28 June 2009, the Group held a number of forward exchange contracts to hedge future foreign capital purchase commitments across the Australian and New Zealand business. The contracts are timed to mature as payments are scheduled to be made to suppliers. The cash flows are expected to occur over the next twelve months. At 28 June 2009, the details of the outstanding contracts are: 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 - Maturity 0 - 12 months Buy CHF/Sell NZD - Maturity 13 - 24 months Buy AUD/Sell GBP - Maturity 0 -12 months 2009 * $'000 - 367 2,634 5,111 - - - 939 - - Weighted average 2008 * exchange rate $'000 2,688 2,226 2,657 5,231 2,375 258 113,505 2,723 509 428 2009 - 0.9038 0.5238 0.4647 - - - 0.7322 - - 2008 0.9245 0.9220 0.6208 0.4882 0.4647 0.3532 1.2285 0.7562 0.7216 0.4266 * The amounts disclosed represent currency bought measured at the contracted rate. The foreign currency contracts are considered to be fully effective hedges as they are matched exactly against the highly probable foreign capital purchases with any gain or loss on the contracts taken directly to equity. When the contract is delivered, the Group will adjust the initial measurement of any component recognised on the balance sheet by the related amount deferred in equity. At 28 June 2009, the hedges were assessed to be highly effective with a loss of $2.7 million (2008: $2.8 million gain) recognised in equity for the period. The amount removed from equity and included in the initial measurement of capital purchases during the period to 28 June 2009 was a $1.0 million gain (2008: $1.2 million loss), resulting in a decrease to the capital asset base. The amount removed from equity and included in expenses from operations for the period was $2.1 million of losses (2008: nil) (iii) Fair value hedges At 28 June 2009, the Group held cross currency swap agreements designated to changes in the underlying value of USD denominated senior notes (refer to Note 21). The terms of certain 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 Group’s New Zealand controlled entities (excluding Trade Me Limited), as discussed in Note (iv) below. At 28 June 2009, the Group also held cross currency swap agreements partly designated to changes in the underlying value of the 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 to a cash flow hedge, as discussed in (i) above. At 28 June 2009, the cross currency swap agreements had a combined value of $10.9 million (2008: $92.6 million). The cross currency swaps are designated based on matched terms to the debt and also have the same maturity profile as the USD denominated senior notes and the EUR denominated Eurobonds. 73 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 The terms of these cross currency swaps are as follows: Pay floating AUD receive fixed USD - USD $50m Pay floating AUD receive fixed USD - USD $125m Pay floating AUD receive floating USD - USD $25m Pay floating NZD receive fixed USD - USD $40m Pay floating NZD receive fixed USD - USD $90m Pay floating NZD receive fixed USD - USD $50m Pay floating AUD receive fixed EUR - EUR $4m Maturity date 15 January 2011 10 July 2014 10 July 2014 15 January 2019 15 January 2016 15 January 2014 15 June 2012 For the Group, the remeasurement of the hedged items resulted in a loss before tax of $101.5 million (2008: $15.7 million gain) and the changes in the fair value of the hedging instruments resulted in a gain before tax of $103.6 million (2008: $15.5 million loss) resulting in a net gain before tax of $2.1 million (2008: $0.3 million gain) recorded in finance costs. (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 acquisition of Independent News Limited in June 2003. At 28 June 2009, the hedges were assessed to be highly effective with an unrealised loss of $0.6 million (2008: $24.3 million gain) recognised in equity. During the current financial period there was an unrealised loss of $1.8 million (2008: $0.2 million) recognised in the income statement attributable to the ineffective portion of the net investment hedges. 74 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 17. Pension assets and liabilities SUPERANNUATION PLAN The Group contributes to defined contribution and defined benefit plans, which provide benefits to employees and their dependants on retirement, disability or death. All defined benefit plans are closed to new members. The superannuation arrangements in Australia are managed in a sub-plan of the Mercer Super Trust, called FairfaxMedia Super. The Trustee of the Trust is Mercer Investment Nominees Limited. The superannuation arrangements in New Zealand are managed by AoN Consulting 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 have defined contribution plans and the Fairfax NZ Retirement Fund has a defined benefit section. The defined contribution plans receive fixed contributions from employees and from Group companies and the Group’s legally enforceable obligation is limited to these contributions. The defined benefit plans receive employee contributions plus Group company contributions 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 respect of the defined benefit plans only and in the case of the Fairfax NZ Retirement Fund, excludes $44.0 million (2008: $56.6 million) of defined contribution assets and entitlements. Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 (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 (liabilities) / assets (20,560) 17,875 (24,254) 29,796 (2,685) 5,542 - - - - - - 75 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (B) RECONCILIATION OF THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION Balance at the beginning of the financial year 24,254 20,048 Current service cost Interest cost Contributions by employees Actuarial (gains) and losses Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Curtailments Settlements Transfers in 928 1,408 68 (173) (66) (147) 4 209 (5,925) - 3,255 3,763 3,717 (2,955) (9,097) (708) (64) - - 6,295 Balance at the end of the financial year defined benefit obligations 20,560 24,254 (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 Settlements Transfers in 29,796 2,012 (7,425) (381) (66) (147) 11 (5,925) - 33,429 5,602 (8,958) 3,828 (9,097) (708) (595) - 6,295 Balance at the end of the financial year defined benefit assets 17,875 29,796 (D) AMOUNTS RECOGNISED IN INCOME STATEMENT The amounts recognised in the income statement are as follows: Current service cost Interest cost Curtailments Expected return on plan assets Total included in employee benefits expense Actual return on plan assets 928 1,408 209 (2,012) 533 3,255 3,763 - (5,602) 1,416 (4,862) (3,274) 76 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (E) CATEGORIES OF PLAN ASSETS The major categories of plan assets as a percentage of the fair value of the total defined benefit plan assets are as follows: Cash Australian equities Overseas equities Fixed interest securities Property Other Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 % % 7 22 33 24 7 7 6 20 34 24 7 9 % - - - - - - % - - - - - - (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 Consolidated Consolidated Company Company 2009 % 4.7 6.3 4.0 2008 % 5.2 6.5 4.0 2009 % - - - 2008 % - - - 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 6.3% p.a. rate of return, net of tax and expenses (2008: 6.5% 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 2008 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 1 April 2008 by AoN Consulting New Zealand Limited. 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. Total employer contributions expected to be paid by Group companies for the 2010 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 $3.4 million at the most recent financial position of the plans, being 1 July 2008 for Australia and 1 April 2008 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. 77 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 2008 for Australia and 1 April 2008 for New Zealand), which would have a material impact on the overall financial position of the defined benefit plan. (I) HISTORIC SUMMARY Defined benefit plan obligation Plan assets Surplus/(deficit) 2005 $'000 2006 $'000 2007 $'000 2008 $'000 2009 $'000 (21,836) 28,652 (19,424) 30,100 (20,048) 33,429 (24,254) 29,796 (20,560) 17,875 6,816 10,676 13,381 5,542 (2,685) Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets (1,457) 644 (2,152) (892) (2,032) (1,038) 7,678 (3,132) 7,773 (8,278) 18. Deferred tax assets and liabilities (A) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 28 June 2009 29 June 2008 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 $'000 $'000 (i) Consolidated Property, plant and equipment 10,293 19,018 Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Film production and distribution Other - - 6,685 23,831 52,826 10,288 3,255 1,510 - 6,219 - (345) 5,453 36,774 50,608 7,986 2,739 18 1,532 4,778 24,084 2,788 10,498 44,301 24,187 - - 53 - - 10,684 38,220 (13,791) (19,202) 4,114 6,102 44,300 39,042 - - 105 - 9,584 7,464 (2,788) (10,498) (37,616) (356) 52,826 10,288 3,202 1,510 - (4,465) (4,114) (6,447) (38,847) (2,268) 50,608 7,986 2,634 18 (8,052) (2,686) Net deferred tax assets/liabilities 114,907 128,561 116,595 148,931 (1,688) (20,370) (ii) Company Property, plant & equipment Intangible assets Other assets Employee provisions Accruals Other Net deferred tax assets/liabilities - 6,215 - 2,281 2,061 149 10,706 - 5,178 - 2,426 1,405 191 9,200 2,771 3,630 - - - - 7,096 9,867 - 2 - - 4,011 7,643 (2,771) 6,215 - 2,281 2,061 (6,947) 839 (3,630) 5,178 (2) 2,426 1,405 (3,820) 1,557 There are no unrecognised deferred tax assets other than unrealised and carried forward realised capital losses for which no deferred tax asset has been recognised. 78 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (B) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE FINANCIAL YEAR (i) Consolidated Property, plant and equipment Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Film production and distribution Other (ii) Company Property, plant and equipment Intangible assets Other financial assets Provisions Payables Other (i) Consolidated Property, plant and equipment Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Film production and distribution Other (ii) Company Property, plant and equipment Intangible assets Other financial assets Provisions Payables Other Balance Recognised Recognised Recognised Balances Balance 29 June 2008 on acquisition in income in equity disposed 28 June 2009 (19,202) (1,474) (4,114) (6,447) (38,847) (2,268) 50,608 7,986 2,634 18 (8,052) (2,686) - - (2,117) 17 1,158 - - - 409 41 7,101 1,326 (4,102) 3,348 (527) 1,590 3,022 568 1,492 234 2,739 (20,370) (1,966) 16,791 (3,630) 5,178 (2) 2,426 1,405 (3,820) 1,557 - - - - - - - 859 1,037 2 (145) 656 3,575 5,984 - - - - 2,379 - - - - - (4,559) (2,180) - - - - - (6,702) (6,702) (216) (13,791) - 51 - 43 (530) (720) - - 7,409 - 6,037 - - - - - - - (2,788) (10,498) (37,616) (356) 52,826 10,288 3,202 1,510 - (4,465) (1,688) (2,771) 6,215 - 2,281 2,061 (6,947) 839 Balance Recognised Recognised Recognised Balances Balance 1 July 2007 on acquisition in income in equity disposed 29 June 2008 (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) (6,686) 1,896 28 1,214 (4,638) (6,884) 1,504 - - - - - - 27,718 (23,186) (18,216) (6,686) (3,939) 4,459 - 1,976 2,232 639 5,367 - - - - - - - 309 719 (2) 450 (827) (4,459) (3,810) - - - - - - - - - - - - - - - - - - - - - - - - - - (19,202) (4,114) (6,447) (38,847) (2,268) 50,608 7,986 2,634 18 (8,052) (2,686) (20,370) (3,630) 5,178 (2) 2,426 1,405 (3,820) 1,557 79 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 19. Other financial assets Shares in controlled entities - at cost Provision for diminution Shares in unlisted entities - at cost Total other financial assets 20. Payables Trade and other payables * Interest payable Income in advance Total current payables Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 - - - 1,175 1,175 - - - 122 122 3,138,215 3,143,723 (214,000) 2,924,215 - - 3,143,723 - 2,924,215 3,143,723 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 211,288 226,917 14,946 15,900 19,376 69,815 26,403 76,725 - - - - 300,479 330,045 14,946 15,900 * Trade payables are non-interest bearing and are generally on 30 day terms Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 21. Interest bearing liabilities Current interest bearing liabilities - unsecured Finance lease liability Other loans Redeemable Preference Shares Bank borrowings Current interest bearing liabilities - secured Bank borrowings Total current interest bearing liabilities Non-current interest bearing liabilities - unsecured Bank borrowings Redeemable Preference Shares Other loans Senior notes Medium term notes Eurobonds Other Finance lease liability (D) (D) (E) (B) (B) (B) (E) (C) (F) (G) (D) (D) 3,334 10,072 147,978 22,173 3,194 8,665 - - - 3,957 183,557 15,816 237,706 - 973,109 146,401 638,371 167,481 607,537 51,609 22,004 519,676 199,682 570,249 61,680 25,336 Total non-current interest bearing liabilities 1,724,708 2,496,133 80 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 Net debt for financial covenant purposes Cash and cash equivalents Current interest bearing liabilities Non-current interest bearing liabilities Derivative financial instruments (assets) / liabilities * Net debt for financial covenant purposes (69,124) (93,864) 183,557 15,816 1,724,708 (56,793) 2,496,133 98,166 1,782,348 2,516,251 - - - - - - - - - - * Debt hedging instruments as measured against the undiscounted contractual AUD cross currency swap obligations and therefore may not equate to the values disclosed in the balance sheet (inclusive of transaction costs) (A) FINANCING ARRANGEMENTS The Group net debt for financial covenant purposes, taking into account all debt related derivative financial instruments, was $1,782 million as at 28 June 2009 (2008: $2,516 million). The Group has sufficient unused committed facilities at the balance sheet date to finance maturing current interest bearing liabilities. The Group has a number of financing facilities which are guaranteed by Fairfax Media Limited and are covered by deeds of negative pledge. (B) BANK BORROWINGS Current A NZ$50 million revolving committed cash advance facility is available to the Group until June 2010. At 28 June 2009, NZ$27.7 million was drawn down (2008: nil). Non-current A $1,200 million syndicated bank facility is available to the Group until periods ranging from April 2011 to April 2013. At 28 June 2009, $125 million was drawn down (2008: $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 28 June 2009, $115 million was drawn down (2008: $125 million). The interest rate for this facility is the applicable bank bill rate plus a credit margin. (C) SENIOR NOTES The Group issued Senior Notes in the US private placement market with a principal value of US$230 million (A$307.9 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 cross-currency swaps. This issue of Senior Notes comprises maturities ranging from January 2011 to January 2019. The weighted average maturity of the issue is approximately five and a half years. The applicable cross-currency swap credit margin includes the cost 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$330.4 million) in July 2007 comprising maturities ranging from July 2014 to July 2017. The weighted average maturity of this issue is approximately 6.2 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. An additional 1.00% p.a. step up margin is payable on the coupons, effective from 10 July 2009, following a downgrade of the Group's credit rating during the period. 81 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (D) OTHER LOANS AND FINANCE LEASE LIABILITY The Chullora printing facility in Sydney is partially financed by a finance lease facility and loans with a maturity date of September 2015. There is a CPI indexed annuity loan with principal and interest outstanding of $41.3 million (2008: $45.5 million) and a finance lease of $25.3 million (2008: $28.5 million), which was entered into in February 1996. There is also principal and interest outstanding of $20.4 million (2008: $24.9 million) in the form of a fixed rate loan with an established drawdown and repayment schedule. (E) 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$147.9 million) currently paying a fixed one year coupon of 3.97% p.a. payable quarterly in arrears. 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 cross-currency swap credit margin includes the cost of hedging all currency risk and future interest and principal repayments on a quarterly basis. (F) MEDIUM TERM NOTES (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. In May 2009, the Group repurchased and cancelled $32.3 million of the outstanding MTNs. (G) EUROBONDS 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 cross-currency swaps. An additional 1.00% p.a. step up margin is payable on the fixed coupon, effective from 15 June 2009, following a downgrade of the Group's credit rating during the period. Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 101,697 113,793 5,291 6,990 4,927 6,850 4,357 10,590 271 2,228 1,603 37,959 581 3,673 128,692 159,837 13,087 35,435 481 49,003 13,108 31,533 757 45,398 - - - 1,911 - 7,202 401 - - 401 - - - 395 - 7,385 703 - - 703 22. Provisions Current Employee benefits Defamation Property Consideration payable under earn out arrangement Redundancy Other Total current provisions Non-current Employee benefits Property Other Total non-current provisions 82 395 2,270 (754) - - 1,911 - - - - - (75) - 271 757 - (276) - 481 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 RECONCILIATION Reconciliations of the carrying amount of each class of provision, other than employee benefits, during the financial year are set out below: Consolidated Consolidated Consolidated Consolidated Consolidated Company Defamation Property Earn out Redundancy Other Redundancy 2009 $'000 2009 $'000 2009 $'000 2009 $'000 2009 $'000 2009 $'000 Current Balance at beginning of the financial year Additional provision Utilised Disposal of controlled entities Exchange differences 2,228 9,937 1,603 7,189 37,959 4,919 581 81,513 3,673 - (7,241) (1,942) (38,006) (71,504) (3,327) - 3 - - - (515) - - Balance at end of the financial year 4,927 6,850 4,357 10,590 Non-current Balance at beginning of the financial year Additional provision Utilised Exchange differences Balance at end of the financial year NATURE AND TIMING OF PROVISIONS (i) Employee benefits - - - - - 31,533 4,874 (976) 4 35,435 - - - - - - - - - - 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 course of business. The defamation provision 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 impact on the Group. (iii) Property The provision for property costs is in respect of make good provisions, deferred lease incentives and onerous lease provisions. The make good provisions and deferred lease incentives are amortised over the shorter of the term of the lease or the useful life of the assets, being up to 20 years. Onerous lease provisions have been made on various group properties as a result of expected relocations in the coming year. (iv) Earn out The provision for earn out relates to amounts in relation to recent acquisitions which are payable contingent on the achievement of specified financial performance criteria by the entity acquired. (v) Redundancy The provision is in respect of amounts payable in connection with redundancy and includes termination benefits, on-costs and outplacement services. (vi) Other Other provisions includes various other costs relating to the business. 83 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 23. Contributed equity Ordinary Shares 2,351,955,725 ordinary shares fully paid (A) 4,667,990 4,039,131 4,667,990 4,039,131 (2008: 1,513,544,248) Unvested Employee Incentive Shares 8,411,794 unvested employee incentive shares (B) (33,031) (13,885) (33,031) (13,885) (2008: 3,384,916) Stapled Preference Shares (SPS) 3,000,000 stapled preference shares (2008: 3,000,000) (C) 293,163 293,163 299,278 299,278 Debentures 281 debentures fully paid (2008: 281) Total contributed equity * Amount is less than $1000 (D) * * * * 4,928,122 4,318,409 4,934,237 4,324,524 RECONCILIATIONS Reconciliations of each class of contributed equity at the beginning and end of the current financial year are set out below: Consolidated (A) ORDINARY SHARES Balance at beginning of the financial year 28 June 2009 29 June 2008 28 June 2009 29 June 2008 No. of shares No. of shares $'000 $'000 1,513,544,248 1,479,640,401 4,039,131 3,891,162 Dividend reinvestment plan issue - 2 October 2008 5,558,472 - 15,731 - Dividend reinvestment plan issue - 27 September 2007 - 12,820,970 - 56,156 Share issue - 6 April 2009 Retail offer Share issue - 13 March 2009 Institutional offer Share issue - 7 August 2007 Adjustment to Rural Press acquisition share issue Share issue - 27 September 2007 Merrill Lynch final dividend underwriting Share issue costs 164,479,456 668,373,549 - - - - - 900 123,360 501,280 - - - 5 21,081,977 - - (11,512) 91,808 - Balance at end of the financial year 2,351,955,725 1,513,544,248 4,667,990 4,039,131 84 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (B) UNVESTED EMPLOYEE INCENTIVE SHARES Balance at beginning of the financial year Share acquisition - 27 March 2009 Share acquisition - 26 August 2008 Share acquisition - 22 February 2008 Share acquisition - 25 February 2008 Tax expense recognised directly in equity 28 June 2009 29 June 2008 28 June 2009 29 June 2008 No. of shares No. of shares $'000 $'000 3,384,916 1,126,794 3,900,084 - - - - - - 1,700,000 1,684,916 - (13,885) (845) (11,599) - - (6,702) - - - (6,969) (6,916) - Balance at end of the financial year 8,411,794 3,384,916 (33,031) (13,885) (C) STAPLED PREFERENCE SHARES (SPS) Balance at beginning of the financial year Balance at end of the financial year 3,000,000 3,000,000 3,000,000 3,000,000 293,163 293,163 293,163 293,163 (D) DEBENTURES Balance at beginning of the financial year Balance at end of the financial year Total contributed equity * Amount is less than $1000 281 281 281 281 * * * * 4,928,122 4,318,409 TERMS AND CONDITIONS OF CONTRIBUTED EQUITY (A) Ordinary Shares Ordinary shares entitle the holder to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets 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. Rights Issue On 3 April 2009, the Company completed a 3 for 5 accelerated non-renounceable pro-rata entitlement offer, raising a total of $624.6 million. The Company used the proceeds of the entitlement offer to pay down a substantial part of a syndicated bank facility maturing in 2011 and 2012. Dividend Reinvestment Plan Fairfax Media Limited introduced a Dividend Reinvestment Plan (DRP) to eligible shareholders during the financial year ended 30 June 2004. 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 costs. Shares are issued and/or transferred to DRP participants at a predetermined price, less any discount that the directors may elect to apply from time to time. During the financial year ended 28 June 2009, 5,558,472 ordinary shares (2008: 12,820,970 ordinary shares) were issued under the terms of the DRP. (B) Unvested Employee Incentive 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 share at shareholder meetings. 85 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 discretion 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 preference 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 (2.25%). Distributions are non-cumulative. Total distribution payments in the year to SPS was $25,005,709 (2008: $25,618,128). 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 circumstances (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 assignment 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 same time. (D) Debentures Debenture holders terms and conditions are disclosed in Note 1(U). 86 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 24. Reserves Asset 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 reserve Balance at beginning of the financial year Revaluation of available for sale investments Impairment losses transferred to net profit Tax effect of net loss on available for sale investment Balance at end of the financial year (B) Foreign currency translation reserve Balance at beginning of the financial year Transfer to loss on disposal Net exchange differences on currency translation, net of tax Balance at end of the financial year (C) Cashflow hedge reserve 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 Trust to fund acquisition of shares Balance at end of the financial year Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 (A) (B) (C) (D) (E) 32 (801) (173,662) (201,881) 7,286 (1,024) 3,987 15,307 (438) 1,750 (163,381) (186,063) - - - - 3,987 3,987 - - - - 1,750 1,750 (801) (1,358) 2,191 - 32 - (2,183) 1,382 - (801) (201,881) 48,984 1,192 27,027 - (250,865) (173,662) (201,881) 15,307 (11,495) 3,474 (6,739) 31,079 (9,033) 7,286 15,307 (438) (836) 250 (24,719) 34,654 (10,373) (1,024) (438) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,750 2,237 - 3,987 (1,943) 4,429 (736) 1,750 1,750 2,237 - 3,987 (1,943) 4,429 (736) 1,750 87 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 NATURE AND PURPOSE OF RESERVES (A) Asset revaluation reserve The asset revaluation reserve is used to record 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). (B) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising on translation of foreign controlled entities and associated funding of foreign controlled entities, as described in Note 1(F). (C) Cashflow hedge reserve 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 described in Note 1(N). Refer to further disclosures 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 further 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 Net (loss)/profit for the financial year Actuarial (loss)/gain on defined benefit plans, net of tax Tax benefits recognised directly in equity Reclassification of tax benefits to equity Total available for appropriation Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 821,987 (380,050) 748,164 386,878 490,535 (245,175) 730,731 59,186 (5,093) (4,315) 7,502 - 8,427 7,833 - - - - - - 444,346 1,146,987 245,360 789,917 Dividends paid 6 (206,742) (325,000) (181,736) (299,382) Balance at end of the financial year 237,604 821,987 63,624 490,535 88 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 26. Minority interest Interest in: Contributed equity Reserves Retained profits Balance at end of the financial year RECONCILIATION Balance at beginning of the financial year Acquisition of controlled entities Disposal of controlled entities Acquisition of minority interest balances in previously controlled entities Share of (loss)/profit for the period Distribution to minority interest Exchange differences Balance at end of the financial year Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 1,783 7,679 (17) 9,445 4,898 8,585 (2,482) 11,001 11,001 234 (287) - (1,038) (461) (4) 12,922 1,587 - (3,636) 612 (570) 86 9,445 11,001 - - - - - - - - - - - - - - - - - - - - - - - - Consolidated Consolidated 28 June 2009 29 June 2008 ¢ per share ¢ per share 27. Earnings per share Basic (loss) / earnings per share After significant and non-recurring items less SPS dividend (net of tax) * (21.6) 22.9 Diluted (loss) / earnings per share After significant and non-recurring items (net of tax) * Earnings reconciliation - basic Net (loss) / profit attributable to members of the Company Less Dividends on SPS (net of tax) Basic (loss) / earnings after significant and non-recurring items less SPS dividend (21.6) 22.5 Consolidated Consolidated 28 June 2009 29 June 2008 $'000 $'000 (380,050) 386,878 (15,683) (17,164) (395,733) 369,714 Earnings reconciliation - diluted Net (loss) / profit attributable to members of the Company (380,050) 386,878 89 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Weighted average number of ordinary shares used in calculating basic EPS SPS Weighted average number of ordinary shares used in calculating diluted EPS Consolidated Consolidated 28 June 2009 29 June 2008 Number Number '000 '000 1,832,788 247,889 1,616,910 99,208 2,080,677 1,716,118 * The 2008 basic and dilutive earnings per share has been adjusted to reflect the bonus element inherent in the 3 for 5 rights issue completed on the 3 April 2009 where the Company raised a total of $624.6 million. Refer to Note 23(A). 28. Commitments OPERATING 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: Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Within one year Later than one year and not later than five years Later than five years Total operating lease commitments Note $'000 $'000 44,019 132,345 332,860 49,682 140,014 326,224 509,224 515,920 $'000 147 74 - 221 $'000 The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. These non-cancellable leases have remaining terms of between five and twenty years. All property leases include a clause to enable upward revision of rental charge on an annual basis according to prevailing market conditions. FINANCE LEASE COMMITMENTS - GROUP AS LESSEE The Group has a finance lease for plant and machinery with a carrying amount of $32.5m (2008: $33.7m). The lease has an average lease term of six years (2008: seven years) and a weighted average interest rate of 13.4% (2008: 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 90 5,076 20,304 6,345 31,725 (6,387) 5,076 20,303 11,420 36,799 (8,269) 25,338 28,530 3,334 22,004 25,338 3,194 25,336 28,530 21(D) - - - - - - - - - - - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 6 years is $25.5 million (2008: $27.6 million). CAPITAL COMMITMENTS At 28 June 2009, 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: Within one year Later than one year and not later than five years Later than five years Total capital commitments 29. Contingencies Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $'000 $'000 $'000 $'000 12,645 - - 12,645 28,999 18,545 - 47,544 - - - - - - - - EARN OUT AGREEMENT - INVESTSMART FINANCIAL SERVICES PTY LTD AND GO EAST FURNITURE COMPANY PTY LTD The consolidated entity has an earn out agreement which represents a contingent liability at 28 June 2009 relating to the acquisition of InvestSMART Financial Services Pty Ltd and Go East Furniture Company Pty Ltd. Additional cash consideration of up to $38.0 million will be payable by the consolidated entity if the above business achieves specified financial performance criteria. The amount of the earn out is based on the earnings before interest, tax, depreciation and amortisation (EBITDA) of the acquired business. The earn out target covers the 12 month period up to 30 September 2010. A liability for the earn out has not been recognised at 28 June 2009 as the amount of the earn out is subject to a variety of factors including market behaviour, competition, 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 accounted for as an additional acquisition cost and added to the carrying amount of the investment as goodwill. EARN OUT AGREEMENT - THE WEATHER COMPANY PTY LTD A provision of $3.8 million for the earn out agreement relating to this acquisition has been recognised as at 28 June 2009. This provision has been recognised as it is considered probable that the earn out targets will be achieved. The provision has been accounted for as an additional acquisition cost and added to the carrying amount of the investment in The Weather Company Pty Ltd as goodwill. EARN OUT AGREEMENT - RED ROCK SOFTWARE LTD A provision of $0.6 million for the earn out agreement relating to this acquisition has been recognised as at 28 June 2009. This provision has been recognised as it is considered probable that the earn out target will be achieved. The provision has been accounted for as an additional acquisition cost and added to the carrying amount of the investment in Red Rock Software Ltd as goodwill. 91 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 GUARANTEES Under the terms of ASIC Class Order 98/1418 (as amended), the Company and certain controlled entities (refer Note 30), have guaranteed any deficiency of funds if any entity to the class order is wound-up. No such deficiency exists at balance date. DEFAMATION From time to time, entities in the Group are sued for defamation and similar matters in the ordinary course of business. At the date of this report, there were no legal actions against the consolidated entity, other than those recognised at Note 22, that are expected to result in a material impact. 30. Controlled entities The following entities were controlled as at the end of the financial year: Fairfax Media Limited CONTROLLED ENTITIES 5AU Broadcasters Proprietary Limited ACN 074 162 888 Pty Ltd ACN 083 365 799 Pty Ltd ACN 101 806 302 Pty Ltd Agricultural Publishers Pty Limited Associated Newspapers Ltd Australian Property Monitors Pty Limited Border Mail Printing Pty Ltd Bridge Printing Office Pty Limited Bundaberg Broadcasters Pty Ltd Bundaberg Narrowcasters Pty Ltd Canweb Printing Pty Limited (in Liq) Carpentaria Newspapers Pty Ltd Central Districts Field Days Limited Commerce Australia Pty Ltd Communication Associates Limited Constellar Press & Printing Pty Limited (in Liq) Country Publishers Pty Ltd CountryCars.com.au Pty Ltd Creative House Publications Pty Ltd Cudgegong Newspapers Pty Ltd David Syme & Co Pty Limited Debt Retrieval Agency Limited Digital Radio Australia Pty Limited Esperance Holdings Pty Ltd Examiner Properties Pty Ltd F@rming Online Pty Ltd Fairfax Business Media (South Asia) Pte Limited Fairfax Business Media Pte Limited Fairfax Business Media Sdn. Bhd. Fairfax Business Publications (Hong Kong) Ltd (in Liq) Fairfax Community Network Limited 92 Notes (a) Country of Incorporation Australia Ownership interest 2009 % 2008 % (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia New Zealand Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Singapore Singapore Malaysia Hong Kong Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 100 100 100 100 60 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 100 100 100 100 60 100 100 100 100 100 100 100 100 100 100 100 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 CONTROLLED ENTITIES Fairfax Community Newspapers Pty Limited Fairfax Corporation Pty Limited Fairfax Digital Australia & New Zealand Pty Ltd Fairfax Digital Limited Fairfax EEC Limited (in Liq) Fairfax Group Finance New Zealand Limited Fairfax Media (UK) Limited Fairfax Media Group Finance Pty Limited Fairfax Media Management Pty Limited Fairfax Media Publications Pty Limited Fairfax New Zealand Finance Limited Fairfax New Zealand Holdings Limited Fairfax New Zealand Limited Fairfax News Network Pty Limited Fairfax Print Holdings Pty Limited Fairfax Printers Pty Limited Fairfax Radio Network Pty Limited Fairfax Radio Syndication Pty Limited Fairfax Regional Printers Pty Limited Fantasports Australia Pty Ltd Farm Progress Companies, Inc Farm Progress Holding Co, Inc Farm Progress Insurance Services, Inc Financial Essentials Pty Ltd Go East Furniture Company Pty Ltd Golden Mail Pty Limited Harris and Company Pty Limited Harris Enterprises Pty Ltd Harris Print Pty Ltd Harris Publications Pty Ltd Hunter Distribution Network Pty Ltd Illawarra Newspaper Holdings Pty Ltd Indiana Prairie Farmer Insurance Services, Inc InvestSMART Financial Services Pty Ltd InvestSMART Limited J&R Graphics Pty Limited (in Liq) John Fairfax & Sons Ltd John Fairfax (US) Limited John Fairfax Limited Lanson Investments Pty Ltd Large Publications Pty Ltd (in Liq) Leeton Newspapers Pty Ltd Lime Digital Pty Limited Macleay Valley Happynings Pty Ltd (in Liq) Mayas Pty Ltd Mayas Unit Trust Media Investments Pty Ltd Melbourne Community Newspapers Pty Ltd Notes (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Country of Incorporation Australia Australia Australia Australia United Kingdom New Zealand United Kingdom Australia Australia Australia Australia New Zealand New Zealand Australia 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 States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest 2009 % 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 66 100 100 100 100 100 100 100 100 100 100 100 100 100 100 79 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 100 100 100 100 100 100 79 100 100 100 100 100 100 100 93 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 CONTROLLED ENTITIES Merredin Advertiser Pty Ltd Metropolis Media Pty Ltd (in Liq) Micosh Pty Ltd Miller Publishing Co, Inc Milton Ulladulla Publishing Co. Pty Ltd Mistcue Pty Limited Mountain Press Pty Ltd NE Investments Pty Ltd (in Liq) Newcastle Newspapers Pty Ltd North Australian News Pty Ltd Northern Newspapers Pty Ltd NZ Rural Press Limited Old Friends Limited Online Services International Limited Online Travel Limited OSF Australia Pty Limited Oxford Scientific Films Limited Personal Investment Direct Access Pty Limited Port Lincoln Times Pty Ltd Port Stephens Publishers Pty Ltd Port Stephens Publishers Trust Pro-Ag Pty Ltd (in Liq) Queensland Community Newspapers Pty Limited Radio 1278 Melbourne Pty Limited Radio 2UE Sydney Pty Ltd Radio 3AW Melbourne Pty Limited Radio 4BC Brisbane Pty Limited Radio 4BH Brisbane Pty Limited Radio 6PR Perth Pty Limited Radio 96FM Perth Pty Limited Red Rock Software Limited Regional Printers Pty Limited Regional Publishers (Tasmania) Pty Ltd Regional Publishers (Victoria) Pty Limited Regional Publishers (Western Victoria) Pty Limited Regional Publishers Pty Ltd Riverina Newspapers (Griffith) Pty Ltd RP Interactive Pty Ltd RPL Technology Pty Limited (in Liq) 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 Ltd Rural Press Regional Media (WA) Pty Limited Rural Press Share Plan Pty Limited 94 Notes (a) (a) (a) (a) (b) (c) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (d) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) Country of Incorporation Australia Australia Australia United States Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand Australia United Kingdom Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Australia Australia Ownership interest 2009 % 2008 % 100 100 100 100 60 65 88 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 60 65 88 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 CONTROLLED ENTITIES Rural Press USA Inc Rural Publishers Pty Limited Southern Weekly Partnership S.A. Regional Media Pty Limited Satellite Interactive Marketing Pty Limited Satellite Music Australia Pty Limited Snowy Mountains Publications Pty Ltd (in Liq) Stayz Limited Stayz Pty Limited Stock Journal Publishers Pty Ltd 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 Limited The Border News Partnership The Examiner Newspaper Pty Ltd The Federal Capital Press of Australia Pty Limited The Independent News Pty Ltd The Murrumbidgee Irrigator Pty Ltd The Printing Press Pty Limited The Queanbeyan Age Proprietary Limited (in Liq) TheVine.com.au Pty Ltd The Wagga Daily Advertiser Pty Ltd The Warrnambool Standard Pty Ltd The Weather Company Pty Limited Tofua Holdings Pty Ltd (in Liq) Trade Me Limited Tricom Group Pty Ltd Vianet Trustee Limited West Australian Rural Media Pty Ltd Western Australian Primary Industry Press Pty Ltd Western Magazine Pty Ltd Western Magazine Settlement Trust Whyalla News Properties Pty Ltd Winbourne Pty Limited Notes (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (e) (a) (a) (a) (a) Country of Incorporation United States Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia New Zealand Australia Australia Australia Australia Australia Australia Ownership interest 2009 % 2008 % 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 63 100 100 100 100 100 100 70 100 100 75 100 100 100 100 100 100 75 75 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 63 100 100 100 100 100 100 70 100 100 75 100 100 100 - 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 2007 (as varied from time to time) 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) Incorporated on 11 May 2009. (c) (d) (e) Incorporated on 16 January 2009. Acquired on 31 March 2009. Acquired on 11 May 2009. 95 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 DEED OF CROSS GUARANTEE Fairfax Media Limited and certain wholly-owned entities (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 28 June 2009 and consolidated balance sheet as at 28 June 2009, comprising the members of the Closed Group after eliminating all transactions between members are set out below: 2009 $'000 2008 $'000 24,592 289,321 35,466 46 5,527 35,978 40,634 413,447 38,395 3,314 1,096 11,610 390,930 508,496 576,037 517,084 44,947 2,157 13,216 43,926 3,547 14,686 4,003,600 4,829,520 706,638 130,392 531 780,222 59,403 4,858 91,929 107,080 1,144,266 - 1,277,473 8,890 6,713,713 7,646,689 7,104,643 8,155,185 221,662 269,023 12,259 26,757 114,073 1,274 15,816 919 111,630 2,018 376,025 399,406 (A) BALANCE SHEET Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative assets Assets held for sale Other current assets Total current assets 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 96 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Non-current liabilities Interest bearing liabilities Derivative liabilities Deferred tax liabilities Provisions Pension liabilities 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 (losses)/profits of associates and joint ventures Expenses before finance costs Finance costs Net (loss)/profit from operations before income tax expense Income tax expense Net (loss)/profit from operations after income tax expense 2009 $'000 2008 $'000 1,427,075 2,352,638 47,729 84,663 47,040 2,685 - 149,295 116,042 44,052 - 2,881 1,609,192 2,664,908 1,985,217 3,064,314 5,119,426 5,090,871 4,928,122 4,318,409 (61,544) 252,848 137,334 635,128 5,119,426 5,090,871 1,968,112 2,322,237 (76) 8,478 (2,185,766) (54,317) (1,874,469) (104,699) (272,047) (22,494) 351,547 (95,254) (294,541) 256,293 97 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 31. Acquisition and disposal of controlled entities (A) ACQUISITIONS The consolidated entity gained control over the following entities or publishing assets during the year: Entity or business acquired Connect 4 Waiheke Marketplace D-Scene Katherine Times New Zealand Lifestyle Block Infego Communications Limited Red Rock Software Limited Vianet International Limited Principal activity Financial information services Newspaper publishing Newspaper publishing Newspaper publishing Magazine publishing Magazine publishing Online holiday accommodation advertising 31 March 2009 Online tourism solution provider 11 May 2009 Date of Acquisition Ownership Interest 31 July 2008 28 August 2008 15 September 2008 21 October 2008 24 October 2008 14 November 2008 (i) (ii) (iii) (iv) (v) (vi) 100% (vii) (i) The business assets of Connect 4 were acquired, including the Connect 4 trademark and the www.connect4.com.au domain name. (ii) The publishing assets of Waiheke Marketplace were acquired, including the Waiheke Marketplace and Property Lifestyle masthead. (iii) (iv) (v) (vi) The publishing assets of D-Scene were acquired, including the D-Scene masthead. The publishing assets of Katherine Times were acquired, including the Katherine Times masthead. The publishing assets of New Zealand Lifestyle Block were acquired, including the New Zealand Lifestyle Block masthead. The publishing assets of Infego Communications Limited were acquired, including the Unlimited, Actv8, Exec.Ed. and Start Up Mastheads. (vii) The business assets of Vianet International Limited were acquired, including a 100% share of Vianet Trustee Limited. For additional information refer to Note 32(B). (B) DISPOSALS The consolidated entity disposed of its interests in the following entities or publishing assets during the year: Entity or business disposed Principal activity Date of Disposal Carnival Film & Television Limited Television production 19 September 2008 Southern Star Group Limited and its controlled entities Television production and distribution 6 April 2009 Real Estate Publications Australasia Pty Limited Magazine publishing Homes Pictorial Publications Unit Trust Magazine publishing 22 April 2009 22 April 2009 Ownership Interest 75% 100% 55% 55% 98 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 32. Business combinations (A) SOUTHERN CROSS BROADCASTING On 9 November 2007 certain assets and liabilities of Southern Cross Broadcasting were acquired. At 29 June 2008, the purchase price allocation for this business combination was based on provisional information. During the financial year ended 28 June 2009, the purchase price allocation was finalised. The impact of this was a decrease to goodwill of $13.8 million. The fair value of the identifiable assets and liabilities of Southern Cross Broadcasting as at the date of acquisition were: Recognised on acquisition $'000 Acquiree's carrying amounts $'000 Value of net assets acquired Cash and cash equivalents Receivables Inventories Investments accounted for using the equity method Property, plant and equipment Intangible assets Assets available for sale Other current assets Current tax assets Deferred income tax asset Total assets Payables Interest bearing liabilities Provisions Other non current liabilities Current tax liability Deferred tax liability 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 consideration - cash Costs directly attributable to the acquisition Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow 17,784 72,230 963 5,605 34,278 162,906 3,324 17,896 3,012 11,602 329,600 77,832 347 10,932 1,177 2,434 16,318 109,040 220,560 (257) 316,480 536,783 532,374 4,409 536,783 17,784 (536,783) (518,999) (B) OTHER ACQUISITIONS DURING THE PERIOD Other acquisitions, none of which were individually significant to the consolidated entity, are listed in Note 31(A). 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 99 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 The purchase allocation of these acquisitions has not been finalised and provisional accounting has been applied. The assets and liabilities acquired were: Recognised on acquisition $'000 Acquiree's carrying amounts $'000 257 357 403 2,080 3,097 1,027 14 118 1,159 1,938 - 1,938 257 347 403 2,080 3,087 1,027 14 118 1,159 1,928 4,514 6,442 5,800 600 42 6,442 257 (5,842) (5,585) Value of net assets acquired Cash and cash receivables Receivables Property, plant and equipment Intangible assets Total assets Payables Current tax liabilities Provisions Total liabilities Value of identifiable net assets Goodwill arising on acquisition Total identifiable net assets and goodwill Consideration Purchase consideration - cash Contingent consideration Costs directly attributable to the acquisition Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow 100 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 33. Employee benefits (A) NUMBER OF EMPLOYEES As at 28 June 2009 the consolidated entity employed 8,979 full time employees (2008: 9,800) and 1,828 part-time and casual employees (2008: 2,106). This includes 2,254 (2008: 2,353) full-time employees and 363 (2008: 488) part-time and casual employees in New Zealand. (B) EMPLOYEE SHARE PLANS The Company had three employee share plans during the period. All three plans have been suspended pending review of the revised tax treatment on employee share plans announced by the Federal Government in May 2009. Prior to suspension, the terms of each plan were as set out below: 1. Fairfax Exempt Employee Share Plan This plan is open to all permanent full-time and part-time Australian employees with more than twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary sacrifice up to $1,000 of pre tax salary per annum for purchase of issued Fairfax shares at the market price on the open market of the ASX. The shares are purchased by an independent trustee company on predetermined dates. 2. Fairfax Deferred Employee Share Plan This plan is open to all permanent full-time and part-time Australian employees with more than twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary sacrifice a minimum of $3,000 and up to a maximum of 25% of salary per annum for purchase of issued Fairfax shares at the market price on the open market of the ASX. The shares are purchased by an independent trustee company on pre-fixed dates. 3. Long Term Incentive Scheme 2006 - 2007 Equity-based incentive schemes (EBIS) Under the 2006-2007 EBIS, which applied for bonuses earned in the 2006 and 2007 financial years, one third of the annual bonus earned by senior executives 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 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. 2008 and ongoing 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 performance hurdles are satisfied. If the allocation does not vest at the end of year three, a re-test of the performance hurdles occurs 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. 101 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 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 Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 $ $ $ $ 1,466,000 1,788,000 1,466,000 1,788,000 319,000 360,000 319,000 360,000 1,785,000 2,148,000 1,785,000 2,148,000 272,840 119,233 296,000 136,975 - 59,905 - 8,240 268,946 13,546 321,869 29,723 - - - - Total other assurance services 674,565 784,567 59,905 8,240 Total remuneration for assurance services 2,459,565 2,932,567 1,844,905 2,156,240 Non assurance services Ernst & Young Australia Other services Affiliates of Ernst & Young Australia Other services Total non assurance services Total remuneration of auditors 582 11,732 582 10,765 11,413 - 11,347 23,145 582 - - - 2,470,912 2,955,712 1,845,487 2,156,240 102 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 35. Director and executive disclosures (A) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (i) Shareholdings Directors RJ Walker RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk** B McCarthy R Savage P Young Key management personnel G Hambly J Matthews J Withers** S Narayan** B Cassell* Total Balance Net change Balance Post year-end Post year-end Post year-end 29 June 2008 Other 28 June 2009 acquisitions disposals balance 1,035,251 972,948 2,008,199 40,091 52,448 59,115 109,934 99,206 162,382 216,482,782 18,943,999 235,426,781 2,412,351 1,480,130 3,892,481 46,068 21,135 67,203 371,280 (371,280) - 1,463,027 201,016 1,664,043 19,996 25,183 27,903 106,564 47,899 131,747 133,772 - 3,296 57,888 775,847 44,809 46,667 - 94,042 285,167 178,581 46,667 3,296 151,930 1,061,014 222,919,280 22,022,149 244,941,429 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,008,199 99,206 162,382 235,426,781 3,892,481 67,203 - 1,664,043 47,899 131,747 178,581 46,667 3,296 - 1,061,014 244,789,499 * B Cassell replaced S Narayan as Chief Financial Officer in May 2009. ** In the case of retired directors, the closing balance represents the number of shares at the date the director retired from the Board. For KMP, the closing balance represents the number of shares at the date of resignation. 103 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Directors RJ Walker MD Burrows ** RC Corbett D Evans JB Fairfax N Fairfax JM King DE Kirk R Savage P Young Key management personnel B McCarthy G Hambly J Matthews J Withers S Narayan Total Balance Net change Balance Post year-end Post year-end Post year-end 1 July 2007 Other 29 June 2008 acquisitions disposals balance 1,014,300 20,951 1,035,251 28,297 45,712 29,540 13,801 8,943 10,551 38,647 54,655 40,091 52,448 216,501,147 (18,365) 216,482,782 1,210,113 1,202,238 2,412,351 47,252 324,405 - 12,367 (1,184) 46,875 19,996 12,816 46,068 371,280 19,996 25,183 1,484,934 (21,907) 1,463,027 115,569 18,203 133,772 - 3,296 22,981 - - 34,907 - 3,296 57,888 - 3,989 3,547 3,103 3,989 3,325 - 3,324 - - - - - - 220,825,417 1,372,671 222,198,088 49,574 - - - - - - - - - - - - - - - - 1,063,548 54,655 44,080 55,995 216,485,885 2,416,340 49,393 371,280 23,320 25,183 1,463,027 133,772 - 3,296 57,888 222,247,662 ** In the case of retired directors, the closing balance represents the number of shares at the date the director retired from the Board. Stapled Preference Shares (SPS) SPS held, acquired or disposed of in the financial year ended 28 June 2009 by directors or key management personnel have been disclosed in the table above. (B) RIGHTS OVER SHARE HOLDINGS OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Details of shares provided as remuneration is in section 5.2 of the remuneration report. Opening Balance Granted as Net change Closing Balance 29 June 2008 remuneration Other *** 28 June 2009 739,511 292,299 857,489 (1,403,326) 402,180 - 193,674 694,479 139,512 107,648 - 256,848 87,983 110,969 126,101 - (36,409) - - 269,016 121,057 (486,340) - 214,072 233,749 - 39,524 209,040 1,623,801 1,886,812 (1,926,075) 1,584,538 Directors DE Kirk** B McCarthy Key management personnel G Hambly J Matthews J Withers** S Narayan** B Cassell* Total 104 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Directors DE Kirk Key management personnel B McCarthy G Hambly J Matthews J Withers S Narayan Total Opening Balance Granted as Net change Closing Balance 1 July 2007 remuneration Other *** 29 June 2008 116,297 623,214 - 292,299 109,438 15,999 - 120,613 80,651 91,649 - 195,518 - - (50,577) - (59,283) 739,511 292,299 139,512 107,648 - 256,848 362,347 1,283,331 (109,860) 1,535,818 * B Cassell replaced S Narayan as Chief Financial Officer in May 2009. ** The closing balance represents the number of shares at the date of departure following resignation. For KMP, closing balance represents number of shares at the date of resignation. *** Net change movements include forfeitures. (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 28 June 2009 (2008: nil). (ii) Individuals with loans above $100,000 during the financial year There are no outstanding loans above $100,000 for the financial years ended 28 June 2009 and 29 June 2008. (D) OTHER TRANSACTIONS WITH KEY MANAGEMENT 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 business 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 which 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 as part of the 3 for 5 rights issue, Fairfax Media Limited entered into an arms length transaction with ABN Amro Group (now owned by the Royal Bank of Scotland) resulting in fees paid to ABN of $5.8 million. Peter Young was a senior advisor of ABN Amro during this period. During the prior year Fairfax Media Limited entered into arms length transactions with Lazard LLC resulting in fees paid to Lazard for the 2008 year of $3.3 million. Mr Mark Burrows, who resigned as Fairfax Group Deputy Chairman on 31 January 2008, was Managing Director of Lazard LLC and Chairman of Lazard Australia at that date. 105 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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 PERSONNEL Disclosures 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 28 June 2009 29 June 2008 Company 28 June 2009 29 June 2008 Sales to Purchases Amount owed Amount owed related from related by related to related parties $'000 parties $'000 parties $'000 4,986 4,573 17,876 13,736 2,606 322 parties $'000 458 239 - - - 20 - - - - Fairfax Media Limited has undertaken transactions with its controlled entities during the year including the issue and receipt of loans and management fees. On consolidation, all such transactions have been eliminated in full. 106 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 37. Notes to the cash flow statements Consolidated Consolidated Company Company 28 June 2009 29 June 2008 28 June 2009 29 June 2008 Note $'000 $'000 $'000 $'000 (A) RECONCILIATION OF NET (LOSS)/PROFIT AFTER INCOME TAX EXPENSE TO NET CASH INFLOW FROM OPERATING ACTIVITIES Net (loss)/profit for the financial year Non-cash items Depreciation and amortisation 3(B) Impairment of property, plant and equipment, intangibles and investments Amortisation of borrowing costs Share of profits of associates and joint ventures not received as dividends or distributions Straight-line rent adjustment Net loss/(gain) on disposal of property, plant and equipment Net loss on disposal of investments Net gain on disposal of other assets Fair value adjustment to derivatives Gain on repurchase of medium term notes Net foreign currency loss/(gain) Share based payment expense Non-cash superannuation expense Changes in operating assets and liabilities, net of effects from acquisitions Decrease/(increase) in trade receivables Decrease/(increase) in other receivables Decrease in inventories Decrease in other assets (Decrease)/increase in payables Increase/(decrease) in provisions (Decrease)/increase in tax balances (381,088) 387,490 (245,175) 59,186 117,556 569,091 3,917 108,295 1,382 3,508 7,363 214,000 - - - 6 - - - - - 5,533 9,514 - - - - 42 - - - - - 2,237 - 4,429 - (14) 2,446 - - (978) (485) (17,272) 785 1,279 - - 1,264 1,259 (53,391) (27) 5,080 (2,430) (1,400) (1,115) - (5,410) 4,429 1,461 377 (18,455) 3,785 6,286 (40,900) (34,023) 1,913 1,325 1,658 264 5,224 - (1,071) (5,167) 3,173 2,237 982 84,261 16,396 1,643 2,307 (3,073) 5,451 (40,189) Net cash inflow/(outflow) from operating activities 384,897 420,246 (32,339) 24,367 (B) RECONCILIATION OF CASH AND CASH EQUIVALENTS Reconciliation 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 Total cash at end of the financial year 69,124 69,124 93,864 93,864 1,680 1,680 680 680 (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). 107 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 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; forward rate agreements; 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 net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio. The ratio is calculated as net debt divided by underlying EBITDA. Net debt is calculated as total interest bearing liabilities less cash and cash equivalents. Where interest bearing liabilities are denominated in a currency other than the Australian dollar functional currency, and the liability is hedged into an Australian dollar obligation, the liability is measured for financial covenant purposes as the hedged Australian dollar amount. 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: • • • 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 at a payout ratio of approximately 20% of net profit; and • where excess funds arise with respect to the funds required to enact the Group's business strategies, consideration is given to possible returns of equity to shareholders. The Group's financial strategy is to maintain the net debt to underlying EBITDA ratio around 3.0 times (2008: 3.0 to 3.5 times) and maintain an investment grade credit rating. In May 2009, the Group's S&P credit rating was reduced from BBB- to BB+. Notwithstanding this restatement, the Group's target credit rating remains investment grade. 108 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 The net debt to EBITDA ratio for the Group at 28 June 2009 and 29 June 2008 is as follows: Net debt for financial covenant purposes EBITDA * Net debt to EBITDA ratio Note 21 Consolidated Consolidated 2009 $'000 2008 $'000 1,782,348 610,226 2,516,251 840,573 2.9 3.0 * For the purposes of the debt to EBITDA ratio, underlying EBITDA is adjusted for specific items of a non-recurring nature and excludes any unrealised profit or (loss) arising from mark to market revaluations of financial instruments. 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. Risk factors 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 cash flows of the Group's financial instruments will fluctuate 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 assets 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 cash flow interest rate risk. The Group's risk management policy for interest rate risk 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 exposed to a fair value or cash flow 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 cross currency swaps, which have the economic effect of converting foreign currency borrowings to local currency borrowings. Over the counter derivative contracts are carried at fair value, which are estimated using valuation techniques based wherever possible on assumptions supported by observable market prices or rates prevailing at the balance sheet date. For other financial instruments for which quoted prices in an active market are available, fair value is determined directly from those quoted market prices. Refer to Note 16 for further details of the Group's derivative financial instruments and details of hedging activities. 109 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 At balance date, the Group had the following mix of financial assets and financial liabilities exposed to interest rate risks: Floating rate $'000 69,124 - - 13,216 - 47,873 130,213 Fixed rate $'000 - - - - - 104,869 104,869 Non- interest bearing $'000 Total $'000 - 69,124 346,946 346,946 2,157 - 1,175 - 350,278 2,157 13,216 1,175 152,742 585,360 - - 300,479 300,479 301,171 30,976 - - 25,338 20,389 607,395 607,537 167,481 - - 147,978 357,485 18,125 1,550,780 55,612 - - - - - - - - 321,560 638,371 607,537 167,481 25,338 147,978 1,908,265 73,737 375,610 1,606,392 300,479 2,282,481 Consolidated As at 28 June 2009 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 110 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Consolidated As at 29 June 2008 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 Company As at 28 June 2009 Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Payables Total financial liabilities Floating rate $'000 93,864 - - 14,686 - 21,544 130,094 Fixed rate $'000 - - - - - 37,860 37,860 Non- interest bearing $'000 Total $'000 - 93,864 482,355 482,355 3,547 - 122 - 3,547 14,686 122 59,404 486,024 653,978 - - 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 1,680 - 1,680 - - Fixed rate $'000 Non- interest bearing $'000 Total $'000 - 398,566 - 1,651,577 1,680 2,050,143 398,566 1,651,577 2,051,823 - - 14,946 14,946 14,946 14,946 111 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 Company As at 29 June 2008 Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Payables Total financial liabilities Sensitivity analysis Floating rate $'000 Fixed rate $'000 Non- interest bearing $'000 Total $'000 680 - 680 - - - 398,566 - 1,274,487 680 1,673,053 398,566 1,274,487 1,673,733 - - 15,900 15,900 15,900 15,900 The table below shows the effect on net profit and equity after income tax if interest rates at balance date had been 30% 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 30% (2008: 10%) has been selected as this is considered reasonable given the current level of both short term and long term Australian interest rates. A 30% sensitivity would move short term interest rates at 28 June 2009 from around 3.24% to 4.21% representing a 97 basis point shift (2008: 78 basis point shift). In 2009, 86% (2008: 92%) of the Group's debt, taking into account 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 30% 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 30% higher with all other variables (6,397) (12,455) 1,554 (1,761) held constant - increase/(decrease) If interest rates were 30% lower with all other variables 6,397 12,455 (1,307) 1,761 held constant - increase/(decrease) Impact on post-tax profit Impact on equity 2009 $'000 2008 $'000 2009 $'000 2008 $'000 112 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 currency 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 receipts and payments settled in foreign currencies and prices dependent on foreign currencies respectively. The Group is exposed to foreign exchange risk from various currency exposures, primarily with respect to: • United States Dollars; • New Zealand Dollars; • Euro; • British Pounds Sterling; • Swiss Francs; • 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 these 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 carried 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 capital 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 financial 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 assesses 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 fair value or cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure 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 change in fair value is immediately recognised in the income statement and this is mainly attributable to 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 recognised 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 constant. 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 currency 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. 113 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 1.1244 and a 10% stronger Australian Dollar in an exchange rate of 1.3742 based on the year end rate of 1.2493. 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. Impact on post-tax profit (hedging reserves) * Impact on equity 2009 $'000 2008 $'000 2009 $'000 2008 $'000 Consolidated If the AUD exchange rate was 10% weaker against the NZD with all other 5,457 368 (21,838) (26,392) variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the NZD with all other (2,460) 81 20,496 21,797 variables held constant - increase/(decrease) * Hedging reserves includes both the cash flow hedge reserve and net investment hedge reserve (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 0.7261 and a 10% stronger Australian Dollar in an exchange rate of 0.8875 based on the year end rate of 0.8068. 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 0.6021 to 0.9788. Impact on equity Impact on post-tax profit (cash flow hedge reserve) 2009 $'000 2008 $'000 2009 $'000 2008 $'000 Consolidated If the AUD exchange rate was 10% weaker against the USD with all other (499) 116 2,710 1,836 variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the USD with all other 322 (95) (2,224) (1,509) variables held constant - increase/(decrease) (c) AUD / EUR Comparing the Australian Dollar exchange rate against the Euro, a 10% weaker Australian Dollar would result in an exchange rate of 0.5164 and a 10% stronger Australian Dollar in an exchange rate of 0.6312 based on the year end rate of 0.5738. 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 0.4796 to 0.6460. Consolidated Impact on equity Impact on post-tax profit (cash flow hedge reserve) 2009 $'000 2008 $'000 2009 $'000 2008 $'000 If the AUD exchange rate was 10% weaker against the Euro with all other - - 2,304 (787) variables held constant - increase/(decrease) If the AUD exchange rate was 10% stronger against the Euro with all other (2,200) (53) (72) 643 variables held constant - increase/(decrease) 114 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 0.4136 and a 10% stronger New Zealand Dollar in an exchange rate of 0.5056 based on the year end rate of 0.4596. 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 0.3911 to 0.6127. Impact on equity Impact on post-tax profit (cash flow hedge reserve) 2009 $'000 2008 $'000 2009 $'000 2008 $'000 - - - - 330 923 (268) (753) Consolidated If the NZD exchange rate was 10% weaker against the Euro with all other variables held constant - increase/(decrease) If the NZD exchange rate was 10% stronger against the Euro with all other variables held constant - increase/(decrease) * 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 contracting 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 included in the Group's balance sheet. To help manage this risk, the Group: • has a policy for establishing credit limits for the entities it deals with; • may require collateral where appropriate; and • manages exposures to individual entities it either transacts with or enters into derivative contracts with (through a system of credit limits). The Group is exposed to credit risk on financial instruments and derivatives. For credit purposes, there is only a credit risk where the contracting 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 institutions that meet minimum credit rating criteria in accordance with the Group's policy requirements. At 28 June 2009 counterparty credit risk was limited to financial institutions with credit ratings ranging from A- to AA. The Group's credit risk is mainly concentrated across a number of customers and financial institutions. The Group does not have any significant credit risk 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 expected 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 credit history of these classes, it is expected that these amounts will be received when due. 115 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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: • • • has a liquidity policy which targets a minimum level of committed facilities and cash relative to EBITDA; has readily accessible funding arrangements in place; and staggers maturities of financial instruments. The contractual maturity of the Group's fixed and floating rate derivatives, other financial 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 to the values disclosed in the balance sheet. As at 28 June 2009 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance lease liability Consolidated Company (Nominal cash flows) (Nominal cash flows) 1 year or less $'000 1 to 2 years $'000 2 to 5 years $'000 More than 5 years $'000 1 year or less $'000 1 to 2 years $'000 (300,479) - - - (14,946) (24,392) (257,850) (35,953) (15,533) (84,834) (314,721) (749,522) (598,378) (8,126) (8,441) (27,424) (12,467) Redeemable Preference Shares (RPS) (153,223) - - - Derivatives - inflows* Cross currency swaps - foreign leg (fixed)** 218,533 127,283 793,481 504,759 Cross currency swaps - foreign leg (variable)** Forward foreign currency contracts** Derivatives - outflows* 363 7,743 363 - 1,088 31,349 - - Cross currency swaps - AUD leg (fixed)** (206,303) (24,110) (241,933) (154,622) Cross currency swaps - AUD leg (variable)** (23,942) (94,843) (392,234) (185,472) Cross currency swaps - NZD leg (variable)** (9,352) (9,352) (93,533) (188,987) Interest rate swaps *** (16,846) (16,846) (25,284) (6,328) Forward foreign currency contracts** (7,880) - - - 116 - - - - - - - - - - - - - - - - - - - - - - - - - Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 As at 29 June 2008 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance lease liability Redeemable Preference Shares (RPS) Derivatives - inflows* Consolidated Company (Nominal cash flows) (Nominal cash flows) 1 year or less $'000 1 to 2 years $'000 2 to 5 years $'000 More than 5 years $'000 1 year or less $'000 1 to 2 years $'000 (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) - - Cross currency swaps - foreign leg (fixed)** 67,392 214,812 764,822 485,651 Cross currency swaps - foreign leg (variable)** Forward foreign currency contracts** Derivatives - outflows* 875 139,721 875 - 2,624 26,927 - - Cross currency swaps - AUD leg (fixed)** (32,703) (205,950) (256,549) (154,866) Cross currency swaps - AUD leg (variable)** Cross currency swaps - NZD leg (variable)** Forward foreign currency contracts** (51,758) (22,632) (137,044) (51,758) (522,428) (194,354) (22,632) (67,897) (293,491) - - - * 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. *** Net amount for interest rate swaps for which net cash flows are exchanged. - - - - - - - - - - - - - - - - - - - - - - - 117 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (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 investments Other financial assets Financial liabilities Payables Interest bearing liabilities - bank borrowings - Eurobonds - senior notes - medium term notes - lease liability - Redeemable Preference Shares (RPS) Derivative liabilities Company Financial assets Cash and cash equivalents Receivables Financial liabilities Payables Carrying value Fair value Carrying value Fair value 2009 $'000 2009 $'000 2008 $'000 2008 $'000 69,124 346,932 152,915 2,157 13,216 1,175 69,124 346,932 152,915 2,157 13,216 1,175 93,864 93,864 482,355 482,355 62,936 3,547 14,686 122 62,936 3,547 14,686 122 585,519 585,519 657,510 657,510 300,479 300,479 330,045 330,045 321,560 607,537 638,371 167,481 25,338 147,978 74,487 321,558 1,047,411 1,047,411 609,741 640,583 167,700 36,187 149,123 74,487 570,249 519,676 199,682 28,530 146,401 122,257 573,296 522,280 200,000 38,897 148,623 122,257 2,283,231 2,299,858 2,964,251 2,982,809 1,680 2,050,143 1,680 2,050,143 680 1,673,053 680 1,673,053 2,051,823 2,051,823 1,673,733 1,673,733 14,946 14,946 14,946 14,946 15,900 15,900 15,900 15,900 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 2.66% to 13.38% (2008: 5.75% to 13.38%). The carrying value of all other balances approximate their fair value. 118 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 39. Segment reporting Business segments The consolidated entity is organised into three business segments, publishing & printing, digital and broadcasting. The publishing and printing segment comprises newspaper, magazine and general publishing and printing. Revenues are generated from circulation sales, printing and the sale of advertising in those publications. The digital segment incorporates the Group's online news sites and transactional businesses. Broadcasting comprises radio stations and licences and television production. Geographical segments The consolidated entity operates predominantly in two geographic segments, Australia and New Zealand. (A) PRIMARY REPORTING FORMAT - BUSINESS SEGMENT (i) Results 28 June 2009 Sales to external customers Intersegment sales Total revenue Intersegment elimination Other revenue Total segment revenue Printing & Publishing Digital Broadcasting $'000 $'000 $'000 Other $'000 Consolidated entity $'000 2,239,267 187,785 171,821 1,052 2,599,925 - 347 - - 347 2,239,267 188,132 171,821 1,052 2,600,272 9,597 (347) 9,597 2,239,267 188,132 171,821 10,649 2,609,522 Segment profit/(loss) from operations before income tax expense Unallocated revenue less unallocated expenses Net (loss)/profit from operations before income tax expense Income tax expense Net (loss)/profit after income tax expense (133,395) 77,123 (42,636) (77,647) (174,861) (176,555) (174,861) (252,508) (351,416) (29,672) (29,672) (282,180) (381,088) 29 June 2008 Sales to external customers Intersegment sales Total revenue Intersegment elimination Other revenue Total segment revenue Printing & Publishing Digital Broadcasting $'000 $'000 $'000 Other $'000 Consolidated entity $'000 2,555,847 169,856 185,528 - - - - - 2,911,231 - 2,555,847 169,856 185,528 - 2,911,231 22,776 - 22,776 2,555,847 169,856 185,528 22,776 2,934,007 Segment profit/(loss) from operations before income tax expense Unallocated revenue less unallocated expenses Net profit from operations before income tax expense Income tax expense Net profit after income tax expense 632,346 81,704 33,426 (37,428) (186,875) 710,048 (186,875) (224,303) 523,173 (135,683) (135,683) (359,986) 387,490 119 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (ii) Assets and liabilities 28 June 2009 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets 29 June 2008 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets (iii) Other detailed segment disclosures Printing & Publishing Digital Broadcasting $'000 $'000 $'000 Other $'000 Consolidated entity $'000 5,996,018 807,486 347,029 293,774 331,003 37,568 23,871 163,662 7,444,307 150,900 7,595,207 556,104 2,027,313 2,583,417 5,011,790 Printing & Publishing Digital Broadcasting $'000 $'000 $'000 Other $'000 Consolidated entity $'000 6,562,522 769,799 656,484 175,713 299,797 31,691 94,294 235,649 8,164,518 128,583 8,293,101 661,431 2,666,336 3,327,767 4,965,334 Printing & Publishing Digital Broadcasting $'000 $'000 $'000 Other $'000 Consolidated entity $'000 28 June 2009 Equity method investments included in segment assets 26,882 12,423 433 6,930 46,668 Acquisition of property, plant and equipment, intangible assets and other non-current assets Depreciation and amortisation Impairment of property, plant and equipment, intangibles and investments Other non-cash expenses 29 June 2008 81,508 98,774 21,652 13,909 4,232 3,099 24,096 1,774 131,488 117,556 463,984 154,214 - 9,494 71,589 4,422 33,518 18,564 569,091 186,694 Equity method investments included in segment assets 27,650 977 9,686 7,377 45,690 Acquisition of property, plant and equipment, intangible assets and other non-current assets Depreciation and amortisation Impairment of property, plant and equipment, intangibles and investments Other non-cash expenses 120 92,277 91,901 - 80,197 19,281 9,769 - 5,762 1,959 3,965 - 2,204 36,531 2,660 150,048 108,295 1,382 21,102 1,382 109,265 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (B) SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENT (i) Results 28 June 2009 Segment revenue Total revenue Other unallocated revenue Total segment revenue Segment profit/(loss) from operations before income tax expense Unallocated revenue less unallocated expenses Net (loss)/profit from operations before income tax expense Income tax expense Net (loss)/profit after income tax expense 29 June 2008 Segment revenue Total revenue Other unallocated revenue Total segment revenue Segment profit from operations before income tax expense Unallocated revenue less unallocated expenses Net profit from operations before income tax expense Income tax expense Net profit after income tax expense Australia New Zealand $'000 $'000 Consolidated entity $'000 2,103,386 2,103,386 - 496,539 2,599,925 496,539 - 2,599,925 9,597 2,103,386 496,539 2,609,522 (251,810) - 70,088 - (176,555) (174,861) (251,810) 70,088 (351,416) - - (29,672) (251,810) 70,088 (381,088) Consolidated Australia New Zealand $'000 $'000 entity $'000 2,322,100 2,322,100 - 586,863 2,908,963 586,863 - 2,908,963 25,044 2,322,100 586,863 2,934,007 498,738 - 211,310 - 710,048 (186,875) 498,738 211,310 523,173 - - (135,683) 498,738 211,310 387,490 121 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 (ii) Assets and liabilities 28 June 2009 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets 29 June 2008 Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Net assets Consolidated Australia New Zealand $'000 $'000 entity $'000 5,828,863 1,615,444 474,227 81,876 7,444,307 150,900 7,595,207 556,103 2,027,314 2,583,417 5,011,790 Consolidated Australia New Zealand $'000 $'000 entity $'000 6,489,637 1,674,903 550,518 110,913 8,164,540 128,561 8,293,101 661,431 2,666,336 3,327,767 4,965,334 (iii) Other detailed segment disclosures Australia New Zealand Australia New Zealand 28 June 2009 28 June 2009 29 June 2008 29 June 2008 $'000 $'000 $'000 $'000 Equity method investments included in segment assets 44,933 1,735 43,926 1,764 Acquisition of property, plant and equipment, intangible assets and other non-current assets Depreciation and amortisation Impairment of property, plant and equipment, intangibles and investments Other non-cash expenses 96,778 101,762 504,720 165,337 34,710 15,794 64,371 21,357 115,508 94,131 1,382 95,963 34,540 14,164 - 13,302 122 Notes to the Financial Statements Fairfax Media Limited and Controlled Entities for the period ended 28 June, 2009 40. Events subsequent to balance sheet date No significant events subsequent to the balance sheet date have occurred. 123 Directors’ Declaration In accordance 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 financial position as at 28 June 2009 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 section 295A of the Corporations Act 2001 for financial period ended 28 June 2009. 3. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note 30 will be able to meet any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee. On behalf of the Board Ronald Walker Chairman Brian McCarthy Chief Executive Officer and Director 1 September 2009 124 Independent Auditor’s Report to the Members of Fairfax Media Limited 125 Independent Auditor’s Report to the Members of Fairfax Media Limited 126 Shareholder Information Fairfax Media Limited TWENTY LARGEST HOLDERS OF SECURITIES AT 28 AUGUST 2009 ORDINARY SHARES (FXJ) National Nominees Limited J P Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Marinya Media Pty Ltd Cogent Nominees Pty Limited Citicorp Nominees Pty Limited ANZ Nominees Limited Australian Reward Investment Alliance Citicorp Nominees Pty Limited Tasman Asset Management Ltd HSBC Custody Nominees (Australia) Limited - GSCO ECA UBS Nominees Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited AMP Life Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited Argo Investments Limited Queensland Investment Corporation Citicorp Nominees Pty Limited STAPLED PREFERENCE SECURITIES (SPS) (FXJPB) J P Morgan Nominees Australia Limited National Nominees Limited Cogent Nominees Pty Limited Goldman Sachs JB Were Pty Ltd ANZ Nominees Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited - A/C 3 Avanteos Investments Limited RBC Dexia Investor Services Australia Nominees Pty Limited UBS Nominees Pty Ltd Questor Financial Services Limited HSBC Custody Nominees (Australia) Limited Buttonwood Nominees Pty Ltd Cogent Nominees Pty Limited Citicorp Nominees Pty Limited M F Custodians Ltd Equity Trustees Limited Brispot Nominees Pty Ltd Sandhurst Trustees Ltd ANZ Trustees Limited DEBENTURES National Financial Services Corp. Number of securities 439,394,282 313,411,755 238,394,592 227,650,358 84,643,634 76,088,278 45,949,578 41,687,479 28,845,932 28,596,184 25,509,005 24,555,088 24,317,763 23,875,574 21,873,798 20,589,532 16,551,345 15,779,138 15,440,355 14,359,323 1,727,512,993 451,267 313,981 212,076 150,000 145,056 133,095 100,000 79,411 61,458 60,816 52,356 43,705 37,664 33,600 30,279 28,826 25,750 25,640 22,295 20,000 2,027,275 % 18.68% 13.33% 10.14% 9.68% 3.60% 3.24% 1.95% 1.77% 1.23% 1.22% 1.08% 1.04% 1.03% 1.02% 0.93% 0.88% 0.70% 0.67% 0.66% 0.61% 73.46% 15.04% 10.47% 7.07% 5.00% 4.84% 4.44% 3.33% 2.65% 2.05% 2.03% 1.75% 1.46% 1.26% 1.12% 1.01% 0.96% 0.86% 0.85% 0.74% 0.67% 67.60% 281 100 127 Shareholder Information Fairfax Media Limited OPTIONS There were no options exercisable at the end of the financial year. SUBSTANTIAL SHAREHOLDERS Substantial shareholders as shown in substantial shareholder notices received by the company as at 28 August 2009 are: National Australia Bank Limited Group Marinya Media Pty Ltd Maple-Brown Abbott Limited Commonwealth Bank of Australia Morgan Stanley & Co Incorporated DISTRIBUTION OF HOLDINGS AT 28 AUGUST 2009 No. of securities 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 less than a marketable parcel Ordinary Shares 255,189,749 232,512,219 187,655,883 126,111,138 119,717,545 No. of ordinary shareholders 11,017 21,639 7,824 7,226 463 48,169 3,489 No. of SPS holders 1,293 167 17 18 6 1,501 - No. of debenture holders 1 1 - - - - - VOTING RIGHTS 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 and debentures do not carry any voting rights. 128 Five Year Performance Summary Fairfax Media Limited and Controlled Entities Total revenue Revenues from operations (Loss)/earnings before depreciation, interest and tax (EBITDA) Depreciation (Loss)/earnings before interest and tax Net interest expense (Loss)/profit before tax Income tax expense Net (loss)/profit attributable to members of the Company Net profit before significant items Total equity Total assets Total borrowings Number of shares and debentures Number of shareholders Number of PRESSES holders Number of SPS holders EBITDA to operating revenue Basic (loss)/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 2009 2008 2007 2006 2005 2,609.5 2,599.1 2,934.0 2,900.9 2,178.5 2,111.4 1,909.9 1,907.8 1,880.2 1,873.4 (59.0) 117.6 (176.6) 174.9 (351.4) 29.7 (380.1) 242.4 5,011.8 7,595.2 1,908.3 2,352.0 49,050 - 1,388 (2.3) (21.6) 12.4 16.4 2.0 - 3.5 38.1 4.8 818.3 108.3 710.0 186.9 523.2 135.7 386.9 395.3 4,965.3 8,293.1 2,511.9 1,513.5 50,184 - 1,010 28.2 22.9 23.4 27.7 20.0 87.3 4.4 50.6 8.0 560.7 111.3 449.4 111.2 338.2 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 5.4 493.5 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 $m $m $m $m $m $m $m $m $m $m $m $m $m m % cents cents cents cents % Times % % 129 Directory Fairfax Media Limited ANNUAL GENERAL MEETING The annual general meeting will be held at 10.30am on Tuesday, 10 November 2009 at the Four Seasons Hotel, 199 George Street, Sydney NSW 2000. FINANCIAL CALENDAR For financial year 2008/09 Stapled preference security dividend Annual general meeting 2 November 2009 10 November 2009 Estimated for financial year end 2009/10 Interim result Stapled preference security dividend Preliminary final result Stapled preference security dividend Annual general meeting February 2010 April 2010 August 2010 October 2010 November 2010 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 STOCK EXCHANGE LISTING The Company’s ordinary shares are listed on the Australian Stock Exchange - “FXJ”. The Stapled Preference Securities (SPS) are listed on the Australian Stock Exchange - “FXJPB”. The NZ redeemable preference shares are listed on the New Zealand Debt Exchange - “FXFFA”. 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. 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. 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. 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. 130 Publications and Websites FAIRFAX MEDIA AUSTRALIAN PUBLICATIONS Metropolitan Newspapers The Sydney Morning Herald The Sun-Herald The Age The Sunday Age Magazines theage(melbourne)magazine Good Weekend Sport & Style (Sydney) Sport & Style (Melbourne) Sunday Life the(sydney)magazine Travel + Leisure Australia Canberra/Newcastle/Illawarra/ Seniors Group ACT The Canberra Times The Chronicle Public Sector Informant Queanbeyan Age Sunday Canberra Times Illawarra Illawarra Mercury Wollongong Advertiser Newcastle Lakes Mail The Newcastle Herald The Newcastle and Lake Macquarie Star Port Stephens Examiner Senior Publications Australian Senior Queensland Senior Senior Traveller South Australia Senior Tasmanian Senior Victorian Senior West Australian Senior Community Newspapers (NSW) 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 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 Knox Journal Maroondah / Yarra Ranges Journal The Journal Monash Journal Cranbourne Journal Berwick / Pakenham Journal Macedon Ranges / Sunbury Telegraph Werribee Banner / Point Cook Banner 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 131 Publications and Websites 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 Magnet 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 132 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 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 Murrumbidgee Farm Fair Northern and Southern Beef Weeks NSW Beef Spectacular Star Maker Quest Tamworth Country Music Festival New Zealand Agricultural Publishing Ag Trader Lifestyle Farmer Straight Furrow The Dairyman Field Days Central District Field Days Queensland/NT Regional Publishing The Bayside Bulletin Goondiwindi Argus Katherine Times Mt Isa Print 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Australian Financial Review The Australian Financial Review – Weekend Edition The Australaian Financial Review Magazine BRW CFO Life&LeisureLuxury Life & Leisure The Sophisticated Traveller MIS Australia Online Narrowcast 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 AssetLink Connect4 Fairfax Business Research MarketBase Education Financial Essentials Asia Publications CIO Asia Computerworld Singapore Computerworld Malaysia MIS Asia MIS Asia 100 Strategic 100 Asia On-line www.mis-asia.com 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 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 - AUSTRALIA News www.smh.com.au www.Theage.com.au www.Brisbanetimes.com.au www.WAtoday.com.au www.Sunherald.com.au www.thecanberratimes.com.au www.newsbreak.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 Lifestyle and Entertainment www.brisbanetimes.com.au/goodfoodg uide www.brisbanetimes.com.au/entertainm ent www.brisbanetimes.com.au/lifestyle www.cuisine.com.au www.essentialbaby.com.au www.smh.com.au/entertainment www.smh.com.au/lifestyle www.theage.com.au/entertainment www.theage.com.au/lifestyle www.thevine.com.au www.watoday.com.au/entertainment www.watoday.com.au/lifestyle Sport www.realfooty.com.au www.rugbyheaven.com.au www.leaguehq.com.au www.smh.com.au/sport www.theage.com.au/sport www.brisbanetimes.com.au/sport www.watoday.com.au/sport/ Technology www.smh.com.au/technology www.theage.com.au/technology www.brisbanetimes.com.au/technology www.watoday.com.au/technology www.smh.com.au/digital-life 133 Publications and Websites Travel/Accommodation FCN Victoria www.stayz.com.au www.traveller.com.au Video www.media.smh.com.au www.media.theage.com.au www.media.thecanberratimes.com.au www.media.watoday.com.au Property www.Domain.com.au www.apm.com.au (Australian Property Monitors) www.commercialrealestate.com.au www.desktop.com.au Automotive www.bikes.drive.com.au www.countryshed.com.au www.Drive.com.au www.Countrycars.com.au Dating www.rsvp.com.au Employment www.mycareer.com.au www.thebigchair.com.au Mobile www.mobile.fairfax.com.au Weather www.weatherzone.com.au www.marineweather.com.au FCN NSW www.blacktownsun.com.au www.bluemountainsgazette.com.au www.camdenadvertiser.com.au www.fairfieldchampion.com.au www.hawkesburygazette.com.au www.hillsnews.com.au www.liverpoolchampion.com.au www.macarthuradvertiser.com.au www.parramattasun.com.au www.penrithstar.com.au www.southwestruraladvertiser.com.au www.stmarysstar.com.au www.theleader.com.au www.thenorthernnews.com.au www.wollondillyadvertiser.com.au 134 www.berwickjournal.com.au www.chelseaindependent.com.au www.cranbournejournal.com.au www.frankstonindependent.com.au www.humeweekly.com.au www.knoxjournal.com.au www.macedonrangestelegraph.com.au www.maroondahjournal.com.au www.meltonexpress.com.au www.monashjournal.com.au www.morningtonpeninsulamail.com.au www.mymooneevalley.com.au www.the-advocate.com.au www.thebanner.com.au www.thejournal.com.au www.themail.com.au Regional Network www.araratadvertiser.com.au www.areanews.com.au www.arimdalexpress.com.au www.avonadvocate.com.au www.barossaherald.com.au www.batemansbaypost.com.au www.baysidebulletin.com.au www.begadistrictnews.com.au www.bellingencourier.com.au www.bendigoadvertiser.com.au www.blayneychronicle.com.au www.bombalatimes.com.au www.boorowanewsonline.com.au www.bordermail.com.au www.braidwoodtimes.com.au www.bunburymail.com.au 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www.portstephensexaminer.com.au www.queanbeyanage.com.au www.riverinaleader.com.au www.roxbydownssun.com.au www.sconeadvocate.com.au www.sheppartonadviser.com.au www.singletonargus.com.au www.southcoastregister.com.au www.southernweekly.com.au www.standard.net.au www.stawelltimes.com.au www.summitsun.com.au www.suncitynews.com.au www.tenterfieldstar.com.au www.theadvocate.com.au www.thecourier.com.au www.theflindersnews.com.au www.theherald.com.au www.theislanderonline.com.au www.theridgenews.com.au www.therural.com.au www.transcontinental.com.au www.ulladullatimes.com.au www.victorharbortimes.com.au www.waginargus.com.au www.walchanewsonline.com.au www.warrenadvocate.com.au www.wauchopegazette.com.au Publications and Websites www.farmonline.com.au/horticulture www.farmonline.com.au/horticulture/au stralasianflowers/index.aspx www.farmonline.com.au/horticulture/go odfruitvegetables/index.aspx www.farmonline.com.au/horticulture/irri gationandwaterresources/index.aspx www.grapegrowers.com.au www.horticultureonline.com.au www.qldsmartfarmer.com.au www.turfcraft.com.au FAIRFAX DIGITAL - NEW ZEALAND www.trademe.co.nz www.trademe.co.nz/trade-me-jobs www.trademe.co.nz/trade-me-motors www.trademe.co.nz/trade-me-property www.travelbug.co.nz www.findsomeone.co.nz www.oldfriends.co.nz NEW ZEALAND PUBLISHING 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 The Independent Sunday Star-Times Sunday News Turf Digest, Best Bets www.wellingtontimes.com.au www.westcoastsentinel.com.au www.westernadvocate.com.au www.whyallanewsonline.com.au www.wimmeramail.com.au www.winghamchronicle.com.au www.yasstribune.com.au www.youngwitness.com.au Rural Press www.ruralpresssales.com.au www.ruralbookshop.com.au www.ruralpress.com.au www.agquip.com.au www.autoguide.com.au www.jobsguide.com.au www.propertyguide.com.au www.businessquickfind.com.au www.buyersguide.com.au www.rpinteractive.com.au www.ruralpropertyguide.com.au www.holidaysaway.net www.horsedeals.com.au www.yourguide.com.au www.lifeislocal.com.au www.farmonline.com.au Your Guide albany.yourguide.com.au bowral.yourguide.com.au colac.yourguide.com.au dungog.yourguide.com.au freepress.kyabram.net.au geraldton.yourguide.com.au kerang.yourguide.com.au kyneton.yourguide.com.au mildura.yourguide.com.au swanhill.yourguide.com.au tennantcreek.yourguide.com.au warragul.yourguide.com.au New Zealand www.agtrader.co.nz www.lifestyle-farmer.co.nz www.straightfurrow.co.nz USA www.farmfutures.com www.farmprogress.com www.feedstuffs.com www.tackntogs.com Farmonline fw.farmonline.com.au nqr.farmonline.com.au qcl.farmonline.com.au sj.farmonline.com.au sl.farmonline.com.au theland.farmonline.com.au www.australianfarmjournal.com.au www.australianhorticulture.com.au www.farmonline.com.au/farmmags/alfal otfeeding/index.aspx www.farmonline.com.au/farmmags/aust raliancottonoutlook/index.aspx www.farmonline.com.au/farmmags/aust raliandairyfarmer/index.aspx www.farmonline.com.au/farmmags/aust ralianlandcare/index.aspx Magazines 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 Sunday (host Sunday Star-Times) The Cut The TV Guide 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 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 135 Publications and Websites www.northharbournews.co.nz www.northshoretimes.co.nz www.nor-westnews.co.nz www.nzfishingnews.co.nz www.nzgardener.co.nz www.nzhouseandgarden.co.nz www.nzlifeandlesuire.co.nz www.nzx.com www.papakuracourier.co.nz www.pcworld.co.nz www.press.co.nz www.reseller.co.nz www.rodneytimes.co.nz www.rugbyheaven.co.nz www.southlandtimes.co.nz www.sstlive.co.nz www.stuff.co.nz www.sundaynews.co.nz www.taranakidailynews.co.nz www.timaruherald.co.nz www.waihekemarketplace.co.nz www.waikatotimes.co.nz www.westernleader.co.nz 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 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 New Zealand Business Media Magazines CIO Computerworld NZ Gear Guide NZ PCWorld Resellernews MIS100 Websites www.cio.co.nz www.computerworld.co.nz www.jobuniverse.co.nz www.pcworld.co.nz www.reseller.co.nz NEW ZEALAND WEBSITES www.aucklandcityharbournews.co.nz www.aucklandstuff.co.nz www.businessday.co.nz www.centralleader.co.nz www.cio.co.nz www.computerworld.co.nz www.cuisine.co.nz www.dompost.co.nz www.eastandbayscourier.co.nz www.easterncourier.co.nz www.jobuniverse.co.nz www.manawatustandard.co.nz www.manukaucourier.co.nz www.marlexpress.co.nz www.nelsonmail.co.nz 136 www.fxj.com.au

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