Fairfax Media Limited
Annual Report 2010

Plain-text annual report

QUALiTy cONTENT >creation >Integration >Innovation >monetisation ANNUAL REPORT 2010 ABN 15 008 663 161 - www.fxj.com.Au “ Quality journalism and quality content. We create it, we integrate it, we innovate with it and we monetise it. That is our big competitive advantage” Brian Mccarthy cEO Distributing quality content across multiple platforms The Sun-herald Magazine March 14 2010 The Travel Issue Michelle Jank and other gypsies on life on the road i left My heart in ... four writers, four romantic destinations Plus: mia freedman’s fear of flying + how to get an upgrade + richard Branson on love, sex and virginity footloose and feMale? what you should know the (sydney) magazıne Issue #85 May 2010 Issue #71 September 2010 Don’t get him started… Why Eddie McGuire says the things he does Shop talk The experts’ guide to Sydney style by Megan Gale, Kirrily Johnston and more Haute horreur Unravelling the Karin Upton Baker scandal Mambo to motorbikes The entrepreneur who knows what men want + Highlights of the writers’ festival and our best Malay food +Off the rails What our trains are really like There was no crime… but he did the time. Why? Carn the pies! Paul Wilson’s grand final feast New columnist Marieke Hardy writes for us 8 W I N A N i P A D e p a e 3 g S e NEWSPAPERS MAGAZiNES WEBSiTES AUSTRALASiA'S MOST DivERSE MEDiA cOMPANy 330 Newspaper publications 59 Agricultural publications 48 magazines 284 websites 15 Radio stations 13 Narrowcast radio licences 23 Printing centres SMARTPHONES RADiO TABLET READERS Strongly positioned for changing technologies and media consumption habits Annual General Meeting The annual general meeting will be held at 10.30am on Thursday, 11 November 2010 at the Palladium, Level 1, crown Towers, 9 whiteman Street, Southbank, melbourne, Victoria. Table of contents chairman’s Report chief Executive Officer’s Report corporate Social Responsibility Report Board of Directors Directors’ Report Auditor’s independence Declaration Remuneration Report corporate Governance Management Discussion and Analysis Report consolidated income Statements consolidated Statements of comprehensive income consolidated Balance Sheets consolidated cash Flow Statements consolidated Statements of changes in Equity Notes to the Financial Statements Income tax expense 1. Summary of significant accounting policies 2. Revenues 3. Expenses 4. Significant and non-recurring items 5. 6. Dividends paid and proposed 7. Receivables 8. Inventories 9. Assets held for sale 10. Held to maturity investments 11. Investments accounted for using the equity method 12. Available for sale investments 13. Intangible assets 14. Property, plant and equipment 15. Derivative financial instruments 16. Deferred tax assets and liabilities 17. Payables 18. Interest bearing liabilities 19. Provisions 20. Pension liabilities 21. other financial assets 22. contributed equity 23. Reserves 24. Retained profits 25. Non-controlling interest 26. Earnings per share 27. commitments 28. contingencies 29. controlled entities 30. Acquisition and disposal of controlled entities 31. Business combinations 32. Employee benefits 33. Remuneration of auditors 34. Director and executive disclosures 35. Related party transactions 36. Notes to the cash flow statements 37. financial and capital risk management 38. Segment reporting 39. Events subsequent to balance sheet date Directors’ Declaration independent Auditor’s Report Shareholder information Five year Performance Summary Directory Publications and Websites 4 6 8 10 14 19 20 29 38 40 41 42 43 44 46 61 62 63 64 64 65 66 67 67 68 70 71 75 78 82 84 85 87 88 91 91 94 95 96 96 97 98 99 104 105 106 107 108 110 111 112 124 127 128 129 131 133 134 135 cHAiRMAN’S REPORT It is a pleasure to present the Chairman’s Report for the second time. At our last annual general meeting I had only just assumed the Chair of your Board. This year has been one of change and consolidation to meet the rapidly evolving media landscape in which fairfax – and media companies around the world – now operates. But it is also one of the most exciting times as fairfax looks to the future. while fairfax continues to play an important role in Australia’s democratic process, it is also reaching more audiences than ever before. New technologies and channels, such as smartphone and tablet apps, mean that fairfax’s content can be delivered and consumed in many different ways – how and when our readers want it. fairfax is a truly multi-platform media company. As your chairman, I want to assure shareholders that I and my fellow Board members will do all we can to maintain the excellent journalistic traditions of fairfax media and at the same time drive growth in shareholder wealth. Results Highlights while the 2009 financial year was one of the most difficult years ever experienced by all media in Australia and New Zealand, fairfax undertook a number of initiatives aimed at ensuring that when market conditions did eventually improve, so too would our financial results. Those hard decisions have paid off and I am pleased to say that the 2010 results are proof of the success of these actions. Some of the highlights include: • • • • A net profit after tax of $282 million (turned around from the prior year’s loss of $380 million). Earnings per share of 11.5 cents (compared to a loss of 21.6 cents). operational cash flow increasing 17%. final dividend of 1.4 cents per share compared to no final dividend last year. Given the changing capital markets, the Board has undertaken a program to reduce our debt levels by a further $347 million to a more appropriate level in the current market. And while we have further to go, our balance sheet is now much stronger and balanced than it was this time last year. 4 FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 The Board Last year’s annual general meeting saw the resignation or retirement of three of our Directors and we paid tribute to their contributions to the Board. As I reported at the last annual general meeting, this provided an excellent opportunity to refresh the Board with the skills needed to take your company into the new era of multi-platform media. Partly to accommodate these changes and also for a number of personal reasons, mr john B fairfax has indicated to the Board that he would not seek re-election at this year’s annual general meeting. john B fairfax has enjoyed a 50 year association with fairfax. He began his career as a cadet journalist in 1961. After a substantial career in the company he was appointed to the Board of john fairfax Limited in 1979, becoming Deputy chairman in 1985. following the takeover by Tryart Pty Limited in 1987, mr fairfax left the Board but maintained an interest when his family company, marinya media Pty Limited, purchased several assets from the company including the shares held in Rural Press Limited. He was chairman of Rural Press from 1990 to 2007. following the merger of fairfax media with the outstanding Rural Press, john B fairfax rejoined the Board in 2007, and he has been a deeply engaged Director. we thank him for his experience and significant contribution to the company both indirectly and directly over some 50 years. we wish him well and he remains, of course, a significant shareholder through his family company, marinya media. The Board has taken great care and the necessary time to select new Directors who will bring the range of skills, experience and judgements we will need to successfully position the company for the future. we welcome to your Board Sandra mcPhee, Linda Nicholls and Sam morgan, who were appointed from february 2010, and michael Anderson and Greg Hywood, who were appointed from September 2010. we believe your company now has a very strong Board with the right mix of skills and experience to face the exciting opportunities and challenges ahead. we acknowledge a number of people who formally and informally offered their services, many very well qualified. we thank them for their interest and courtesy. with the latest additions to the Board, some review will be made to the Board’s working committees, which will also include careful consideration of our environmental responsibilities and initiatives. Our People on behalf of the Board I would like to pay tribute to the more than 10,000 people who make fairfax the leading media company in Australasia and one of the best in the world. Their enthusiasm and confidence in ensuring our readers have the best news available and advertisers have access to the best audiences in the countries in which we operate are key to our success. I would also like to thank our cEo and managing Director Brian mccarthy and his management team for the leadership they have shown and the actions they have taken to ensure the continued success of the company. The Board is confident that Brian and his team will continue to drive the company forward in the exciting times ahead. Roger corbett, AO chairman Dividend In line with the improving results and the health of the company’s balance sheet, the Board decided to pay a final dividend of 1.4 cents per share, fully franked. This represents a payout ratio of 21%, which is in line with our stated dividend policy. I can assure shareholders that the Board will continue to look very closely at the dividend policy with a view to moving the dividend payout ratio higher as conditions allow and as part of our continual review of all capital management initiatives. Strategy The Board and management have worked closely together over the past 12 months to develop a future direction for the company. As part of this process, consideration was given to media industry trends and long-term challenges we face in the rapidly evolving global media environment. A great deal of work has been undertaken by the company in determining the right course to take and I am pleased to report to shareholders that the Board has determined a clear strategic plan which will take fairfax forward in the years ahead. our strategies will always continue to evolve as technologies evolve and we are now very well placed to take advantage of the changes with the excellent quality of our content. Governance and Sustainability The annual report contains a section dedicated to reporting on the high standards of corporate governance practised by the company and the level of attention by the Board to maintaining those high standards. fairfax continues to take its corporate social responsibilities seriously and this report contains a section on corporate Social Responsibility. FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 5 cHiEF EXEcUTivE OFFicER’S REPORT I am pleased to report to you on our achievements during the 2010 financial year. fairfax media is Australasia’s most diversified media company, with 437 publications, 284 websites, 28 radio station and narrowcast licences and 23 printing centres in Australia, New Zealand and the united States of America. over the past financial year, the company has achieved underlying earnings before depreciation, interest and tax (EBITDA) of $639 million, compared with $605 million for the previous corresponding period. I believe this to be a sound result in the prevailing market circumstances, and a result which exceeded market expectations. There were three main contributors to the improved annual performance, being strong second half revenue growth compared to the prior period, improved business efficiency across the company and lower interest costs due to reduced levels of debt. The results are the culmination of an increased focus over the past two years to better position the company’s diverse businesses in a changing media landscape. Tougher economic conditions in New Zealand made it harder for our publishing businesses; however, our New Zealand and Australian online businesses prospered. fairfax Digital in Australia and Trade me in New Zealand recorded growth in revenues and earnings of 14% and 22% respectively. our broadcasting network added to the fairfax business diversity and converted modest revenue growth into a 15% increase in earnings, reflecting reductions in the relatively fixed cost base. our approach has been to give each of these businesses their best chance to perform well in their markets from a lower cost base. This was particularly highlighted in the second half of the year when all segments of the business recorded much stronger results. Total revenues in the second half increased 6% over the previous corresponding period, which provided a 34% increase in earnings. Business initiatives over the past two years, fairfax media has faced several challenges, including a more competitive market for traditional media, a need to monetise online content, a downturn in advertising markets and a balance sheet with higher debt levels than appropriate under changed circumstances. In addressing these challenges our approach has been to build cash flow by taking revenue opportunities while lowering the cost base. Some initiatives introduced include: • The launch of numerous smartphone applications such as mycareer, Domain and the smart edition of the Sydney morning Herald. • New online initiatives such as nationaltimes.com.au and the relaunch of drive.com.au. • upgrades and enhancements to afr.com.au, resulting in subscriber growth. • Rollout of 160 regional newspaper websites. • commissioning of a new printing press in christchurch, New Zealand. • Acquisition of findababysitter.com.au and bookit.co.nz. • Better utilisation of print centres. Strategy fairfax media’s strategy is an evolution of our existing strategy. our focus is on adapting our businesses to ensure we are best positioned in the new media environment to capitalise on our strengths, thereby growing the company. for the next few years, we have identified three key priorities, being: adapting fairfax media to being a true multi-platform company; evolving our news products and transforming our metropolitan business model; and expanding our positions in growth segments. 6 FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 In conclusion, I believe that the company is well positioned to benefit from any ongoing improvement in economic conditions. In addition, fairfax media has three very important competitive advantages, being: • we have quality content. we create it, we integrate it, we innovate it and monetise it across the broad range of media assets we own. • we have a stable and successful management team and staff, whom I thank for all their hard work over the past 12 months. • we have the strategy in place to take us forward. Brian Mccarthy chief Executive officer and managing Director In terms of the first priority, there are a number of initiatives we will pursue. These include a new organisational structure; greater sharing of editorial content and collaborating across print, online and mobile; more integrated selling; and monetising our content online and on emerging platforms. In terms of our second key priority, our metropolitan news businesses, taken as a whole, reach more readers than ever before. Nevertheless, we must continually evolve all of our news assets so they remain relevant and profitable. This will be achieved by undertaking a series of business efficiency initiatives focused on protecting revenues and reducing costs over time. we will continue to focus on editorial excellence, subscriptions and effective promotions to maintain paid circulation. over time, the iPhone, iPad and other tablet platforms will enable us to distribute our content to new audiences, or migrate existing audiences from the newspapers. In terms of the third priority, to keep pace with the changing media environment, we must continue to establish positions in new growth segments. This comprises investing in both internal and external opportunities. we will continue to capitalise on the quality and size of our online news audiences to create new revenue streams. In particular, we will continue to invest in online transactional businesses and short-form video to benefit from the rapid growth in that segment. As an indicator of the quality of our content, our media assets and our staff, the company won many industry awards during the year. whilst too many to list here, they included: • The Sydney morning Herald, Newspaper of the Year for the second consecutive year. • The Sun-Herald, Sunday Newspaper of the Year. • The canberra Times, Newspaper of the Year Daily (25,000 – 90,000 circulation). • The Land, Newspaper of the Year Non-Daily (25,000 – 90,000 circulation). • Hawkesbury Gazette, Newspaper of the Year Non-Daily (0 – 10,000 circulation). • fairfax Digital online Publisher of the Year. FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 7 cORPORATE SOciAL RESPONSiBiLiTy REPORT Environment fairfax media has a strong commitment to the environment. The Printing and Distribution business unit is engaged in considerable environmental initiatives to reduce energy usage, reduce our carbon footprint, reduce emissions and improve recycling. These initiatives are aligned with emerging government requirements and also assist in reducing costs. All waste newsprint, aluminium plates, plastics, cardboard, ink and rags from the print sites are recycled. In addition, energy consumption has been reduced through the installation of energy efficient equipment (such as insulation, lighting controllers and sensor lights) and water saving actions (such as modified cooling towers and flow restriction devices). fairfax media is a member of the Publisher’s National Environment Board (PNEB) and holds two Board seats in this industry body. most newsprint for fairfax media publications is produced with pulp (from plantation trees only) including recycled fibre. The industry body helps to promote newspaper recycling. The new offices in Sydney and melbourne have provided us with an opportunity to improve our energy footprint. when employees moved to the new Sydney office, a sustainable commuting plan was developed to provide employees with several commuting alternatives including public transport, cycling and walking. Supporting facilities such as bike lockers and changing facilities were also provided. The new offices in melbourne have a five star Green Star rating. They have immediate proximity to public transport and provide for 109 bicycle racks. The design of the building (including solar panel heating for water and roof rainwater collection) results in annual energy savings of up to 30% and a reduction in carbon emissions of 36%. Fairfax Media has a proud history of working closely with the communities in which it operates. The following provides a summary of the current initiatives under the four key elements of Corporate Social Responsibility. community first and foremost, our content across print, online and radio aims to inform, inspire and connect with communities. Each business unit provides support for the local communities in which it operates. The direct contribution in advertising and sponsorship is in excess of $17 million each year across the company. These activities typically take the format of: • free or discounted advertising space/ community announcements, • sponsorship arrangements, and • support for events, awards and associations. In addition, each year there are several new campaigns and initiatives that support the community. for example, in August 2009 the company launched an Indigenous jobs Australia website which was the result of collaboration between the Australian Indigenous chamber of commerce (AIcc) and fairfax media. The national jobs board is aimed at Aboriginal and Torres Strait Islander job seekers and a significant proportion of any profits will be returned to AIcc. for the last three years, fairfax media has been actively involved with the development and organisation of “Earth Hour”, which has gained international support for action against global warming. fairfax media was actively involved from conception in conjunction with wwf Australia and Leo Burnett Sydney. our employees in Australia are provided with the opportunity to be involved with the community through a workplace Giving Program. This enables employees to donate to nominated charities. The program was launched in December 2005 and has raised over $340,000. Employees also participate in activities supporting the community such as Red cross blood donations. 8 FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 In addition, we have a number of initiatives to ensure we attract, motivate and retain high performing employees: • we have implemented a company-wide management training system which increases the emphasis on our people working together as a team, develops our managers and supervisors as individuals, and provides an excellent pipeline of future senior managers. • we are in the process of rolling out a consistent approach to performance management to ensure that all employees have the opportunity to focus on their performance and development. • we provide employees with flexibility where possible and provide a range of employment benefits (e.g. staff at the new Sydney office have access to a gym and subsidised childcare). Together these activities indicate fairfax media’s strong commitment to its social responsibilities. Marketplace It is critical for the company to have a reputation as an independent and trusted source of news and information. To support this we have processes in place such that all employees conduct business in a manner that is honest and of the highest integrity. company policies and guidelines such as the code of conduct, the journalists code of Ethics, and the Gifts and Gratuities policy assist employees in understanding these obligations. we strive to maintain our business relationships in a manner which is consistent with principles of respect for others and fairness. Any real or potential conflicts of interest when dealing with family, friends, or other related parties or entities on behalf of the company must be disclosed and approval sought before contracting with any of these parties. fairfax media employees are placed in a position of trust and are regularly privy to sensitive information. we operate in accordance with the relevant privacy legislation. Workplace The safety of our employees is paramount to our business and is a key focus. Every employee and manager is required to undertake training to ensure they understand their safety obligations. we aim to prevent injuries through education and support (e.g. the employee assistance program). our employment policies and practices aim to ensure that the workplace is free from harassment and discrimination and encourage diversity. FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 9 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 may 2007. He has been a director of marinya media Pty Limited 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. Mr Roger corbett, AO NoN-ExEcuTIVE cHAIRmAN, APPoINTED To THE BoARD 4 fEBRuARY 2003 mr corbett was elected chairman of the Board in october 2009; he 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. In 1999, mr corbett was appointed chief Executive officer of woolworths Limited. He retired from that position in 2006. mr corbett is a director of the Reserve Bank of Australia, a director of wal-mart Stores and Deputy chairman 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 member of the Dean’s Advisory Group of the faculty of medicine at the university of Sydney; and chairman of the Advisory committee of the westmead children’s Hospital. 10 FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 Mr John B Fairfax, AO NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD 9 mAY 2007 mr fairfax was a Board member of Rural Press from 1988 and chairman from 1990 until the merger with fairfax media Limited in 2007. 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. In july 2010, mr fairfax announced that he will retire from the Board at the end of his current term and will not seek re-election at the company’s annual general meeting in November 2010. Mr Sam Morgan NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD 26 fEBRuARY 2010 mr morgan is the founder and former cEo of New Zealand’s largest online transaction site Trademe, which was purchased by fairfax media in 2006. He is the chairman of software company Visfleet and a director of online businesses xero and Sonar6. Ms Sandra McPhee NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD 26 fEBRuARY 2010 ms mcPhee is a director of AGL Energy, Kathmandu Holdings Limited, Tourism Australia, St Vincent’s and mater Health Sydney, the Art Gallery of New South wales and a member of the advisory boards of jP morgan and mmc. Her previous directorships include Australia Post, coles Group Limited and Perpetual Limited. Prior to becoming a professional director, ms mcPhee held senior executive positions in a range of consumer oriented industries including retail, tourism and aviation, most recently with Qantas Airways 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, a newspaper industry body, since 2006. FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 11 BOARD OF DiREcTORS Ms Linda Nicholls, A0 NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD 26 fEBRuARY 2010 ms Nicholls is a corporate advisor and director of a number of leading Australian companies and organisations. She is chair of Healthscope Limited, and chair of KDR (Yarra Trams) and a director of Sigma Pharmaceutical Group, and the walter and Eliza Hall Institute of Biomedical Science. She is also on the Harvard Business School Alumni Board. She is a former chair of Australia Post and a director of St.George Bank Limited. Prior to becoming a professional director, ms Nicholls held senior executive positions in the banking and finance industry. Mr Robert Savage, AM 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 may 2007, and 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 30 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, of Queensland Investment corporation and of NSw cultural management Pty Ltd. He is involved in a number of community, environmental and artistic activities. 12 FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 Mr Michael Anderson NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD 2 SEPTEmBER 2010 mr Anderson has had a long career in the radio industry including as chief Executive of Austereo Limited from 2003 until january 2010. Prior to becoming chief Executive he was chief operating officer and from 1997 till early 2003 he was Executive Director of Sales and marketing. He began his career in sales at Austereo in 1990. During his time as chief Executive he focussed the company on building strong station brands and adapting the business to the changing media market including building and maintaining market leadership and developing new strategic directions, focussing on target audiences and adapting to increased competition. He launched a nationwide digital network and Australia’s first digital radio station. He has been a leader in adapting radio to the digital era. Mr Gregory Hywood NoN-ExEcuTIVE DIREcToR, APPoINTED To THE BoARD EffEcTIVE 4 ocToBER 2010 mr Hywood has enjoyed a long career in the media and government. A walkley Award winning journalist, he held a number of senior management positions at fairfax including Publisher and Editor in chief of each of The Australian financial Review, The Sydney morning Herald/Sun Herald and The Age. He also held the position of Group Publisher fairfax magazines. He was Executive Director Policy and cabinet in the Victorian Premiers Department between 2004 and 2006 and since 2006 has been chief Executive of Tourism Victoria. Greg is also a Director of the Tourism and Transport forum, The Heart foundation, The Victorian major Events company, and a member of the Deakin university council. FAiRFAX MEDiA LiMiTED ANNuAL REPoRT 2010 13 Directors’ Report 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 27 June 2010 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 ROGER CORBETT, AO Non-Executive Chair effective 13 October 2009 MR RONALD WALKER, AC, CBE Non-Executive Chair MR BRIAN MCCARTHY Chief Executive Officer and Managing Director MR JOHN B FAIRFAX, AO Non-Executive Director MR NICHOLAS FAIRFAX Non-Executive Director MS SANDRA MCPHEE Non-Executive Director Appointed to the Board on 26 February 2010. MR SAM MORGAN Non-Executive Director Appointed to the Board on 26 February 2010. MS LINDA NICHOLLS, AO Non-Executive Director Appointed to the Board on 26 February 2010. MR ROBERT SAVAGE, AM Non-Executive Director MR PETER YOUNG, AM Non-Executive Director MR MICHAEL ANDERSON Non-Executive Director Appointed by the Board on 2 September 2010. MR GREGORY HYWOOD Non-Executive Director Appointed by the Board effective 4 October 2010. 14 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 Retired from the Board on 10 November 2009. MR DAVID EVANS Non-Executive Director Retired from the Board on 10 November 2009. MRS JULIA KING Non-Executive Director Retired from the Board on 10 November 2009. A profile of each Director holding office at the date of this report is included on pages 10-13 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. 9 Directors’ Report DIRECTORS’ REPORT Company Secretary 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 Chartered Secretaries Australia. Ms Hambly is also a Director of Company B Belvoir 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 the publishing of news, information and entertainment, advertising sales in newspaper, magazine and online formats, and radio broadcasting. 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 profit attributable to the consolidated entity for the financial year was $282,115,000 (2009 Loss: $380,050,000). Dividends No final dividend was paid in respect of the year ended 28 June 2009. An interim unfranked dividend of 1.1c per ordinary share and debenture was paid on 19 March 2010 in respect of the year ended 27 June 2010. Since the end of the financial year, the Board has declared a final fully franked dividend of 1.4 cents per ordinary share and debenture in respect of the year ended 27 June 2010. This dividend is payable on 23 September 2010. Distributions to holders of Stapled Preference Securities (SPS) were paid as follows: $2.2946 per share paid 30 October 2009 and $2.9010 per share paid 30 April 2010. Review of operations Revenue for the Group decreased 5% to $2,490 million generating a net profit after tax of $282.1 million (2009: loss $380.1 million). Earnings per share increased to a profit of 11.5 cents (2009: loss 21.6 cents). Further information is provided in the Management Discussion and Analysis Report on page 38. 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 15 March 2010, Fairfax Corporation Pty Limited purchased NZ$89.6 million Redeemable Preference Shares (RPS) in Fairfax New Zealand Finance Limited from investors who exercised their put option under the terms of issue of the RPS. The remaining NZ$96.9 million of RPS were redeemed on 15 June 2010. 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 4–7 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. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 15 DIRECTORS’ REPORT Directors’ Report Environmental regulation and performance No material non-compliance with environmental regulation has been identified relating to the 2010 financial year. The Company will be reporting to the Department of Climate Change on the total carbon emissions of the Group generated in the 2010 financial year under the National Greenhouse and Energy Reporting legislation by 31 October this 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, and the move to Media House at Southern Cross Station in Melbourne, both of which are new, energy efficient buildings has resulted in reduced emissions for the relevant business units. The completion of Media House allowed for the consolidation of a number of separate Victorian-based business units into one building with significant resultant efficiencies. More information about the Group’s environmental performance can be found in the C report. orporate Social Responsibility Events after balance date There have not been any after balance date events. Remuneration Report A remuneration report is set out on pages 20-28 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 RC Corbett JB Fairfax NJ Fairfax BK McCarthy S McPhee S Morgan L Nicholls R Savage P Young* Opening Closing Year End Year End Year End Balance Acquisition Disposals Balance Acquisitions Disposals Balance Post Post Post 99,206 235,426,781 3,892,481 2,358,522 - - - 47,899 131,117 - - - - - - 255,920 463,581 - - - - - - - - - - 99,206 235,426,781 3,892,481 2,150,861 - - - 47,899 131,117 - - - - - - - - - - - - - - - - - - - - 99,206 235,426,781 3,892,481 2,150,861 - - - 47,899 131,117 - 241,748,345 TOTAL 241,956, 006 255,920 46 , 3 581 241,748,345 * During the year Mr Peter Young disposed of 630 Stapled Preference Securities (SPS). As at the date of this report no director holds any SPS. No Director holds options over shares in the Company. 16 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 11 DIRECTORS’ REPORT Directors’ Report Directors’ meetings The following table shows the number of Board and Committee meetings held during the financial year ended 27 June, 2010 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 10 10 10 10 4 4 4 10 10 3 2 3 10 10 10 10 4 4 4 9 9 3 1 3 4 - 4 - - - 1 4 4 - - 2 4 - 4 - - - 1 4 4 - - 1 5 - 5 - - - - - 5 - 1 1 5 - 5 - - - - - 5 - 0 1 4 4 - - - - - - 4 1 - 1 3 4 - - - - - - 4 1 - 1 R C Corbett** JB Fairfax NJ Fairfax BK McCarthy* S McPhee S Morgan L Nicholls R Savage P Young D Evans JM King R J Walker** * Mr McCarthy attends the Audit & Risk and Personnel Policy & Remuneration Committee meetings as invitee of the Committees. ** Mr Walker, Chairman, was an ex officio member of all Board committees, re tiring on 10 November 2009. Mr Corbett, appointed as 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 Access, Disclosure, Insurance and Indemnity which provides for indemnity by the Company 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. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 17 DIRECTORS’ REPORT 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 33 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. and A copy of the auditor’s independence declaration under section 307C of the Corporations Act 2001 is on page 19 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 $251,397  Overseas $316,386 Other assurance and non-assurance services:  Australia $94,677  Overseas $23,061 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. Roger Corbett Chairman 20 September 2010 Brian McCarthy Chief Executive Officer and Managing Director 18 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 AUDITOR’S INDEPENDENCE DECLARATION AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration to the Directors of Fairfax Media Limited In relation to our audit of the financial report of Fairfax Media Limited for the financial year ended 27 June 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Christopher George Partner 20 September 2010 Liability limited by a scheme approved under Professional Standards Legislation FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 19 REMUNERATION REPORT Remuneration Report 1. Introduction This report forms part of the Company’s 2010 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, John B Fairfax and Sandra McPhee (from 1 July, 2010). All members except John B Fairfax are independent. The PPRC met four 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 as an invitee 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. Directors have resolved to seek shareholder approval for an increase in the cap on the aggregate directors’ fees from $2,000,000 to $2,100,000 at the Company’s 2010 AGM. 20 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 REMUNERATION REPORT 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 The Chairman of the Board does not receive committee fees for membership of the Personnel Policy and Remuneration Committee and the * Nominations Committee. 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 (“Retirement Benefit”) for non-executive Directors and froze existing entitlements at that time. Other than 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. Julia King, who had served on the Board since July 1995 and retired in November 2009, was eligible for a benefit under the Retirement Benefits scheme. She received a benefit of $195,000. Since the retirement of Mrs King there are no more Directors eligible for Retirement Benefits. 4. Remuneration of the Chief Executive Officer The remuneration details for the CEO are set out in section 5. of this report. 5 The key terms of Mr McCarthy’s Executive Services Agreement with the Company include a base salary (including superannuation and other benefits but excluding performance bonus and Long Term EBIS) of $1.5 million per year, a performance bonus and participation in the Long Term Equity-Based Incentive Scheme (EBIS). Mr McCarthy is eligible for a performance bonus (“Performance Bonus”) of up to ninety percent of salary plus superannuation (‘Fixed Remuneration’) 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. Eighty eight percent of the Performance Bonus is determined by achievement of financial targets for the Group. The remaining twelve 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 under the Long Term EBIS, Mr McCarthy is entitled to an allocation of shares (purchased on market by the Executive Share Plan Trust) to the equivalent of 100% of his Fixed Remuneration as an allocation of Company shares each year. These shares vest on the terms set out in section 5.2. In the 2010 financial year, in response to the impact of the global financial crisis on the group, the Directors determined that for the 2009-2010 financial year only, the share allocations to participants in the Long Term EBIS would be reduced to 25% of normal allocations. Consequently, in the 2009-2010 financial year, Mr McCarthy received a share allocation in the Long term EBIS equivalent to 25% of his Fixed Remuneration. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 21 REMUNERATION REPORT 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 (Fixed Remuneration) includes all employee benefits and related fringe benefits tax, for example, motor vehicle, parking and superannuation. It represents the total fixed 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 year ended 27 June 2010 during July to August 2010. 5.1 PERFORMANCE-BASED SHORT TERM INCENTIVES (“BONUS PAYMENTS”) 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. The bonus opportunity consists of three components: • corporate level – drives corporate financial results (EPS, EBIT) and encourages senior management to work together for the overall benefit of the group; • business unit level – drives business unit financial results and other operational metrics to encourage team behaviour (e.g. EBIT, circulation, readership, market position, revenue); • personal level – drives team and individual operating results (e.g. safety, cost reduction, business improvement, leadership). Each senior executive has a target bonus opportunity depending on the accountabilities of the role and impact on Company or business unit performance. There are two levels of performance: • “On-target” performance – where 100% of the target bonus will be earned (e.g. for EBIT the “on-target” performance is typically achievement of budget) or • “Maximum” performance - where performance is such that the maximum level of incentive will be earned. This applies for corporate and business unit measures only. For most senior executives reporting directly to the CEO, the on-target bonus opportunity for 2010 was 25% of the executive’s fixed remuneration package and the maximum bonus opportunity was 47.5% of the fixed remuneration package. Generally, the bonus opportunity consists of three components: 20% is based on Group EBIT and earnings per share, 70% is based on business unit 22 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 REMUNERATION REPORT Remuneration Report financial performance and 10% 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. 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 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). The number of Company shares to which a participant is entitled will depend on the participant’s role and responsibilities. Shares for the Allocations are purchased on market by the trustee of the Executive Share Plan. The shares are allocated to the employee and held by the trustee in trust until the Allocation vests or is forfeited. Executives receive any dividends paid on the shares while they are in the trust. In response to the impact of the global financial crisis, the Directors determined that for the year ended 27 June 2010, the share allocations to participants in the Long Term EBIS were reduced to 25% of their normal allocations. 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 in the table: 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% FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 23 Remuneration Report REMUNERATION REPORT OTHER TERMS OF THE 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 generally be forfeited. Although the Board has discretion to allow vesting, generally the Board will not exercise this discretion unless there are very special circumstances. On termination for 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. In the circumstances of an offer to acquire the Company, vesting will be at the Board’s discretion. The Long-Term EBIS was suspended in May 2009 pending finalisation of the tax treatment of employee share plans as a consequence of announcements made in the 2009 Federal Budget. It recommenced operation in June 2010 on the same terms as it previously operated after the relevant tax legislation was finalised. 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 2010 2,482 290.7 11.8 2.5 11.3 AIFRS 2009 2,600 241.3 12.4 2.0 (52.1) AIFRS 2008 2,909 395.9 23.4 20.0 (34.7) AIFRS 2007 AIFRS 2006 2,117.6 1,907.8 267.8 23.2 20.0 34.2 234.3 24.5 19.5 (5.70) $m $m Cents Cents % * TSR comprises share price appreciation and dividends, gross of franking credits, reinvested in the shares Source: Bloomberg 5.3 RETIREMENT BENEFITS FOR EXECUTIVES Except for a very small number of long serving executives who are members of a defined-benefit superannuation plan, retirement benefits are delivered through contribution accumulation superannuation plans. The defined-benefit funds (which are closed to new entrants) provides defined lump sum benefits based on years of service, retirement age and the executive’s remuneration at the time of retirement. 5.4 EXECUTIVE SERVICE AGREEMENTS The terms of employment of the CEO are set out in section 4 and this section 5.4 below. The remuneration and other terms of employment for the highest paid executives and key management personnel (disclosed in section 5.6 pursuant to section 300A of the Corporations Act) are set out in written agreements. These service agreements are unlimited in term but may be terminated 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 agreement sets out the 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 5 sections 5. and 5. . 6 24 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 REMUNERATION REPORT Remuneration Report 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, the 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 Alan Browne 12 months 4 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 Bob Lockley 12 months 4 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 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 25 REMUNERATION REPORT Remuneration Report 5.5 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 JM King 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 115,323 336,000 321,233 180,910 51,589 160,000 140,000 140,000 170,000 173,526 51,833 150,000 - - - - - - - - - - - - - - - - - - - - - - - - - - 1,405,014 1,155,750 1,200,000 298,220 40,461 40,461 49,025 150,000 150,000 200,000 175,564 - - - - - - - - - - - - - - BK McCarthy 2010 S McPhee S Morgan L Nicholls R Savage P Young 2009 2010 2010 2010 2010 2009 2010 2009 Total remuneration: Directors 2010 - - - - - - - - - - 195,000 - - - - - - - - - - 10,379 30,240 28,911 16,282 4,643 14,400 12,600 12,600 15,300 15,617 4,665 13,500 42,308 - - - - - - - - - - - - 125,702 366,240 350,144 197,192 56,232 174,400 152,600 152,600 185,300 189,143 251,498 163,500 57,483 2,660,555 100,000 63,839 1,662,059 3,641 3,641 4,412 13,500 13,500 18,000 15,801 - - - - - - - 44,102 44,102 53,437 163,500 163,500 218,000 191,365 Total n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 52% 34% n/a n/a n/a n/a n/a n/a n/a 1,329,925 1,405,014 1,155,750 195,000 162,000 57,483 4,305,172 2009 1,466,000 1,200,000 298,220 - 231,940 63,839 3,259,999 In addition to the remuneration in table 5.5 above Brian McCarthy’s total cost to the Company includes the amortised cost of the fair value of rights to shares issued of $502,909 (2009: $407,408) representing a total of $3,163,464 (2009: $2,069,467). Non-Executive Directors are not participants in any performance related share arrangements (refer section 3 of the remuneration report). 26 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 21 REMUNERATION REPORT Remuneration Report 5.6 KEY MANAGEMENT PERSONNEL The following are the key management personnel for the financial year in addition to the directors listed above. KMP Brian McCarthy Brian Cassell Gail Hambly Title Chief Executive Officer Chief Financial Officer Group General Counsel and Company Secretary Subsequent to balance date, Michael Anderson was appointed to the Board on 2 September 2010 and Gregory Hywood was appointed to the Board effective 4 October 2010. There were no other changes to the key management personnel between the end of the financial year and the date of this report. REMUNERATION OF THE COMPANY & GROUP EXECUTIVES WHO RECEIVED THE HIGHEST REMUNERATION OR ARE KEY MANAGEMENT PERSONNEL 2010 POST SHORT-TERM EMPLOYMENT Title Company Group Benefits Bonus annuation Leave Expense shares Total Base Salary Performance & Other Cash Super- Long Service Total excluding Related   1,405,014 1,155,750   485,727 214,500 42,308 57,483 2,660,555 50,000 59,519 809,746 B McCarthy Chief Executive Officer A Browne B Cassell G Hambly R Lockley J Matthews CEO & Publisher – Australian Regional Pub  Chief Financial Officer   689,325 Group General Counsel & 492,109 Company Secretary CEO – Web Printing   CEO – Fairfax Digital     504,972 576,717 363,340 50,000 78,350 1,181,015 273,350 59,145 10,208 834,812 242,825 51,923 52,835 852,555 250,938 48,297 8,151 884,103 52% 35% 39% 43% 37% 40% TOTAL 4,153,864 2,500,703 301,673 266,546 7,222,786 Amortised cost to the Company of the fair value of rights to shares issued: B McCarthy $502,909, A Browne $103,616, B Cassell $150,899, G Hambly $156,817, R Lockley $107,779 and J Matthews $177,032. Total cost to the Company after inclusion of the amortised cost of the fair value of rights to shares: B McCarthy $3,163,464, A Browne $913,362, B Cassell $1,331,914, G Hambly $991,629, R Lockley $960,334, J Matthews $1,061,135. 22 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 27 REMUNERATION REPORT Remuneration Report REMUNERATION OF THE COMPANY & GROUP EXECUTIVES WHO RECEIVED THE HIGHEST REMUNERATION OR ARE KEY MANAGEMENT PERSONNEL 2009 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 B McCarthy B Cassell* G Hambly S Narayan* J Matthews L Price** J Withers***   1,200,000   500,000   490,855   627,178   576,554   164,531 680,955  298,220 90,960 92,125 - - - 100,000 63,839 1,662,059 100,000 59,145 8,395 8,327 699,355 650,452 - 1,197,843 55,899 - 1,880,920 75,000 - 48,445 5,850 - - 506,869 14,773 162,580 - - - 705,849 686,173 843,535 34% 26% 32% n/a 27% 16% n/a TOTAL 4,240,073 556,305 1,867,292 378,262 86,411 7,128,343 * Sankar Narayan (CFO) ceased employment in May 2009. ** Linda Price (IT and Group HR Director) ceased employment 1 December 2008 *** Joan Withers (CEO-New Zealand) ceased employment in June 2009. Amortised cost to the Company of the fair value of rights to shares issued: B McCarthy $407,408, B Cassell $122,632, G Hambly $180,874, S Narayan $34,302 credit, J Matthews $157,660 and L Price $132,545. Total cost to the Company after inclusion of the amortised cost of the fair value of rights to shares: B McCarthy $2,069,467, B Cassell $821,987, G Hambly $ 831,326, S Narayan $1,846,618, J Matthews $863,509, L Price $818,718 and J Withers $843,535. 5.7 OPTIONS During the year ended 27 June 2010:  no options were granted to Directors or key management personnel (2009:nil);  no options held by Directors or key management personnel vested (2009:nil);  no options held by Directors or key management personnel lapsed (2009:nil); and  no options held by Directors or key management personnel were exercised (2009:nil). 5.8 LOANS TO DIRECTORS AND KEY MANAGEMENT PERSONNEL Remuneration Report During the year ended 27 June 2010, there were no loans to Directors or to key management personnel (2009: nil). 5. HEDGING RISK ON SECURITIES FORMING PART OF REMUNERATION 9 The rules of the Fairfax Employee Share Plans prohibit employees from creating any encumbrance on unvested share rights. Under the Board approved Fairfax Securities Trading Policy, the Directors and certain senior employees 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. 28 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE 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    Principle 2: Structure the Board to add value 2.1 A majority of the Board should be independent Directors   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  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 2.6 Provide the information indicated in Guide to reporting on Principle 2 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                  31 20-24 22 32 32 32 32 32 10-13,17,32-33 33 33 33 37 33,37 34 31 31 31 31 34 10-13,17,34 35 35 25 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 29 CORPORATE GOVERNANCE 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    7.2 Board should require management to design and implement the risk management and  35 35 35-36 35-36 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  35-36     35-36 20 20-24 17,20-21,28 26 30 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE 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 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 the issue 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 R Corbett* Independent Chair Member Chair Member COMMITTEE MEMBERSHIP Personnel Policy & BK McCarthy CEO M Anderson** Independent JB Fairfax N Fairfax Non-Independent Non-Independent G Hywood*** Independent S McPhee**** Independent S Morgan**** Independent L Nicholls**** Independent R Savage P Young Independent Independent - - - - - - Member Member - - - Chair Member Member - - - - - - - Member - - Member - - - Member Chair * Mr Walker retired from the Board on 10 November, 2009. Mr Corbett was appointed as Chairman of the Board on 13 October, 2009. ** Mr Anderson was appointed to the Board on 2 September 2010. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 31 CORPORATE GOVERNANCE Corporate Governance *** Mr Hywood’s appointment to the Board is effective 4 October 2010. ****Ms McPhee, Mr Morgan and Ms Nicholls were appointed to the Board on 26 February, 2010. The qualifications and other details of each member of the Board are set out on pages 10-13 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 until the retirement of Mr JB Fairfax at the AGM on 11 November 2010 the maximum si of the Board will be 11. Upon the retirement of Mr Fairfax the maximum Board size will revert to 10. ze 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 non-executive Directors, the majority of whom 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 members’ performance is reviewed regularly and to recommend changes from time to time to ensure the Board has an appropriate mix of skills and experience. The Committee uses the following principles to recommend candidates and provide advice and other recommendations to the Board:   A majority of the 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;     identifying and recommending individuals qualified to be Board members, taking into account such factors as it deems appropriate; identifying Board members qualified 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. 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, potential material relationship with the Company or circumstance relevant to his/her independence. 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. 32 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE Corporate Governance 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;   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. Although Mr Sam Morgan was employed as the CEO of Trade Me until January 2008, and as an advisory board member to Trade Me until March 2009, after consideration of all circumstances relevant to Mr Morgan’s position, the Directors have determined that he is independent. 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; disclosing 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. 29 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 33 CORPORATE GOVERNANCE 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 for Board approval and oversees key finance and treasury functions; formulates and oversees 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; 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 17. The Chair of the Committee may, at the Company’s expense, obtain external advice, or obtain assistance and information from officers of the Group, or engage other support as reasonably required from time to time. CHARTER OF AUDIT INDEPENDENCE The Board has also adopted a Charter of Audit Independence. 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 the rotation of the lead audit partner and the independent review partner for the Company at least every five years. The 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. The auditor must also confirm that neither it nor its partners has any financial or material business interests in the Company outside of the supply of professional services. 34 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE 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. ASX and press releases of a material nature must be approved by a Disclosure Officer. The Disclosure Officers, in conjunction with the Chair of the Board are 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 oversees the development of a risk management and internal compliance and control system. The system seeks to provide a consistent approach to identifying, assessing, and reporting risks, whether they are 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 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. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 35 CORPORATE GOVERNANCE Corporate Governance  Under the direction of the Audit and Risk Committee, Internal Audit conducts a program of internal process control reviews over key areas, based on their importance to the Company, and provides 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 and 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 and 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. and 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 27 June, 2010, 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 27 June 2010, 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 of the CEO and senior executives is set out in the Remuneration Report beginning on page . 20 36 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE 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 blackout periods when no trading is to be undertaken and a process for authorisation of trading at other times. Designated People means the Directors, CEO, Company Secretary, those 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 black-out periods 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 and Designated People must obtain approval from the Company Secretary who will consult with the Chair. Risk Committee for approvals for the Chair to trade). Other Each Director must notify the Company Secretary of any change in the Director’s interest in Fairfax 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. 33 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 37 MANAGEMENT DISCUSSION AND ANALYSIS REPORT Management Discussion & Analysis Report TRADING OVERVIEW Economic conditions in the advertising markets in which we participate gradually improved during the year. The first half of the financial year saw our underlying revenues and earnings before interest and tax (EBIT) down on the corresponding period by 12.8% and 14.4% respectively although significantly improved over the immediately preceding six months to June 2009. Revenue and earnings continued to improve on a run rate basis in the six months to June 2010 with both revenue and EBIT up 6.0% and 47.5% respectively compared to the corresponding half of 2009. For the full year revenues were down 4.5% but EBIT increased 7.7% Fixed costs represent a significant portion of a media publishing business cost base resulting in considerable operating leverage when revenue increases. This combined with the large number of initiatives undertaken over the past two years to further improve efficiencies within the business has seen a marked increase in the Company’s operating margins. For the financial year our EBIT margin has improved from 18.7% in 2009 to 21.1%. Advertising volumes in Australia and New Zealand followed similar patterns with second half volumes significantly higher than those of the first half. Volume growth in the second half was seen across the majority of advertising categories with real estate and employment showing the strongest increases. A non-recurring tax charge of $8.4 million has been reported during the year relating to our New Zealand tax expense. A change was introduced to New Zealand tax legislation in May 2010 which had the impact of not allowing depreciation on existing and new buildings with an estimated useful life of 50 years or more with a consequential adjustment necessary to the carrying value of the company’s deferred tax balances. There were no other significant and non-recurring items during the year compared to $622.4 million last year. Including the non-recurring item, the net profit attributable to members of the Company was $282.1 million compared to a loss of $380.1 million last year. Basic earnings per share increased to 11.5 cents compared to a loss per share of 21.6 cents last year. FINANCIAL POSITION Cash inflow from operating activities increased 16.8% to $449.6 million. After taking into consideration capital expenditure of $80.4 million and dividend payments on ordinary shares and the Stapled Preference Shares of $41.8 million, the financial position of the Company improved considerably during the year as the strong cash flow was used to reduce the net debt position by $347.3 million. Net debt for covenant purposes was $1,435.0 million at year end and is well within all covenant limits. As can be seen from the graph below, the differences between the total facilities line and the net debt line indicate the Company has adequate unutilised long term debt facilities, a further indication of the strength of the Balance Sheet and overall financial position of the Company. Also in 2011, the Company will need to decide what course of action it will take regarding the possible redemption of the $300 million in Stapled Preference Shares (SPS) it currently has on issue. The reset date for the SPS is 30 April 2011 and the Company has three options. It can either:  Redeem the securities at the $100 face value;  Convert to ordinary shares at a 2.5% discount;  Step up the coupon rate by 2.25% to 3.80%pa. Based upon current estimates, the net debt/EBITDA ratio at the end of June 2011 will be approximately 1.6 times. Although redeeming the notes would increase this to approximately 2.0 times, still well within the company’s targeted net debt to EBITDA range, it would avoid potential dilution of existing ordinary shareholders. The directors will consider all options in early calendar 2011. Based upon our existing earnings profile, borrowing facilities, known capital expenditure requirements and current credit and equity markets trends, redemption is the most likely outcome. 34 38 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 MANAGEMENT DISCUSSION AND ANALYSIS REPORT Management Discussion & Analysis Report s n o i l l i m $ A 2500 2000 1500 1000 500 Jun‐10 Dec‐10 Jun‐11 Dec‐11 Jun‐12 Total facilities  Net debt (Incl SPS ‐ $300m) DIVIDENDS Following balance date, directors have declared a final dividend of 1.4 cents per ordinary share, fully franked taking the total dividends for the financial year on ordinary shares to 2.5 cents. The Dividend Reinvestment Plan will not be in operation for the payment of this dividend. 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 improved. Dividends of $15.9 million were paid on the Stapled Preference Shares which was below the amounts paid in 2009. This variance was due to the lower interest rates experienced during the year. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 39 CONSOLIDATED INCOME STATEMENTS Consolidated Income Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Revenue from operations Other revenue and income Total revenue and income Note 2(A) 2(B) $'000 $'000 2,476,775 2,599,132 13,541 10,390 2,490,316 2,609,522 Share of net profits of associates and joint ventures 11(C) 2,226 2,050 Expenses from operations excluding impairment, depreciation, amortisation and finance costs Depreciation and amortisation Property, plant and equipment, intangible and investment impairment Finance costs Net profit/(loss) from operations before income tax expense Income tax (expense)/benefit 3(A) 3(B) 3(C) (1,839,107) (2,097,050) (113,623) (6,436) (135,911) (117,556) (569,091) (179,291) 397,465 (351,416) 5 (115,088) (29,672) $'000 25 40,125 40,150 - (35,353) (3,439) - (2) $'000 152 40,512 40,664 - (85,926) (7,363) (214,000) (2) 1,356 (2,078) (266,627) 21,452 Net profit/(loss) from operations after income tax expense 282,377 (381,088) (722) (245,175) Net profit/(loss) is attributable to: Non-controlling interest Owners of the parent 25 262 (1,038) 282,115 (380,050) 282,377 (381,088) - (722) (722) - (245,175) (245,175) Earnings per share (cents per share) Basic earnings/(loss) per share (cents per share) Diluted earnings/(loss) per share (cents per share) 26 26 11.5 11.0 (21.6) (21.6) The above Consolidated Income Statements should be read in conjunction with the accompanying Notes. 5 40 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Consolidated Statements of Comprehensive Income fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 Net profit/(loss) from operations after income tax expense 282,377 (381,088) (722) (245,175) Other comprehensive income Changes in fair value of available for sale financial assets Actuarial loss on defined benefit plans Changes in fair value of cash flow hedges Net investment hedges Exchange differences on translation of foreign operations Income tax on items of other comprehensive income Other comprehensive income for the period, net of tax 2,082 (986) 4,522 (4,272) 34,356 (1,302) 34,400 833 (7,276) (11,495) (836) 27,048 7,078 15,352 - - - - - - - - - - - - - - Total comprehensive income for the period 316,777 (365,736) (722) (245,175) Total comprehensive income is attributable to: Non-controlling interest Owners of the parent 262 (1,038) 316,515 (364,698) 316,777 (365,736) - (722) (722) - (245,175) (245,175) The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying Notes. 6 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 41 CONSOLIDATED BALANCE SHEETS Consolidated Balance Sheets fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES AS AT 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities as at 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Derivative assets Assets held for sale Held to maturity investments Income tax receivable 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 Deferred tax assets Other financial 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 Non-controlling interest TOTAL EQUITY 36(B) 7 8 15 9 10 7 11 12 10 13 14 15 16(A) 21 17 18 15 19 18 15 16(A) 19 20(A) 22 23 24 25 117,872 390,375 38,043 - 5,257 11,591 - 69,124 1,680 1,680 358,210 1,674,217 1,652,813 40,055 173 6,062 - 35,978 - - - - - - - - - 25,829 563,138 509,602 1,675,897 1,680,322 3,020 43,585 4,239 - 2,474 46,668 2,157 13,216 5,942,781 5,888,547 863,719 152,742 778,621 44,352 11,774 2,575 398,566 398,566 - - - 2,318 658 - - - - 7,948 12,507 - 7,338 1,175 10,330 2,924,215 839 2,924,215 6,830,947 6,978,036 3,336,087 3,344,075 7,394,085 7,487,638 5,011,984 5,024,397 276,580 269,672 12,567 109,948 54,849 300,479 183,557 26,757 128,692 2,454 14,843 14,946 - - 3,626 2,372 - - 7,202 - 723,616 641,939 20,841 22,148 1,208,789 1,724,708 85,093 16,374 48,006 4,800 669 47,730 9,026 49,003 2,685 757 1,363,731 1,833,909 - - - 222 - - 222 - - - 401 - - 401 2,087,347 2,475,848 21,063 22,549 5,306,738 5,011,790 4,990,921 5,001,848 4,942,677 4,928,122 4,948,792 4,934,237 (127,128) 481,978 (163,381) 237,604 5,099 37,030 3,987 63,624 5,297,527 9,211 5,002,345 9,445 4,990,921 - 5,001,848 - 5,306,738 5,011,790 4,990,921 5,001,848 The above Consolidated Balance Sheets should be read in conjunction with the accompanying Notes. 7 42 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CONSOLIDATED CASH FLOW STATEMENTS Consolidated Cash Flow Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Dividends and distributions received Finance costs paid Net income taxes (paid)/received Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 2,661,927 2,957,559 (2,089,172) (2,327,923) 7,968 2,730 4,673 3,411 (126,064) (7,770) (182,962) (69,861) - (29,020) 40,125 - (2) 9,305 - (77,029) 40,512 - (2) 4,180 Net cash inflow/(outflow) from operating activities 36(A) 449,619 384,897 20,408 (32,339) 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 advanced by controlled entities Loans repaid by other parties (7,447) (1,574) (59,191) (6,738) (80,375) (106,284) 8,845 6,554 (1,400) - - - 15,308 16,431 108,449 (1,100) - (17,056) - - Net cash (outflow)/inflow from investing activities (60,089) (65,489) Cash flows from financing activities Proceeds from issue of shares Proceeds from issue of shares to non-controlling 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 non-controlling interests in subsidiaries - - (46) - 1,631 624,640 80 (12,131) (12,443) 22,511 (300,076) (750,884) - - (41,770) (372) (27,132) (1,908) (191,012) (461) - - (202) 16 - - - - 5,696 - 5,510 - - (46) - - - - - - - (409) 4 - - (400,316) - - - (400,721) 624,640 - (12,131) (12,443) - - - - (25,872) - (166,006) - Net cash (outflow)/inflow from financing activities (340,633) (348,740) (25,918) 434,060 Net increase/(decrease) 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 48,897 69,124 (149) Cash and cash equivalents at end of the financial year 36(B) 117,872 (29,332) 93,864 4,592 69,124 - 1,680 - 1,680 1,000 680 - 1,680 * Total cash dividends for the current year totalled $41.8 million (2009: $191.0 million); this includes $15.9 million (2009: $25.0 million) made to stapled preference shareholders (SPS). In the prior year under the terms of the DRP, $15.7 million of dividends were paid via the issue of 5,558,472 ordinary shares. A cash dividend payment of $166.0 million was made to ordinary shareholders that did not elect to participate in the DRP. The above Consolidated Cash Flow Statements should be read in conjunction with the accompanying Notes. 8 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 43 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Consolidated Statements of Changes in Equity fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 CONSOLIDATED Balance at 30 June 2008 Loss for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid to shareholders Tax effect of SPS dividend Dividends paid to non-controlling interests in subsidiaries Shares issued Shares issued under dividend reinvestment plan Shares acquired under employee incentive scheme Transaction costs on share issue Tax expense recognised directly in equity Share based payments, net of tax Disposal of subsidiary with non-controlling interest Non-controlling interest on acquisition of subsidiary Exchange differences - - - - - - 624,640 15,731 (12,444) (11,512) (6,702) Contributed Retained equity $'000 Reserves earnings $'000 $'000 Total $'000 Non- controlling interest $'000 Total equity $'000 4,318,409 (186,063) 821,987 4,954,333 11,001 4,965,334 - 20,445 (380,050) (5,093) (380,050) 15,352 (1,038) - (381,088) 15,352 20,445 (385,143) (364,698) (1,038) (365,736) - - - - - - - - (206,742) (206,742) 7,502 7,502 - - (206,742) 7,502 - - - - - - - - - - - (461) (461) 624,640 15,731 (12,444) (11,512) (6,702) 2,237 - - - - - - - - - (287) 234 (4) 624,640 15,731 (12,444) (11,512) (6,702) 2,237 (287) 234 (4) - - - - 2,237 - - - Balance at 28 June 2009 4,928,122 (163,381) 237,604 5,002,345 9,445 5,011,790 Balance at 29 June 2009 4,928,122 (163,381) 237,604 5,002,345 9,445 5,011,790 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid to shareholders Tax effect of SPS dividend Dividends paid to non-controlling interests in subsidiaries Transaction costs on share issue Tax benefit/(expense) recognised directly in equity Share based payments, net of tax - - - - - - (46) 14,601 - - 35,141 282,115 (741) 282,115 34,400 35,141 281,374 316,515 262 - 262 282,377 34,400 316,777 - - - - (1,196) 2,308 (41,770) (41,770) 4,770 4,770 - - (41,770) 4,770 - - - - - (46) 13,405 2,308 (496) - - - (496) (46) 13,405 2,308 Balance at 27 June 2010 4,942,677 (127,128) 481,978 5,297,527 9,211 5,306,738 9 44 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Consolidated Statements of Changes in Equity fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Contributed Retained equity $'000 Reserves earnings $'000 $'000 Total $'000 Non- controlling interest $'000 COMPANY Balance at 30 June 2008 Loss for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid to shareholders Shares issued Shares issued under dividend reinvestment plan Shares acquired under employee incentive scheme Transaction costs on share issue Tax expense recognised directly in equity Share based payments, net of tax Balance at 28 June 2009 624,640 15,731 (12,444) (11,512) (6,702) - 4,934,237 4,324,524 1,750 490,535 4,816,809 - - - - - - - - - - - - - 2,237 3,987 (245,175) - (245,175) - (245,175) (245,175) (181,736) (181,736) - - - - - - 624,640 15,731 (12,444) (11,512) (6,702) 2,237 63,624 5,001,848 Balance at 29 June 2009 4,934,237 3,987 63,624 5,001,848 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid to shareholders - - - - Transaction costs on share issue Tax benefit/(expense) recognised directly in equity Share based payments, net of tax (46) 14,601 - - - - - - (1,196) 2,308 (722) - (722) (722) - (722) (25,872) (25,872) - - - (46) 13,405 2,308 Balance at 27 June 2010 4,948,792 5,099 37,030 4,990,921 The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying Notes. Total equity $'000 4,816,809 (245,175) - (245,175) (181,736) 624,640 15,731 (12,444) (11,512) (6,702) 2,237 5,001,848 5,001,848 (722) - (722) (25,872) (46) 13,405 2,308 4,990,921 - - - - - - - - - - - - - - - - - - - - - 10 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 45 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 the consolidated entity consisting of Fairfax Media Limited and its controlled entities. The financial report is for the period 29 June 2009 to 27 June 2010 (2009: the period 30 June 2008 to 28 June 2009). Reference in this report to 'a year' is to the period ended 27 June 2010 or 28 June 2009 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 International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. As at 27 June 2010, the consolidated entity has net current liabilities of $160.5 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 18. 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. Presentation of financial statements The revised accounting standard AASB 101 Presentation of Financial Statements which became effective for the annual reporting period commencing on 29 June 2009 resulted in a change in the Group's disclosures. The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity and included in the new statement of comprehensive income. The statement of comprehensive income presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements. (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. Non-controlling interests in the earnings and equity of controlled entities are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively. 11 46 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (ii) Associates and joint ventures Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity method. Associates are entities over which the Group has significant influence and are neither subsidiaries or joint ventures. The Group’s share of its associates’ and joint ventures’ post-acquisition profits or losses are recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates and joint ventures are recognised in the 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. 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. 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)). AASB 3 Business Combinations (revised) was implemented prospectively from 29 June 2009 by the Group. This revised standard continues to apply the acquisition method to business combinations but with some significant changes. All payments to purchase a business are now recorded at fair value at the acquisition date, with contingent payments classified as a liability and subsequently remeasured through the income statement. Under the Group's previous policy, contingent payments were only recognised when the payments were probable and could be measured reliably and were accounted for as an adjustment to the cost of acquisition. Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and therefore included in goodwill. Non-controlling interests in an acquiree are now recognised either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. This decision is made on an acquisition-by-acquisition basis. Under the previous policy, the non- controlling interest was always recognised at its share of the acquiree's net assets. If the Group recognises acquired deferred tax assets after the initial acquisition accounting there will no longer be any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the Group's net profit after tax. 12 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 47 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 a reportable segment 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. (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. Websites Internal and external costs directly incurred in the development of websites are capitalised and amortised using a straight-line method over two to four years. Capitalised website costs are reviewed annually for potential impairment. 13 48 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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. 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 when 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. 14 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 49 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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. Revenue from advertising, circulation, subscription, radio broadcasting and printing is recognised when control of the right to be compensated has been obtained and the stage of completion of the contract can be reliably measured. For newspapers, magazines and other publications the right to be compensated is on the publication date. Revenue from the provision of online advertising on websites is recognised in the period the advertisements are placed or the impression occurs. Amounts disclosed as revenue are net of commissions, rebates, discounts, returns, trade allowances, duties and taxes paid. Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence. Refer to Note 1(D). The Group has changed its accounting policy for dividends paid out of pre-acquisition profits from 29 June 2009 when the revised AASB 127 Consolidated and Separate Financial Statements became operative. Previously, dividends paid out of pre-acquisition profits were deducted from the cost of the investment. In accordance with the transitional provisions, the new accounting policy is applied prospectively. It was therefore not necessary to make any adjustments to any of the amounts previously recognised in the financial statements. Interest is recognised as it accrues, taking into account the effective yield on the financial asset. (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. 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. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable group and the same taxation authority. 15 50 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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. 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. Taxation of financial arrangements (TOFA) Legislation is in place which changes the tax treatment of financial arrangements including the tax treatment of hedging transactions, applicable to the consolidated entity for the reporting period commencing 28 June 2010. The Group has yet to determine whether it will elect to apply the new legislation to all financial transactions existing at 28 June 2010. It would not expect a material impact on the deferred tax balances at 27 June 2010. (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. 16 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 51 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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. (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. 17 52 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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. 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 within finance costs. 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 within finance costs. 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. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 53 18 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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) 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. (P) 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. (Q) 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. 19 54 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (R) 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. (S) 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. 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 32). 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(T)). 20 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 55 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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. (T) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Stapled preference shares are classified as equity (refer Note 22(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 reacquires 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. 21 56 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (U) 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. (V) SEGMENT REPORTING The new accounting standard AASB 8 Operating Segments which became effective for the annual reporting period commencing on 29 June 2009 resulted in a change in the Group's segment disclosures. Adoption of this standard did not have any effect on the financial position or performance of the Group. The subsequent amendments to AASB 8 have been early adopted by the Group. AASB 8 Operating Segments requires a 'management approach' under which the segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in an increase in the number of reportable segments presented, as the previously reported Printing and Publishing segment has been disaggregated into the following segments: • Australian Regional Media • Metropolitan Media • Specialist Media • New Zealand Media • Printing Operations Operating segments are now reported in a manner that is consistent with the internal reporting provided to the chief operating decision makers, being the Board of Directors, Chief Executive Officer and Chief Financial Officer. Comparatives for prior reporting periods have been restated. (W) 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 (CGU) to which the goodwill and intangibles with indefinite useful lives are allocated. Key assumptions subject to significant accounting judgement include growth rates, discount rates relevant to individual CGU groups and the growth rates beyond year three cash flows which form the basis of the terminal value. Management have created cash flows based on the annual budget which has been built up from individual profit centres. Anticipated growth rates applied to year two and three cash flows represent blended print and online growth projections determined by management from historical long averages and validated against market consensus on earnings projections to 2012. The terminal growth rate has been determined by taking a mid-point of the RBA inflation target range (2.0% - 3.0%) plus an allowance of 1.0% for real GDP/population growth (0.5% for radio, agriculture and printing). 22 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 57 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 The weighted average discount rates have been calculated using market observable data from Bloomberg and judgement has been exercised when considering premiums associated with unique CGU Groups. Inputs include a risk free rate of 5.3% and 2 year weekly beta. 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 13 along with a sensitivity analysis. (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 Monte Carlo model, using the assumptions detailed in Note 32. (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 20. (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. (X) 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. 23 58 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (Y) NEW ACCOUNTING STANDARDS AND UIG INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not mandatory for 27 June 2010 reporting periods. The Group and the Company's assessment of the impact of these new standards and interpretations is set out below: Application date of standard* Impact on Group financial report 1 January 2010 No major impact expected on the Group. Application date for 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 1 February 2010 No major impact expected on the Group. 28 June 2010 1 January 2013 The Group has not yet determined the extent of the impact of the amendments. 1 July 2013 Reference Title Summary AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvement Project (AASB 5,8,101,117, 118, 136 & 139) AASB 2009-8 Group Cash-Settled Share- based payment transactions AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] 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. 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 amendment provides relief to entities that issue rights in a currency other than their functional currency, from treating the rights as derivatives with fair value changes recorded in profit or loss. Such rights will now be classified as equity instruments when certain conditions are met. The revised Standard introduces a number of changes to the accounting for financial assets, the most significant of which includes: - two categories for financial assets being amortised cost or fair value; - removal of the requirement to separate embedded derivatives in financial assets; - strict requirements to determine which financial assets can be classified as amortised cost or fair value. Financial assets can only be classified as amortised cost if (a) the contractual cash flows from the instrument represent principal and interest and (b) the entity’s purpose for holding the instrument is to collect the contractual cash flows; - an option for investments in equity instruments which are not held for trading to recognise fair value changes through other comprehensive income with no impairment testing and no recycling through profit or loss on derecognition; - reclassifications between amortised cost and fair value no longer permitted unless the entity’s business model for holding the asset changes; - changes to the accounting and additional disclosures for equity instruments classified as fair value through other comprehensive income. 24 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 59 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Application date of standard* Impact on Group financial report 1 January 2011 No major impact expected on the Group. Application date for Group* 27 June 2011 1 July 2010 No major impact expected on the Group. 28 June 2010 Reference Title Summary AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] Interpretation 19 Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments This amendment makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations. The amendment to AASB 124 clarifies and simplifies the definition of a related party as well as providing some relief for government- related entities (as defined in the amended standard) to disclose details of all transactions with other government-related entities (as well as with the government itself) This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are “consideration paid” in accordance with paragraph 41 of IAS 39. As a result, the financial liability is derecognised and the equity instruments issued are treated as consideration paid to extinguish that financial liability. The interpretation states that equity instruments issued in a debt for equity swap should be measured at the fair value of the equity instruments issued, if this can be determined reliably. If the fair value of the equity instruments issued is not reliably determinable, the equity instruments should be measured by reference to the fair value of the financial liability extinguished as of the date of extinguishment. *designates the beginning of the applicable annual reporting period unless otherwise stated 25 60 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 2. Revenues (A) REVENUE FROM OPERATIONS Total revenue from sale of goods Total revenue from services Total revenue from operations (B) OTHER REVENUE AND INCOME Interest income Wholly owned controlled entities Other corporations Dividend revenue Gains on sale of property, plant and equipment Other Total other revenue and income Total revenue and income Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 510,304 1,966,471 521,319 2,077,813 2,476,775 2,599,132 25 - 25 152 - 152 - 7,943 12 1,217 4,369 - 40,102 4,430 36 757 5,167 23 - - - 40,270 242 - - - 13,541 10,390 2,490,316 2,609,522 40,125 40,150 40,512 40,664 26 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 61 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 3. Expenses (A) EXPENSES BEFORE IMPAIRMENT, DEPRECIATION, AMORTISATION AND FINANCE COSTS Staff costs excluding staff redundancy costs Staff redundancy costs Newsprint and paper Distribution costs * Production costs * Promotion and advertising costs Rent and outgoings Repairs and maintenance Communication costs Maintenance and other computer costs Fringe benefits tax, travel and entertainment Royalties and copyright payments Professional fees Transaction fees Other Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 842,320 5,076 249,059 136,956 193,824 106,626 57,193 29,631 23,354 26,054 24,964 767 31,896 11,633 99,754 894,615 79,727 265,161 127,702 242,608 115,143 68,115 32,139 25,209 22,316 30,030 24,826 40,849 11,609 117,001 17,493 - - - 51 136 - 269 146 1,270 687 - 4,389 3,508 7,404 26,424 11,631 - - 70 158 3,989 2,051 1,931 7,005 1,126 123 10,614 3,576 17,228 Total expenses before impairment, depreciation, amortisation, and finance costs 1,839,107 2,097,050 35,353 85,926 (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 payment expense Net foreign exchange loss 4,990 76,337 2,959 26,077 3,260 5,199 80,227 2,905 27,307 1,918 113,623 117,556 131,133 4,778 174,503 4,788 135,911 179,291 37,579 55,598 3,297 1,597 48,965 58,222 2,237 2,152 - 409 54 2,976 - 3,439 2 - 2 - 1,495 3,297 - - 2,523 181 4,659 - 7,363 2 - 2 3,199 2,439 2,237 - * Distribution and production costs have been redefined and disclosed separately in the current period. Production costs includes printing, contributors, news services and other minor production expenses. Prior year comparatives have been restated. 27 62 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 4. Significant and non-recurring 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: Onerous lease property costs Income tax benefit New Zealand income tax expense * 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 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 Gain on repurchase of medium term notes - - (8,359) (8,359) (8,857) 2,657 - (6,200) - - - - - - - - - (512,987) (38,721) 6,558 (545,150) (23,228) (85,694) 32,668 (76,254) 5,167 Net significant and non-recurring items after income tax expense (8,359) (622,437) - - - - - - - - - - - - - - - - - - (214,000) - - (214,000) - - - - - (214,000) * Non-recurring tax expense resulting from changes in the current year to the New Zealand tax legislation disallowing depreciation of buildings with an estimated useful life of 50 years or more. The change is applicable from the 2011-12 income year. 28 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 63 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 5. Income tax expense Income tax expense is reconciled to prima facie income tax payable as follows: Net profit/(loss) before income tax expense 397,465 (351,416) 1,356 (266,627) Prima facie income tax at 30% (2009: 30%) Tax effect of differences: 119,240 (105,425) 407 (79,988) Overseas tax rate and accounting differentials (21,072) (20,428) Share of net (profits)/losses of associates and joint ventures Capital gains taxable/(not taxable) Non-assessable dividends Under/(over) provision in prior financial years Temporary differences not recognised on intangible and other asset write-offs Non-deductible/(deductible) items Non-deductible depreciation and amortisation Intragroup provision transfers New Zealand legislative changes to tax depreciation on buildings Other Income tax expense/(benefit) Current income tax expense/(benefit) Deferred income tax (benefit)/expense Under/(over) provision in prior financial years Income tax expense/(benefit) in the income statement (668) - (2) 5,931 318 2,781 17 - 8,359 184 115,088 112,759 (3,602) 5,931 115,088 21 9,397 (9) (8,592) 151,004 2,286 16 - - 1,402 29,672 21,473 16,791 (8,592) 29,672 - - - - 1,957 - 474 - - - (760) 2,078 (9,370) 9,491 1,957 2,078 - - 1,652 - (5,763) 64,200 430 - (1,645) - (338) (21,452) (21,673) 5,984 (5,763) (21,452) 6. Dividends paid and proposed (A) ORDINARY SHARES Interim 2010 unfranked dividend: 1.1 cents - paid 19 March 2010 (2009: 75% franked 2 cents - paid 19 March 2009) Final 2009 dividend: nil (2008: 75% franked 10 cents - paid 2 October 2008) Total dividends paid - ordinary shares (B) STAPLED PREFERENCE SHARES (SPS) SPS dividend: 2010: $2.9010 per share - paid 30 April 2010 2010: $2.2946 per share - paid 30 October 2009 2009: $3.3580 per share - paid 30 April 2009 2009: $4.8138 per share - paid 31 October 2008 Total dividends paid - SPS Total dividends paid 29 64 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 25,872 30,382 25,872 30,382 - 151,354 - 151,354 25,872 181,736 25,872 181,736 8,877 7,021 - - 15,898 41,770 - - 10,276 14,730 25,006 - - - - - - - - - - 206,742 25,872 181,736 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (C) DIVIDENDS PROPOSED AND NOT RECOGNISED AS A LIABILITY Since balance date the directors have declared a final dividend of 1.4 cents per fully paid ordinary share fully franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paid on 23 September 2010 out of the retained profits at 27 June 2010, but not recognised as a liability at the end of the year is expected to be $32.9 million. The unfranked portion of the dividend paid during the period is conduit foreign income. (D) FRANKED DIVIDENDS Franking account balance as at balance date at 30% (2009: 30%) Franking credits that will arise from the payment of income tax payable balances as at the end of the financial year Total franking credits available for subsequent financial years based on a tax rate of 30% Company Company 2010 $'000 2009 $'000 4,095 1,158 47,277 51,372 - 1,158 On a tax-paid basis, the Company’s franking account balance is approximately $4.1m (2009: $1.2 million). The impact on the franking account of the dividend declared by the directors since balance date will be a reduction in the franking account of approximately $14.1 million. 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 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 358,099 (9,627) 311,521 (9,839) 348,472 301,682 - - - - - - - 102 11,276 30,525 - 1,673,268 1,651,230 15,936 11,264 29,328 5 803 141 21 1,236 326 390,375 358,210 1,674,217 1,652,813 - 1,880 83 1,057 3,020 - 398,566 398,566 2,189 - 285 - - - - - - 2,474 398,566 398,566 * 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 30 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 65 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 IMPAIRED TRADE DEBTORS As at 27 June 2010, trade debtors of the Group with a nominal value of $9.6 million (2009: $9.8m) were impaired and fully provided for. Refer to Note 37(C) for the factors considered in determining whether trade debtors are impaired. As at 27 June 2010, 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 2010 $'000 217,010 92,175 20,289 18,998 2009 $'000 158,656 115,251 14,246 13,529 348,472 301,682 2010 $'000 2009 $'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. Movements in the provision for doubtful debts are as follows: Balance at the beginning of the financial year Additional provisions 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 Consolidated Consolidated 2010 $'000 9,839 9,400 (9,640) 28 9,627 2009 $'000 9,515 5,982 (5,691) 33 9,839 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 34,391 3,374 278 38,043 37,019 2,962 74 40,055 - - - - - - - - 31 66 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 9. Assets held for sale Freehold land and buildings Total assets held for sale Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 5,257 5,257 6,062 6,062 - - - - Prior to 27 June 2010, a decision was taken to sell five properties in Australia and New Zealand. These properties have been reclassified to held for sale. On remeasure of the properties at the lower of carrying amount and fair value less costs to sell, an impairment charge of $1.4 million was recognised in the income statement against the assets. The properties are being actively marketed. The two properties held at 28 June 2009 have been sold during the period. 10. Held to maturity investments Current Bonds Total current held to maturity investments Non-current Bonds Total non-current held to maturity investments Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 11,591 11,591 - - - - 13,216 13,216 - - - - - - - - These annuity bonds have a face value of $20 million. The issuer has given notice that the bonds will be redeemed on 30 September 2010 and accordingly they have been reclassified from non-current to current. 32 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 67 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 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) 14,102 29,483 43,585 14,819 31,849 46,668 - - - - - - (A) INTERESTS IN ASSOCIATES Name of Company Principal Activity Incorporation 27 June 2010 28 June 2009 Australian Associated Press Pty Ltd News agency business and Australia 47.0% 47.0% Place of Ownership interest information service Autobase Limited E-commerce: online vehicle dealer New Zealand 25.4% 25.4% automotive website Digital Radio Broadcasting Melbourne Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Perth Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Brisbane Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Sydney Pty Ltd Digital audio broadcasting Earth Hour Limited Environmental promotion Executive Publishing Network Pty Ltd * Magazine publishing Guardian Print Limited ** Printing facility Homebush Transmitters Pty Ltd Rental of a transmission facility Newspaper House Limited Property ownership New Zealand Press Association Ltd News agency business and financial information service Australia Australia Australia Australia Australia Australia New Zealand Australia New Zealand New Zealand 18.0% 33.4% 25.0% 11.3% 33.3% - - 50.0% 45.5% 49.2% 18.0% 33.4% 25.0% 11.3% 33.3% 30.0% 25.0% 50.0% 45.5% 49.2% NGA.net Pty Ltd Provider of e-recruitment software Australia 28.0% 30.0% to corporations Perth FM Facilities Pty Ltd Times Newspapers Limited Rental of a transmission facility Newspaper publishing Australia New Zealand 33.3% 49.9% 33.3% 49.9% * The company was deregistered on 22 July 2009. ** Investment in associate was disposed of on 19 March 2010. 33 68 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 profit/(loss) after income tax expense Dividends received/receivable from associates Impairment of investment in associate Balance at end of the financial year (ii) Share of associates' profits Profit/(loss) before income tax expense Income tax (expense)/benefit Net profit/(loss) 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 Name of Company Advantate Pty Ltd * Columbia Press Pty Ltd ** The Columbia Group Pty Ltd ** E-commerce: Online marketing Newspaper publishing and printing Newspaper publishing and printing Fermax Distribution Company Pty Ltd Letterbox distribution of newspapers Gilgandra Newspapers Pty Ltd Gippsland Regional Partnership Newspaper publishing and printing Newspaper publishing and printing Torch Publishing Company Pty Ltd Newspaper publishing and printing Online Marketing Group Pty Limited E-commerce: Online marketing * Investment in joint venture was disposed of on 13 May 2010. ** Investment in joint venture was disposed of on 2 November 2009. Principal Activity Incorporation 27 June 2010 28 June 2009 Place of Ownership interest Consolidated Consolidated 27 June 2010 28 June 2009 $'000 $'000 14,819 14,764 - 8 685 (350) (1,060) 477 20 (55) (387) - 14,102 14,819 750 (65) 685 15,357 22,405 37,762 10,118 3,123 13,241 (100) 45 (55) 13,969 23,633 37,602 9,894 4,176 14,070 Australia Australia Australia Australia Australia Australia Australia Australia - - - 50.0% 50.0% 50.0% 50.0% 48.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 48.0% 34 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 69 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 Impairment of investment in 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 27 June 2010 28 June 2009 $'000 $'000 31,849 1,541 421 (2,368) (460) (1,500) 30,926 2,105 13,313 (3,023) - (11,472) 29,483 31,849 13,869 (12,156) 28,450 (25,432) 1,713 (172) 1,541 3,018 (913) 2,105 5,141 19,804 24,945 2,259 1,720 3,979 4,151 18,720 22,871 2,491 465 2,956 2,463 (237) 2,226 2,918 (868) 2,050 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 12. Available for sale investments Listed equity securities - at fair value Total available for sale investments 4,239 4,239 2,157 2,157 - - - - Available for sale investments consist of investments in ordinary shares at fair value and have no fixed maturity date. During the prior year, an impairment charge of $2.2 million was recognised in the income statement in respect of several investments due to a significant decline in the share price of the investments. 35 70 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 13. Intangible assets Mastheads and tradenames Software Customer relationships Radio licences Goodwill Total intangible assets Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 3,366,633 3,353,633 85,981 11,631 61,726 12,380 132,217 2,346,319 132,217 2,328,591 - 2,318 - 7,948 - - - - - - 5,942,781 5,888,547 2,318 7,948 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 29 June 2008 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 Additions Disposals Acquisition of business combinations Amortisation charge Impairment Exchange differences 146,245 14,298 3,715,455 62,250 2,554,392 6,492,640 27 - 10,406 - - - 662 - 1,723 26,345 - 27,034 (4,298) (93,692) (97,990) 4,651 (594) 16,186 3(B) - (1,918) - (27,307) - (29,225) (24,461) - - - (381,270) 17,063 - 85 (138,045) 6,530 (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 36 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 71 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 Total $'000 Period ended 27 June 2010 Balance at beginning of the financial year Additions Capitalisations from works in progress 14 Disposals Acquisition of business combinations Amortisation charge Impairment Transfer to other asset category Exchange differences 3(B) At 27 June 2010, net of accumulated amortisation and impairment 132,217 12,380 3,353,633 61,726 2,328,591 5,888,547 - - - - - - - - - - - - (3,260) - 2,492 19 - - - - - (89) (3,400) 16,489 13,720 37,924 (2,302) 717 (26,077) - - 273 - - (31) 4,289 - - 908 12,562 13,720 37,924 (2,333) 5,006 (29,337) (89) - 29,343 132,217 11,631 3,366,633 85,981 2,346,319 5,942,781 At 27 June 2010 Cost Accumulated amortisation and impairment 156,678 (24,461) 19,614 (7,983) 3,745,362 (378,729) 242,066 (156,085) 2,453,036 (106,717) 6,616,756 (673,975) Net carrying amount 132,217 11,631 3,366,633 85,981 2,346,319 5,942,781 (ii) Company 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 53,392 (39,348) 14,044 14,044 576 (4) (4,659) (2,009) 7,948 53,776 (45,828) 7,948 - - - - - - - - - - - - 53,392 (39,348) 14,044 14,044 576 (4) (4,659) (2,009) 7,948 53,776 (45,828) 7,948 37 72 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Radio Customer Mastheads & licences relationships tradenames Software Goodwill Note $'000 $'000 $'000 $'000 $'000 Period ended 27 June 2010 Balance at beginning of the financial year Additions Capitalisations from works in progress Amortisation charge Intercompany transfers 14 3(B) At 27 June 2010, net of accumulated amortisation and impairment At 27 June 2010 Cost Accumulated amortisation and impairment Net carrying amount - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,948 24 752 (2,976) (3,430) 2,318 33,917 (31,599) 2,318 - - - - - - - - - Total $'000 7,948 24 752 (2,976) (3,430) 2,318 33,917 (31,599) 2,318 (iii) Impairment of cash generating units (CGU) including goodwill and indefinite life assets Goodwill is allocated to CGU groups identified according to business segment and 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 three year cash flow projection and a terminal value. These calculations use cash flow projections based on financial budgets approved by the Directors for the 2011 financial year, after an adjustment for central overheads. Cash flows beyond the 2011 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. 38 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 73 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (iv) Allocation of goodwill and non-amortising intangibles to CGUs As a result of the adoption of AASB 8 Operating Segments, goodwill previously allocated to the Australian Printing and Publishing Grouping was reallocated across the new reportable media segments. A segment level summary of the goodwill and non-amortising intangibles allocation is presented below: Allocation of goodwill to reportable segments Australian Regional Media Metropolitan Media Specialist Media New Zealand Media Online Broadcasting Printing Operations Other Total goodwill Allocation of non-amortising intangibles to reportable segments Australian Regional Media Metropolitan Media Specialist Media New Zealand Media Online Broadcasting Total indefinite life intangibles Total goodwill and indefinite life intangibles Consolidated Consolidated 27 June 2010 28 June 2009 $'000 $'000 434,891 449,135 145,842 9,932 775,982 173,185 351,613 5,739 434,891 454,939 145,008 9,932 753,271 173,198 351,613 5,739 2,346,319 2,328,591 1,082,339 1,082,339 877,793 519,258 852,054 35,189 132,217 877,793 525,131 833,753 34,617 132,217 3,498,850 3,485,850 5,845,169 5,814,441 No goodwill or indefinite life intangibles are allocated to a CGU group in the Company. (v) Key assumptions used for value-in-use calculations The key assumptions on which management based its cash flow projections when determining the value-in-use calculations of the CGUs are as follows: • • • • • growth rates of 12% for Online, between 7.5% to 15% for Media CGUs, 5% for Printing and 7-7.5% for Broadcasting for years 1 to 3. the weighted average growth rates used were derived from internal forecasts. the budgeted exchange rate prevailing at balance date was used when converting foreign cash flows. An exchange rate of 1.25 was applied to New Zealand mastheads. the post-tax discount rates applied to the CGU Groups' cash flow projections was in the range 10.3%-13.1% producing a weighted average of 10.7% (2009: 9.8%). a terminal value of 3.5% was used for cash flows from year 4 onwards for all CGUs with the exception of Agricultural Publications, Print Operations and Broadcasting which were calculated at 3% (2009: 2.75% for all CGUs). 39 74 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (vi) Impact of possible change in key assumptions Holding all assumptions constant, if the discount rate applied to the cash flow projections was increased up by 0.25%, an aggregated impairment of $22.8 million would result in the Metropolitan Media, New Zealand Media and Broadcasting CGUs. If the rate was further increased by 0.5%, an aggregated impairment of $75.2 million would result across the Metropolitan Media, New Zealand Media and Broadcasting CGUs. If a terminal value of 3% was consistently applied across all CGUs an impairment of $52.7 million would result in the Metropolitan Media and New Zealand Media CGU. 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. 14. 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 Capital works in progress - at cost Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 271,799 (31,442) 272,176 (25,895) 240,357 246,281 - - - - - - 100,306 (22,205) 84,811 (20,560) 78,101 64,251 256 (256) - 2,193 (414) 1,779 1,115,740 (664,580) 1,173,383 (710,076) 17,416 (16,988) 451,160 463,307 9,003 89,880 428 230 39,078 (29,248) 9,830 898 Total property, plant and equipment 778,621 863,719 658 12,507 40 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 75 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 RECONCILIATIONS Reconciliations of the carrying amount of each class of property, plant and equipment during the financial year are set out below: (i) Consolidated 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 Acquisition of business combinations 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 Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Total $'000 84,238 - 266,515 (22,228) 80,897 (18,325) 1,163,748 (679,664) 1,595,398 (720,217) 84,238 244,287 62,572 484,084 875,181 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 was recorded against printing press assets at one of the Group's Australian production facilities during the prior year. At 28 June 2009 Cost Accumulated depreciation and impairment Net carrying amount Period ended 27 June 2010 Balance at beginning of financial year Additions/capitalisations Capitalisations to software Disposals Acquisition of business combinations Depreciation charge Assets classified as held for sale Impairment Exchange differences At 27 June 2010, net of accumulated depreciation and impairment 41 76 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 13 3(B) 9 89,880 - 272,176 (25,895) 84,811 (20,560) 1,173,383 (710,076) 1,620,250 (756,531) 89,880 246,281 64,251 463,307 863,719 89,880 246,281 (42,950) (37,924) 5,189 - 64,251 19,755 - (1,202) (2,657) - 463,307 863,719 67,200 - (319) 7 49,194 (37,924) (4,178) 7 - - - - - (3) - (4,990) (5,257) (588) 924 (2,959) (76,337) (84,286) - (218) (71) - (4,020) 1,322 (5,257) (4,826) 2,172 9,003 240,357 78,101 451,160 778,621 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 At 27 June 2010 Cost Accumulated depreciation and impairment Net carrying amount (ii) Company 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 Depreciation charge Intercompany transfers At 28 June 2009, net of accumulated depreciation and impairment At 28 June 2009 Cost Accumulated depreciation and impairment Net carrying amount Period ended 27 June 2010 Balance at beginning of financial year Additions/capitalisations Capitalisations to software Disposals Depreciation charge Intercompany transfers At 27 June 2010, net of accumulated depreciation and impairment At 27 June 2010 Cost Accumulated depreciation and impairment Net carrying amount Capital works in progress Freehold land Leasehold Plant and & buildings buildings equipment Note $'000 $'000 $'000 $'000 Total $'000 9,003 - 9,003 271,799 (31,442) 100,306 (22,205) 1,115,740 (664,580) 1,496,848 (718,227) 240,357 78,101 451,160 778,621 3(B) 13 3(B) 5,227 - 5,227 5,227 (4,329) - - - 898 898 - 898 898 84 (752) - - - 230 230 - 230 - - - - - - - - - - - - - - - - - - - - - - 256 (116) 140 37,740 (26,268) 43,223 (26,384) 11,472 16,839 140 2,591 (634) (181) (137) 11,472 1,571 (197) (2,523) (493) 16,839 (167) (831) (2,704) (630) 1,779 9,830 12,507 2,193 (414) 1,779 39,078 (29,248) 42,169 (29,662) 9,830 12,507 1,779 9,830 12,507 - - - 94 - (34) 178 (752) (34) (54) (1,725) (409) (9,053) (463) (10,778) - 428 658 256 (256) - 17,416 (16,988) 17,902 (17,244) 428 658 42 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 77 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 15. Derivative financial instruments Current assets Forward contracts - cash flow hedges Total current derivative assets Non-current assets Cross currency swap - cash flow hedge Cross currency swap - fair value hedge Cross currency swap - net investment hedge Total non-current derivative assets Current liabilities Cross currency swap - cash flow hedge Cross currency swap - fair value 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 Total non-current derivative liabilities Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 - - 173 173 101 29,909 14,342 44,352 95,303 38,677 18,762 152,742 55 26,007 12,512 - - - 486 264 12,567 26,757 23,612 24,453 37,028 85,093 29,605 17,628 497 47,730 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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 27 June 2010, 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. 43 78 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 At 27 June 2010, 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 2010 2009 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 27 June 2010, 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 27 June 2010, 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 2010 7.52% 7.46% 2009 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. During the year, 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 was 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 were as follows: Pay fixed, receive floating - AUD$173.6m Maturity date 15 June 2010 Interest rate 2010 4.95% 2009 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. The cross currency swap matured in June 2010, which coincided with the maturity of the RPS. At 27 June 2010, 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 27 June 2010, 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 2010 6.52% 2009 6.52% 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 27 June 2010, the above hedges were assessed to be highly effective with a combined unrealised gain in fair value of $4.0 million (2009: $6.4 million loss) recognised in equity for the period. During the period an unrealised loss of $3.3 million (2009: $2.0 million unrealised loss) was recognised in the income statement attributable to the ineffective portion of the cash flow hedges. During the year an unrealised loss of $1.8 million was transferred from equity to the income statement (2009: $1.9 million unrealised loss). 44 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 79 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (ii) Cash flow hedges - foreign exchange contracts During the year, forward exchange contracts were used by the Group 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. At 27 June 2010, the Group did not hold any forward exchange contracts. At 28 June 2009, the details of the outstanding contracts were: 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 CHF/Sell NZD - Maturity 0 - 12 months 2010 * $'000 - - - - Weighted average 2009 * exchange rate $'000 367 2,634 5,111 939 2010 - - - - 2009 0.9038 0.5238 0.4647 0.7322 * 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 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 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. The amount removed from equity and included in expenses from operations for the period was $2.1 million of losses. (iii) Fair value hedges At 27 June 2010, the Group held cross currency swap agreements designated to changes in the underlying value of USD denominated senior notes (refer to Note 18). 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 27 June 2010, the Group also held cross currency swap agreements partly designated to changes in the underlying value of the EUR denominated Eurobond (refer to Note 18). 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 27 June 2010, the cross currency swap agreements had a combined value of $7.1million (2009: $10.9 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. 45 80 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 gain before tax of $32.3 million (2009: $101.5 million loss) and the changes in the fair value of the hedging instruments resulted in a loss before tax of $33.4 million (2009: $103.6 million gain) resulting in a net loss before tax of $1.1 million (2009: $2.1 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 the business assets of Independent News Limited in June 2003. At 27 June 2010, the hedges were assessed to be highly effective with an unrealised loss of $3.0 million (2009: $0.6 million loss) recognised in equity. During the current financial period there was an unrealised loss of $0.1 million (2009: $1.8 million) recognised in the income statement attributable to the ineffective portion of the net investment hedges. 46 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 81 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 16. 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 27 June 2010 28 June 2009 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 $'000 $'000 (i) Consolidated Property, plant and equipment 4,551 10,293 Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Other - - 6,567 25,216 48,993 9,504 2,676 - 4,147 - - 6,685 23,831 52,826 10,288 3,255 1,510 6,219 27,374 3,020 10,347 41,935 22,258 - - 229 - 1,091 24,084 2,788 10,498 44,301 24,187 - - 53 - 10,684 (22,823) (3,020) (10,347) (35,368) 2,958 48,993 9,504 2,447 - 3,056 Gross deferred tax assets/liabilities 101,654 114,907 106,254 116,595 (4,600) (13,791) (2,788) (10,498) (37,616) (356) 52,826 10,288 3,202 1,510 (4,465) (1,688) Set-off of deferred tax assets/liabilities (89,880) (107,569) (89,880) (107,569) - - Net deferred tax assets/liabilities 11,774 7,338 16,374 9,026 (4,600) (1,688) (ii) Company Property, plant and equipment Intangible assets Other assets Provisions Payables Other 80 6,567 - 1,166 2,909 3 - 6,215 2,281 2,061 149 Gross deferred tax assets/liabilities 10,725 10,706 - - - - - 395 395 2,771 - - - - 7,096 9,867 Set-off of deferred tax assets/liabilities (395) (9,867) (395) (9,867) 80 6,567 - 1,166 2,909 (392) 10,330 - Net deferred tax assets/liabilities 10,330 839 - - 10,330 (2,771) 6,215 - 2,281 2,061 (6,947) 839 - 839 47 82 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 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 28 June 2009 on acquisition in income in equity disposed 27 June 2010 (13,791) (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 - - - - - - - - - - - - - - - - - - (9,032) (232) 432 2,247 2,588 (3,833) (784) (754) (1,510) 7,276 (3,602) 2,851 352 - (1,115) 848 6,555 9,491 - - (281) - 726 - - - - 245 690 - - - - - - - - - - - - - - - - - - - - - - - - - (22,823) (3,020) (10,347) (35,369) 2,958 48,993 9,504 2,448 - 3,056 (4,600) 80 6,567 - 1,166 2,909 (392) 10,330 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 48 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 83 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (C) TAX LOSSES AND FUTURE DEDUCTIBLE TEMPORARY DIFFERENCES The Group has realised Australian capital losses for which no deferred tax asset is recognised on the balance sheet of $208,979,744 (2009: $210,696,066) which are available indefinitely for offset against future capital gains subject to continuing to meet relevant statutory tests. The Group has deductible temporary differences for which no deferred tax asset is recognised on the balance sheet of $298,194,934 (2009: $298,538,825). (D) UNRECOGNISED TEMPORARY DIFFERENCES At 27 June 2010, there are no material unrecognised temporary differences associated with the Group's investments in associates or joint ventures, as the Group has no material liability for additional taxation should unremitted earnings be remitted (2009: Nil). 17. Payables Trade and other payables * Interest payable Income in advance Total current payables * Trade payables are non-interest bearing and are generally on 30 day terms Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 188,489 211,288 14,843 14,946 18,944 69,147 19,376 69,815 - - - - 276,580 300,479 14,843 14,946 49 84 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 18. Interest bearing liabilities Current interest bearing liabilities - unsecured Finance lease liability Other loans Redeemable Preference Shares Bank borrowings Other loans Senior notes Medium term notes Total current interest bearing liabilities Non-current interest bearing liabilities - unsecured Bank borrowings Other loans Senior notes Medium term notes Eurobonds Other Finance lease liability Total non-current interest bearing liabilities Net debt for financial covenant purposes Cash and cash equivalents Current interest bearing liabilities Non-current interest bearing liabilities Derivative financial instruments liabilities/(assets) * Net debt for financial covenant purposes Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 (D) (D) (E) (B) (C) (F) (B) (C) (F) (G) (D) (D) 3,579 39,975 - - 58,531 167,587 3,334 10,072 147,978 22,173 - - 269,672 183,557 145,231 237,706 539,431 - 494,068 11,634 18,425 638,371 167,481 607,537 51,609 22,004 1,208,789 1,724,708 (117,872) 269,672 (69,124) 183,557 1,208,789 74,413 1,724,708 (56,793) 1,435,002 1,782,348 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - * 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 $1,435 million as at 27 June 2010 (2009: $1,782 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. 50 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 85 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (B) BANK BORROWINGS Non-current A NZ$50 million revolving committed cash advance facility is available to the Group until December 2011. At 27 June 2010, NZ$25.0 million was drawn down (2009: NZ$27.7 million). A $1,200 million syndicated bank facility is available to the Group until periods ranging from April 2011 to April 2013. At 27 June 2010, $125 million was drawn (2009: $125 million). The interest rate for the drawings under this facility is the applicable bank bill rate plus a credit margin. On 2 July 2010, the Group extended the April 2011 tranche ($388 million) to April 2014 and reduced the amount by $96.4 million to $291.6 million. Total syndicated bank facilities subsequent to year end were $1,104 million. (C) SENIOR NOTES The Group issued Senior Notes in the US private placement market with a principal value of US$230 million (A$289.8 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 4.5 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 principal value of US$250 million (A$308.2 million) in July 2007 comprising maturities ranging from July 2014 to July 2017. The weighted average maturity of this issue is approximately 5.1 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 principal 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. (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 $36.6 million (2009: $41.3 million) and a finance lease of $22.0 million (2009: $25.3 million), which was entered into in February 1996. There is also principal and interest outstanding of $15.1 million (2009: $20.4 million) in the form of a fixed rate loan with an established drawdown and repayment schedule. The CPI indexed annuity loan will be repaid in full on 30 September 2010 in accordance with the early redemption provisions and has been classified as current. The finance lease facility and fixed rate loan will continue to maturity in September 2015. (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) paying a fixed one year coupon of 3.97% p.a. payable quarterly in arrears. The Redeemable Preference Shares matured in June 2010. The interest and principal on the Redeemable Preference Shares were 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. The cross-currency swap matured in June 2010, which coincided with the maturity of the RPS. (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 6.25% p.a. payable annually in arrears (2009: 5.25%). The interest and principal on the notes are payable in Euro and were swapped into fixed rate Australian dollars via cross-currency swaps. 51 86 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 19. 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 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 101,558 101,697 3,626 5,291 3,341 599 - 4,183 267 4,927 6,850 4,357 10,590 271 - - - - - 109,948 128,692 3,626 12,812 34,936 258 48,006 13,087 35,435 481 49,003 222 - - 222 - - - 1,911 - 7,202 401 - - 401 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 Current Balance at beginning of the financial year Additional provision Utilised Intercompany transfers Exchange differences Balance at end of the financial year Non-current Balance at beginning of the financial year Additional provision Utilised Exchange differences Balance at end of the financial year 2010 $'000 2010 $'000 2010 $'000 2010 $'000 4,927 3,726 6,850 400 4,357 - 10,590 3,559 (5,316) (6,571) (4,355) (9,979) - 4 3,341 - - - - - - (80) 599 35,435 2,448 (2,926) (21) 34,936 - (2) - - - - - - 2010 $'000 271 299 (303) - - 2010 $'000 1,911 - (376) (1,535) - - 13 4,183 267 - - - - - 481 - (223) - 258 - - - - - - 52 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 87 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 NATURE AND TIMING OF PROVISIONS (i) Employee benefits Provisions for employee benefits include liabilities for annual leave and long service leave and are measured at the amounts expected to be paid when the liabilities are settled, refer to Note 1(S)(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. (iv) Earn out The provision for earn out related to amounts arising from acquisitions which were 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. 20. Pension 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 following sets out details in respect of the defined benefit plans only and in the case of the Fairfax NZ Retirement Fund, excludes $50.9 million (2009: $44.0 million) of defined contribution assets and entitlements. 53 88 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'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 (21,512) 16,712 (20,560) 17,875 (4,800) (2,685) (B) RECONCILIATION OF THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION Balance at the beginning of the financial year 20,560 24,254 Current service cost Interest cost Contributions by employees Actuarial losses/(gains) Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Curtailments Settlements 954 944 23 1,641 (2,513) (106) 9 - - 928 1,408 68 (173) (66) (147) 4 209 (5,925) Balance at the end of the financial year 21,512 20,560 (C) RECONCILIATION OF THE FAIR VALUE OF PLAN ASSETS Balance at the beginning of the financial year Expected return on plan assets Actuarial gains/(losses) Contributions by Group companies and employees Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Settlements 17,875 1,194 657 (408) (2,512) (106) 12 - 29,796 2,012 (7,425) (381) (66) (147) 11 (5,925) Balance at the end of the financial year 16,712 17,875 (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 954 944 - (1,194) 704 928 1,408 209 (2,012) 533 2,019 (4,862) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 54 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 89 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 27 June 2010 28 June 2009 27 June 2010 28 June 2009 % % 7 21 31 28 8 5 7 22 33 24 7 7 % - - - - - - % - - - - - - (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 2010 % 5.1 5.9 4.0 2009 % 4.7 6.3 4.0 2010 % - - - 2009 % - - - 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 5.9% p.a. rate of return, net of tax and expenses (2009: 6.3% 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 2011 financial year are $784,000 (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. 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. 55 90 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (I) HISTORIC SUMMARY Defined benefit plan obligation Plan assets Surplus/(deficit) 2006 $'000 2007 $'000 2008 $'000 2009 $'000 (19,424) 30,100 (20,048) 33,429 (24,254) 29,796 (20,560) 17,875 10,676 13,381 5,542 (2,685) 2010 $'000 (21,512) 16,712 (4,800) Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets (2,152) (892) (2,032) (1,038) 7,678 (3,132) (1,513) 6,283 1,551 (756) 21. Other financial assets Shares in controlled entities - at cost Provision for diminution Shares in unlisted entities - at fair value Total other financial assets 22. Contributed equity Ordinary Shares 2,351,955,725 ordinary shares fully paid (2009: 2,351,955,725) Unvested Employee Incentive Shares 8,411,794 unvested employee incentive shares (2009: 8,411,794) Stapled Preference Shares (SPS) 3,000,000 stapled preference shares (2009: 3,000,000) Debentures 281 debentures fully paid (2009: 281) Total contributed equity * Amount is less than $1000 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 - - - 2,575 2,575 - - 3,138,215 3,138,215 (214,000) (214,000) - 1,175 2,924,215 - 2,924,215 - 1,175 2,924,215 2,924,215 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 (A) 4,667,944 4,667,990 4,667,944 4,667,990 (B) (18,430) (33,031) (18,430) (33,031) (C) (D) 293,163 293,163 299,278 299,278 * * * * 4,942,677 4,928,122 4,948,792 4,934,237 56 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 91 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 Dividend reinvestment plan issue - 2 October 2008 Share issue - 13 March 2009 Institutional offer Share issue - 6 April 2009 Retail offer Share issue costs 27 June 2010 28 June 2009 27 June 2010 28 June 2009 No. of shares No. of shares $'000 $'000 2,351,955,725 1,513,544,248 4,667,990 4,039,131 - - - - 5,558,472 668,373,549 164,479,456 - - - - (46) 15,731 501,280 123,360 (11,512) Balance at end of the financial year 2,351,955,725 2,351,955,725 4,667,944 4,667,990 (B) UNVESTED EMPLOYEE INCENTIVE SHARES Balance at beginning of the financial year Share acquisition - 26 August 2008 Share acquisition - 27 March 2009 Tax benefit recognised directly in equity Balance at end of the financial year (C) STAPLED PREFERENCE SHARES (SPS) Balance at beginning of the financial year Balance at end of the financial year (D) DEBENTURES Balance at beginning of the financial year Balance at end of the financial year Total contributed equity * Amount is less than $1000 8,411,794 - - - 3,384,916 3,900,084 1,126,794 - 8,411,794 8,411,794 (33,031) - - 14,601 (18,430) (13,885) (11,599) (845) (6,702) (33,031) 3,000,000 3,000,000 3,000,000 3,000,000 293,163 293,163 293,163 293,163 281 281 281 281 * * * * 4,942,677 4,928,122 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. 57 92 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 27 June 2010, no ordinary shares (2009: 5,558,472 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. (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 a margin. Distributions are non-cumulative. Total distribution payments in the year to SPS holders was $15,898,531 (2009: $25,005,709). The SPS are perpetual however Fairfax has the right to redeem the SPS for cash, remarket the securities or exercise a 2.25% step-up margin, 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 be entitled to 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(T). 58 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 93 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 (A) (B) (C) (D) (E) 1,833 32 (140,969) (173,662) 10,946 (4,037) 5,099 7,286 (1,024) 3,987 (127,128) (163,381) - - - - 5,099 5,099 - - - - 3,987 3,987 32 2,082 - (281) 1,833 (801) (1,358) 2,191 - 32 (173,662) (201,881) - 32,693 1,192 27,027 (140,969) (173,662) 7,286 4,522 (862) 15,307 (11,495) 3,474 10,946 7,286 (1,024) (4,272) 1,259 (4,037) 3,987 3,297 (989) (1,196) 5,099 (438) (836) 250 (1,024) 1,750 2,237 - - 3,987 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,987 3,297 (989) (1,196) 5,099 1,750 2,237 - - 3,987 23. 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 on available for sale investments 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 Tax effect on share-based payment expense Tax expense recognised directly in reserve Balance at end of the financial year 59 94 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 15. (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 15. (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(S)(ii). 24. Retained profits Balance at beginning of the financial year Net profit/(loss) for the financial year Actuarial loss on defined benefit plans, net of tax Tax benefits recognised directly in equity Total available for appropriation Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 237,604 282,115 (741) 4,770 821,987 (380,050) (5,093) 7,502 63,624 490,535 (722) (245,175) - - - - 523,748 444,346 62,902 245,360 Dividends paid 6 (41,770) (206,742) (25,872) (181,736) Balance at end of the financial year 481,978 237,604 37,030 63,624 60 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 95 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 25. Non-controlling interest Interest in: Contributed equity Reserves Retained profits Balance at end of the financial year RECONCILIATION 1,783 7,679 (251) 9,211 1,783 7,679 (17) 9,445 Balance at beginning of the financial year 9,445 11,001 Acquisition of controlled entities Disposal of controlled entities Share of profit/(loss) for the period Distribution to non-controlling interest Exchange differences Balance at end of the financial year - - 262 (496) - 9,211 234 (287) (1,038) (461) (4) 9,445 26. Earnings per share Basic earnings/(loss) per share After significant and non-recurring items less SPS dividend (net of tax) Diluted earnings/(loss) per share After significant and non-recurring items (net of tax) Earnings reconciliation - basic Net profit/(loss) attributable to members of the Company Less Dividends on SPS (net of tax) Basic earnings/(loss) after significant and non-recurring items less SPS dividend - - - - - - - - - - - - - - - - - - - - - - Consolidated Consolidated 27 June 2010 28 June 2009 ¢ per share ¢ per share 11.5 (21.6) 11.0 (21.6) Consolidated Consolidated 27 June 2010 28 June 2009 $'000 $'000 282,115 (11,780) (380,050) (15,683) 270,335 (395,733) Earnings reconciliation - diluted Net profit/(loss) attributable to members of the Company 282,115 (380,050) 61 96 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Weighted average number of ordinary shares used in calculating basic EPS SPS Weighted average number of ordinary shares used in calculating diluted EPS 27. Commitments Consolidated Consolidated 27 June 2010 28 June 2009 Number Number '000 '000 2,351,956 212,128 1,832,788 247,889 2,564,084 2,080,677 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: Within one year Later than one year and not later than five years Later than five years Total operating lease commitments Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 43,238 129,939 313,970 44,019 132,345 332,860 487,147 509,224 $'000 74 - - 74 $'000 147 74 - 221 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 property, plant and machinery with a carrying amount of $31.3m (2009: $32.5m). The lease has an average lease term of five years (2009: six years) and a weighted average interest rate of 13.4% (2009: 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 Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 5,076 20,303 1,269 26,648 (4,644) 22,004 5,076 20,304 6,345 31,725 (6,387) 25,338 3,579 18,425 22,004 3,334 22,004 25,338 18(D) - - - - - - - - - - - - - - - - - - 62 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 97 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 5 years is $23.4 million (2009: $25.5 million). CAPITAL COMMITMENTS At 27 June 2010, the Group has commitments principally relating to the purchase of property, plant and equipment. Commitments contracted for at reporting date but not recognised as liabilities are as follows: Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $'000 $'000 $'000 $'000 7,772 12,645 - - - - 7,772 12,645 - - - - - - - - Within one year Later than one year and not later than five years Later than five years Total capital commitments 28. Contingencies GUARANTEES Under the terms of ASIC Class Order 98/1418 (as amended), the Company and certain controlled entities (refer Note 29), 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 19, that are expected to result in a material impact. 63 98 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 29. 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 (in Liq) ACN 083 365 799 Pty Ltd (in Liq) 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 Carpentaria Newspapers Pty Ltd Central Districts Field Days Limited Commerce Australia Pty Ltd Communication Associates Limited Constellar Press & Printing Pty Limited 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 (in Liq) Examiner Properties Pty Ltd F@rming Online Pty Ltd (in Liq) Fairfax Business Media (South Asia) Pte Limited Fairfax Business Media Pte Limited Fairfax Business Media Sdn. Bhd. Fairfax Business Publications (Hong Kong) Ltd Fairfax Community Network Limited Fairfax Community Newspapers Pty Limited Fairfax Corporation Pty Limited Fairfax Digital Australia & New Zealand Pty Ltd Fairfax Digital Limited Fairfax EEC Limited 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 Notes (a) Country of Incorporation Australia Ownership interest 2010 % 2009 % (a) (a) (a) (a) (a) (a) (a) (a) (c) (a) (c) (a) (a) (a) (a) (c) (a) (a) (a) (a) (a) (c) (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 Australia Australia Australia Australia United Kingdom New Zealand United Kingdom Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 - 100 100 75 100 - 100 100 60 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 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 64 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 99 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 CONTROLLED ENTITIES 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 (in Liq) Farm Progress Companies, Inc Farm Progress Holding Co, Inc Farm Progress Insurance Services, Inc Financial Essentials Pty Ltd Find a Babysitter Pty Limited 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 (in Liq) 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 John Fairfax & Sons Ltd John Fairfax (US) Limited John Fairfax Limited Lanson Investments Pty Ltd Large Publications Pty Ltd Leeton Newspapers Pty Ltd Lime Digital Pty Limited Macleay Valley Happynings Pty Ltd Mayas Pty Ltd Mayas Unit Trust Media Investments Pty Ltd Melbourne Community Newspapers Pty Ltd (in Liq) Merredin Advertiser Pty Ltd (in Liq) Metropolis Media Pty Ltd Micosh Pty Ltd Miller Publishing Co, Inc Milton Ulladulla Publishing Co. Pty Ltd Mistcue Pty Limited Mountain Press Pty Ltd NE Investments Pty Ltd Newcastle Newspapers Pty Ltd 65 100 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 Notes (a) (a) (a) (a) (a) (a) (a) (a) (b) (a) (a) (a) (a) (a) (a) (c) (c) (a) (a) (a) (c) (a) (a) (c) (a) (c) (a) (c) (a) Country of Incorporation 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 Australia United States Australia New Zealand Australia Australia United States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Australia Ownership interest 2010 % 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 - - 100 100 100 100 - 100 100 - 100 100 100 100 100 - 100 100 60 65 88 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 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 60 65 88 100 100 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Notes Country of Incorporation Ownership interest 2010 % 2009 % CONTROLLED ENTITIES 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 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 Press Australia Pty 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 (in Liq) RPL Technology Pty Limited RSVP.com.au Pty Limited Rural Press (North Queensland) Pty Limited (in Liq) 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 (in Liq) Rural Press USA Inc Rural Publishers Pty Limited Southern Weekly Partnership S.A. Regional Media Pty Limited Satellite Interactive Marketing Pty Limited (in Liq) Satellite Music Australia Pty Limited Snowy Mountains Publications Pty Ltd Stayz Limited (a) (a) (c) (a) (a) (c) (a) (a) (a) (a) (a) (a) (a) (a) (c) (a) (a) (a) (a) (a) (a) (c) (a) (a) (a) (a) (a) (a) (a) (a) (a) (c) 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 Australia United States Australia Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Australia Australia New Zealand 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 51 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 66 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 101 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Notes Country of Incorporation Ownership interest 2010 % 2009 % CONTROLLED ENTITIES 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 (in Liq) The Queanbeyan Age Proprietary Limited 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 Trade Me Limited Tricom Group Pty Ltd Trade Me Travel Trustees 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 (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (c) (a) (a) (c) (a) (d) (a) (a) (a) (a) 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 100 100 100 100 100 100 100 100 63 100 100 100 100 100 - 70 100 100 75 - 100 100 100 100 100 75 75 100 100 100 100 100 100 100 100 100 100 63 100 100 100 100 100 100 70 100 100 75 100 100 100 100 100 100 75 75 100 100 (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. Acquired on 1 December 2009. These entities were liquidated or amalgamated and subsequently deregistered during the financial year. This company was formerly called Vianet Trustee Limited. (b) (c) (d) 67 102 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 27 June 2010 and consolidated balance sheet as at 27 June 2010, comprising the members of the Closed Group after eliminating all transactions between members are set out below: (A) BALANCE SHEET Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative assets Held to maturity investments Assets held for sale Income tax receivable 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 Deferred tax assets Other financial assets Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Derivative liabilities Provisions Current tax liabilities Total current liabilities 27 June 2010 28 June 2009 $'000 $'000 59,430 310,909 32,502 - 11,591 3,176 - 24,592 289,321 35,466 46 - 5,527 35,978 417,608 390,930 720,233 576,037 42,734 4,239 - 44,947 2,157 13,216 3,962,668 4,003,600 663,629 28,065 23,604 1,397,236 706,638 130,392 7,266 1,144,266 6,842,408 6,628,519 7,260,016 7,019,449 205,777 269,672 12,567 96,874 43,425 221,662 12,259 26,757 114,073 1,274 628,315 376,025 68 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 103 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Non-current liabilities Interest bearing liabilities Derivative liabilities Provisions Pension liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity (B) INCOME STATEMENT Total revenue Share of net profits/(losses) of associates and joint ventures Expenses before finance costs Finance costs Net profit/(loss) from operations before income tax expense Income tax expense Net profit/(loss) from operations after income tax expense 27 June 2010 28 June 2009 $'000 $'000 1,194,713 1,427,075 85,093 45,864 4,779 47,729 47,040 2,154 1,330,449 1,523,998 1,958,764 1,900,023 5,301,252 5,119,426 4,942,677 4,928,122 (46,640) 405,215 (61,544) 252,848 5,301,252 5,119,426 1,901,430 1,968,112 1,709 (76) (1,494,106) (52,760) (2,185,766) (54,317) 356,273 (84,562) (272,047) (22,494) 271,711 (294,541) 30. Acquisition and disposal of controlled entities (A) ACQUISITIONS The consolidated entity gained control over the following entities or business assets during the year: Entity or business acquired Find a Babysitter Pty Ltd BookIt Ltd Principal activity Date of Acquisition Online directory for child care providers 1 December 2009 Online booking provider 22 January 2010 Ownership Interest 100% (i) (i) The business assets of BookIt Limited were acquired. For additional information refer to Note 31. (B) DISPOSALS The consolidated entity did not dispose of any controlled entities during the year. 69 104 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 31. Business combinations ACQUISITIONS DURING THE PERIOD Acquisitions, none of which were individually significant to the consolidated entity, are listed in Note 30(A). 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 Value of net assets acquired Cash and cash receivables Property, plant and equipment Intangible assets Total assets Payables Current tax liabilities Total liabilities Value of identifiable net assets Goodwill arising on acquisition Total identifiable net assets and goodwill Consideration Purchase consideration - cash Deferred consideration Total consideration Net cash outflow on acquisition Net cash acquired with subsidiary Cash paid Net cash outflow 26 19 - 45 13 11 24 21 - 21 26 7 717 750 98 16 114 636 4,289 4,925 4,280 645 4,925 26 (4,280) (4,254) 70 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 105 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 32. Employee benefits (A) NUMBER OF EMPLOYEES As at 27 June 2010 the consolidated entity employed 8,778 full-time employees (2009: 8,979) and 1,801 part-time and casual employees (2009: 1,828). This includes 2,164 (2009: 2,254) full-time employees and 378 (2009: 363) part-time and casual employees in New Zealand. (B) EMPLOYEE SHARE PLANS The Company had three employee share plans during the period. The plans have been reopened with some changes after a suspension now that the new tax rules for employee share plans have been finalised. The terms of each plan are set out below: 1. Fairfax Exempt Employee Share Plan This plan is open to all Australian employees with at least twelve months service with the consolidated entity in Australia, whose adjusted taxable income is $180,000 per annum or less. Under this Plan, participants may salary sacrifice up to $1,000 of pre tax salary per annum for the 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 Australian employees with at least twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary sacrifice a minimum of $1,000 and up to a maximum of $5,000 of salary per annum for the 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. Participants must nominate a 'lock' period of either 3, 5 or 7 years during which their shares must remain in the plan, unless they leave the consolidated entity in Australia. 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 purchase shares on market and allocate 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 nominally allocated Fairfax shares, which are beneficially held in a trust. The shares will vest if the eligible employee remains in employment three years from the date the nominal shares 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. 71 106 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 33. 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 27 June 2010 28 June 2009 27 June 2010 28 June 2009 $ $ $ $ 1,435,000 1,466,000 1,435,000 1,466,000 329,000 319,000 329,000 319,000 1,764,000 1,785,000 1,764,000 1,785,000 251,397 94,677 272,840 119,233 - - 8,240 59,905 316,386 8,929 268,946 13,546 - - - - Total other assurance services 671,389 674,565 8,240 59,905 Total remuneration for assurance services 2,435,389 2,459,565 1,772,240 1,844,905 Non assurance services Ernst & Young Australia Other services Affiliates of Ernst & Young Australia Other services Total non assurance services Total remuneration of auditors - 582 14,132 10,765 14,132 11,347 - - - 582 - 582 2,449,521 2,470,912 1,772,240 1,845,487 72 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 107 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 34. Director and executive disclosures 34. Director and executive disclosures (A) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (A) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (i) Shareholdings (i) Shareholdings 2010 2010 Directors Directors RC Corbett RC Corbett JB Fairfax JB Fairfax N Fairfax N Fairfax B McCarthy B McCarthy S McPhee S McPhee S Morgan S Morgan L Nicholls L Nicholls R Savage R Savage P Young P Young Key management personnel Key management personnel B Cassell B Cassell G Hambly G Hambly Total Total 2009 2009 Directors Directors RJ Walker* RJ Walker* RC Corbett RC Corbett D Evans* D Evans* JB Fairfax JB Fairfax N Fairfax N Fairfax JM King* JM King* DE Kirk* DE Kirk* B McCarthy B McCarthy R Savage R Savage P Young P Young Key management personnel Key management personnel G Hambly G Hambly J Matthews J Matthews J Withers* J Withers* S Narayan** S Narayan** B Cassell** B Cassell** Total Total Balance Balance Net change Net change Balance Post year-end Balance Post year-end Post year-end Post year-end Post year-end Post year-end 28 June 2009 28 June 2009 Other Other 27 June 2010 27 June 2010 acquisitions acquisitions disposals disposals balance balance 99,206 99,206 235,426,781 235,426,781 3,892,481 3,892,481 1,664,043 1,664,043 - - - - - - 47,899 47,899 131,747 131,747 - - - - - - (463,581) (463,581) - - - - - - - - (630) (630) 99,206 99,206 235,426,781 235,426,781 3,892,481 3,892,481 1,200,462 1,200,462 - - - - - - 47,899 47,899 131,117 131,117 1,061,014 1,061,014 178,581 178,581 - - - - 1,061,014 1,061,014 178,581 178,581 242,501,752 242,501,752 (464,211) (464,211) 242,037,541 242,037,541 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 99,206 99,206 235,426,781 235,426,781 3,892,481 3,892,481 1,200,462 1,200,462 - - - - - - 47,899 47,899 131,117 131,117 1,061,014 1,061,014 178,581 178,581 242,037,541 242,037,541 Balance Balance Net change Net change Balance Post year-end Balance Post year-end Post year-end Post year-end Post year-end Post year-end 29 June 2008 29 June 2008 Other Other 28 June 2009 28 June 2009 acquisitions acquisitions disposals disposals balance balance 1,035,251 1,035,251 40,091 40,091 52,448 52,448 972,948 972,948 59,115 59,115 109,934 109,934 2,008,199 2,008,199 99,206 99,206 162,382 162,382 216,482,782 216,482,782 18,943,999 18,943,999 235,426,781 235,426,781 2,412,351 2,412,351 1,480,130 1,480,130 3,892,481 3,892,481 46,068 46,068 371,280 371,280 1,463,027 1,463,027 19,996 19,996 25,183 25,183 21,135 21,135 (371,280) (371,280) 201,016 201,016 27,903 27,903 106,564 106,564 133,772 133,772 - - 3,296 3,296 57,888 57,888 775,847 775,847 44,809 44,809 46,667 46,667 - - 94,042 94,042 285,167 285,167 67,203 67,203 - - 1,664,043 1,664,043 47,899 47,899 131,747 131,747 178,581 178,581 46,667 46,667 3,296 3,296 151,930 151,930 1,061,014 1,061,014 222,919,280 222,919,280 22,022,149 22,022,149 244,941,429 244,941,429 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,008,199 2,008,199 99,206 99,206 162,382 162,382 235,426,781 235,426,781 3,892,481 3,892,481 67,203 67,203 - - 1,664,043 1,664,043 47,899 47,899 131,747 131,747 178,581 178,581 46,667 46,667 3,296 3,296 151,930 151,930 1,061,014 1,061,014 244,941,429 244,941,429 * * In the case of retired directors, the closing balance represents the number of shares at the date the director retired from the Board. For 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. KMP, the closing balance represents the number of shares at the date of resignation. ** B Cassell replaced S Narayan as Chief Financial Officer in May 2009. ** B Cassell replaced S Narayan as Chief Financial Officer in May 2009. 73 73 108 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Stapled Preference Shares (SPS) SPS held, acquired or disposed of in the financial year ended 27 June 2010 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 equity-based incentive schemes are included in section 5.2 of the remuneration report. Directors B McCarthy Key management personnel B Cassell G Hambly Total Directors DE Kirk* B McCarthy Key management personnel G Hambly J Matthews J Withers* S Narayan* B Cassell** Total Opening Balance Granted as Net change Closing Balance 28 June 2009 remuneration Other *** 27 June 2010 694,479 255,920 209,040 214,072 75,752 56,488 1,117,591 388,160 - - - - 950,399 284,792 270,560 1,505,751 Opening Balance Granted as Net change Closing Balance 29 June 2008 remuneration Other *** 28 June 2009 739,511 292,299 857,489 402,180 (1,403,326) - 139,512 107,648 - 256,848 87,983 110,969 126,101 - 269,016 121,057 (36,409) - - (486,340) - 193,674 694,479 214,072 233,749 - 39,524 209,040 1,623,801 1,886,812 (1,926,075) 1,584,538 * The closing balance represents the number of shares at the date of departure following resignation. For KMP, closing balance represents the number of shares at the date of resignation. ** B Cassell replaced S Narayan as Chief Financial Officer in May 2009. *** Net change movements include forfeitures. (C) LOANS TO KEY MANAGEMENT PERSONNEL (i) Aggregates for key management personnel There were no loans made 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 27 June 2010 (2009: 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 27 June 2010 and 28 June 2009. 74 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 109 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 35. Related party transactions 35. Related party transactions (A) ULTIMATE PARENT (A) ULTIMATE PARENT Fairfax Media Limited is the ultimate parent company. Fairfax Media Limited is the ultimate parent company. (B) CONTROLLED ENTITIES (B) CONTROLLED ENTITIES Interests in controlled entities are set out in Note 29. Interests in controlled entities are set out in Note 29. (C) KEY MANAGEMENT PERSONNEL (C) KEY MANAGEMENT PERSONNEL A number of directors of Fairfax Media Limited also hold directorships with other corporations which provide and receive goods or 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 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. 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 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: director-related entities, which: • occurred within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those • 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 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; in the same circumstances; • do not have the potential to adversely affect decisions about the allocation of scarce resources or discharge the responsibility • do not have the potential to adversely affect decisions about the allocation of scarce resources or discharge the responsibility of the directors; or of the directors; or • are minor or domestic in nature. • are minor or domestic in nature. (D) TRANSACTIONS WITH RELATED PARTIES AND DIRECTOR-RELATED ENTITIES (D) TRANSACTIONS WITH RELATED PARTIES AND DIRECTOR-RELATED ENTITIES The following transactions occurred with related parties and director-related entities on normal market terms and conditions: The following transactions occurred with related parties and director-related entities on normal market terms and conditions: Sales to Sales to Purchases Purchases Amount owed Amount owed Amount owed Amount owed from related from related by related by related to related to related related related parties parties $'000 $'000 parties parties $'000 $'000 parties parties $'000 $'000 Consolidated Consolidated 27 June 2010 27 June 2010 28 June 2009 28 June 2009 Company Company 27 June 2010 27 June 2010 28 June 2009 28 June 2009 4,507 4,507 4,986 4,986 19,556 19,556 17,876 17,876 2,539 2,539 2,606 2,606 - - - - - - - - - - - - Fairfax Media Limited has undertaken transactions with its controlled entities during the year including the issue and receipt of loans 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. and management fees. On consolidation, all such transactions have been eliminated in full. 75 75 110 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 parties parties $'000 $'000 104 104 458 458 - - - - NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 36. Notes to the cash flow statements (A) RECONCILIATION OF NET PROFIT/(LOSS) AFTER INCOME TAX EXPENSE TO NET CASH INFLOW FROM OPERATING ACTIVITIES Consolidated Consolidated Company Company 27 June 2010 28 June 2009 27 June 2010 28 June 2009 Note $'000 $'000 $'000 $'000 282,377 (381,088) (722) (245,175) Net profit/(loss) for the financial year Non-cash items Depreciation and amortisation 3(B) 113,623 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 on disposal of property, plant and equipment Net (gain)/loss on disposal of investments and other assets Fair value adjustment to derivatives Gain on repurchase of medium term notes Net foreign currency loss Share-based payment expense Non-cash superannuation expense Changes in operating assets and liabilities, net of effects from acquisitions (Increase)/decrease in trade receivables Decrease in other receivables Decrease in inventories Decrease in other assets Decrease in payables (Decrease)/increase in provisions Increase/(decrease) in tax balances 6,436 4,422 491 1,290 1,732 (322) (2,360) - 843 3,297 1,136 (45,410) 76 1,584 - (9,826) (16,760) 106,990 117,556 569,091 3,917 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) 3,439 - - - - 18 - - - - 3,297 - - 3,808 - - (517) (298) 11,383 7,363 214,000 - - - 6 5,533 - - - 2,237 - (14) 2,446 - - (978) (485) (17,272) Net cash inflow/(outflow) from operating activities 449,619 384,897 20,408 (32,339) (B) RECONCILIATION OF CASH AND CASH EQUIVALENTS Reconciliation of cash at end of the financial year (as shown in the Statement of Cash Flow) 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 117,872 117,872 69,124 69,124 1,680 1,680 1,680 1,680 (C) NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends satisfied by the issue of shares under the dividend reinvestment plan are shown in Note 22(A). 76 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 111 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 37. 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 at a level consistent with an investment grade 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. 77 112 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 The net debt to EBITDA ratio for the Group at 27 June 2010 and 28 June 2009 is as follows: Net debt for financial covenant purposes EBITDA * Net debt to EBITDA ratio Note 18 Consolidated Consolidated 2010 $'000 2009 $'000 1,435,002 644,586 1,782,348 610,226 2.23 2.92 * 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 15 for further details of the Group's derivative financial instruments and details of hedging activities. 78 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 113 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 At balance date, the Group had the following mix of financial assets and financial liabilities exposed to interest rate risks: Floating rate $'000 117,872 - - 11,591 - 28,970 158,433 Fixed rate $'000 - - - - - 15,382 15,382 Non- interest bearing $'000 - 379,099 4,239 - 2,575 - Total $'000 117,872 379,099 4,239 11,591 2,575 44,352 385,913 559,728 - - 276,580 276,580 181,782 28,574 - - 22,004 232,360 56,277 15,058 569,388 494,068 167,587 - 1,246,101 41,383 - - - - - - - 196,840 597,962 494,068 167,587 22,004 1,478,461 97,660 288,637 1,287,484 276,580 1,852,701 Consolidated As at 27 June 2010 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 Total interest bearing liabilities Derivatives Total financial liabilities 79 114 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 Company As at 27 June 2010 Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Payables Total financial liabilities 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 Floating rate $'000 1,680 - 1,680 - - Fixed rate $'000 Non- interest bearing $'000 Total $'000 - 398,566 - 1,673,414 1,680 2,071,980 398,566 1,673,414 2,073,660 - - 14,843 14,843 14,843 14,843 80 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 115 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 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 Sensitivity analysis 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% (2009: 30%) 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 27 June 2010 from around 4.96% to 6.45% representing a 149 basis point shift (2009: 97 basis point shift). In 2010, 84% (2009: 86%) 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 held constant - increase/(decrease) Impact on post-tax profit Impact on equity 2010 $'000 2009 $'000 2010 $'000 2009 $'000 (3,969) (6,397) 2,906 1,554 If interest rates were 30% lower with all other variables 3,969 6,397 (3,262) (1,307) held constant - increase/(decrease) 81 116 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 15 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 15% 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 15% 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. 82 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 117 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (a) AUD / NZD Comparing the Australian Dollar exchange rate against the New Zealand Dollar, a 15% weaker Australian Dollar would result in an exchange rate of 1.0392 and a 15% stronger Australian Dollar in an exchange rate of 1.4060 based on the year end rate of 1.2226. 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 1.04 to 1.32. Consolidated If the AUD exchange rate was 15% weaker against the NZD with all other variables held constant - increase/(decrease) Impact on post-tax profit (hedging reserves) * Impact on equity 2010 $'000 2009 $'000 2010 $'000 2009 $'000 4,497 5,457 (30,927) (21,838) If the AUD exchange rate was 15% stronger against the NZD with all other (3,862) (2,460) 22,859 20,496 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 15% weaker Australian Dollar would result in an exchange rate of 0.7424 and a 15% stronger Australian Dollar in an exchange rate of 1.0044 based on the year end rate of 0.8734. 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 0.61 to 0.98. Consolidated If the AUD exchange rate was 15% weaker against the USD with all other variables held constant - increase/(decrease) Impact on equity Impact on post-tax profit (cash flow hedge reserve) 2010 $'000 2009 $'000 2010 $'000 2009 $'000 (32) (499) 3,067 2,710 If the AUD exchange rate was 15% stronger against the USD with all other (1,313) 322 (1,896) (2,224) variables held constant - increase/(decrease) (c) AUD / EUR Comparing the Australian Dollar exchange rate against the Euro, a 15% weaker Australian Dollar would result in an exchange rate of 0.5999 and a 15% stronger Australian Dollar in an exchange rate of 0.8117 based on the year end rate of 0.7058. 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 0.47 to 0.72. Consolidated If the AUD exchange rate was 15% weaker against the Euro with all other variables held constant - increase/(decrease) Impact on equity Impact on post-tax profit (cash flow hedge reserve) 2010 $'000 2009 $'000 2010 $'000 2009 $'000 3,348 - (1,163) 2,304 If the AUD exchange rate was 15% stronger against the Euro with all other 3,338 (2,200) (4,228) (72) variables held constant - increase/(decrease) 83 118 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (d) NZD / EUR Comparing the New Zealand Dollar exchange rate against the Euro, a 15% weaker New Zealand Dollar would result in an exchange rate of 0.4900 and a 15% stronger New Zealand Dollar in an exchange rate of 0.6630 based on the year end rate of 0.5765. 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 0.39 to 0.62. Impact on post-tax profit (cash flow hedge reserve) Impact on equity 2010 $'000 2009 $'000 2010 $'000 - - - - - - 2009 $'000 330 (268) Consolidated If the NZD exchange rate was 15% weaker against the Euro with all other variables held constant - increase/(decrease) If the NZD exchange rate was 15% 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 27 June 2010 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. 84 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 119 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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. Refer to Note 18(B) for details of the Group's unused credit facilities at 27 June 2010. 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 27 June 2010 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance lease liability Derivatives - inflows* Cross currency swaps - foreign leg (fixed)** 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 (276,580) - - (59,321) (136,213) (10,930) - - (300,100) (558,052) (313,846) (301,206) (8,354) (8,678) (33,303) - 120,134 556,064 283,383 301,659 1 year or less $'000 (14,843) - - - - - - - - - 1 to 2 years $'000 - - - - - - - - - - Cross currency swaps - foreign leg (variable)** 335 335 29,628 - Derivatives - outflows* Cross currency swaps - AUD leg (fixed)** (24,110) (224,110) (26,734) (145,711) Cross currency swaps - AUD leg (variable)** (94,843) (378,220) (199,486) - Cross currency swaps - NZD leg (variable)** (9,556) (9,556) (92,900) (186,234) Interest rate swaps *** (16,846) (16,846) (12,656) (2,109) 85 120 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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)** Cross currency swaps - foreign leg (variable)** Forward foreign currency contracts** Derivatives - outflows* Cross currency swaps - AUD leg (fixed)** 218,533 127,283 793,481 504,759 363 7,743 363 - 1,088 31,349 - - (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)** Interest rate swaps *** Forward foreign currency contracts** (9,352) (16,846) (7,880) (9,352) (93,533) (188,987) (16,846) - (25,284) - (6,328) - * 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. - - - - - - - - - - - - - - - - - - - - - - - - - 86 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 121 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 (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 Finance 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 2010 $'000 2010 $'000 2009 $'000 2009 $'000 117,872 379,099 44,352 4,239 11,591 2,575 117,872 379,099 44,352 4,239 10,351 2,575 69,124 346,932 152,915 2,157 13,216 1,175 69,124 346,932 152,915 2,157 13,216 1,175 559,728 558,488 585,519 585,519 276,580 276,580 300,479 300,479 196,840 494,068 597,962 167,587 22,004 - 97,660 196,840 495,589 599,764 167,700 40,956 - 97,660 321,560 607,537 638,371 167,481 25,338 147,978 74,487 321,558 609,741 640,583 167,700 36,187 149,123 74,487 1,852,701 1,875,089 2,283,231 2,299,858 1,680 2,071,980 1,680 2,071,980 1,680 2,050,143 1,680 2,050,143 2,073,660 2,073,660 2,051,823 2,051,823 14,843 14,843 14,843 14,843 14,946 14,946 14,946 14,946 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 13.37% (2009: 2.66% to 13.38%). The carrying value of all other balances approximate their fair value. As of 27 June 2010, the Group has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) (b) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). 87 122 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Consolidated Financial assets Derivative assets Available for sale investments Other financial assets Financial liabilities Derivative liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - 44,352 4,239 - 4,239 - - - 2,575 46,927 97,660 97,660 - - - - - - 44,352 4,239 2,575 51,166 97,660 97,660 The Company does not have any financial assets or financial liabilities measured at fair value as at 27 June 2010. 88 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 123 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 38. Segment reporting 38. Segment reporting (A) DESCRIPTION OF SEGMENTS (A) DESCRIPTION OF SEGMENTS The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors, The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors, CEO and CFO in assessing performance and in determining the allocation of resources. CEO and CFO in assessing performance and in determining the allocation of resources. The consolidated entity is organised into seven reportable segments based on aggregated operating segments determined by the The consolidated entity is organised into seven reportable segments based on aggregated operating segments determined by the similarity of products and services provided, economic characteristics and geographical considerations. similarity of products and services provided, economic characteristics and geographical considerations. Reportable Segment Reportable Segment Products and Services Products and Services Australian Regional Media Australian Regional Media Newspaper publishing and online for all Australian regional publications Newspaper publishing and online for all Australian regional publications Metropolitan Media Metropolitan Media Newspaper and magazine publishing, print and online classifieds for Sydney and Melbourne Newspaper and magazine publishing, print and online classifieds for Sydney and Melbourne Specialist Media Specialist Media New Zealand Media New Zealand Media Printing Operations Printing Operations Online Online Broadcasting Broadcasting Other Other metropolitan and community publications metropolitan and community publications Financial Review Group print and online plus Australian, NZ and USA agricultural publications Financial Review Group print and online plus Australian, NZ and USA agricultural publications Newspaper, magazine and general publishing and online for all New Zealand publications Newspaper, magazine and general publishing and online for all New Zealand publications Australian and New Zealand printing operations Australian and New Zealand printing operations Online news sites and transactional businesses including Trade Me (New Zealand) Online news sites and transactional businesses including Trade Me (New Zealand) Metropolitan radio networks, regional radio stations and narrowcast licences Metropolitan radio networks, regional radio stations and narrowcast licences Comprises corporate, Satellite Music Australia and Oxford Scientific Films Comprises corporate, Satellite Music Australia and Oxford Scientific Films Although the broadcasting segment does not meet the quantitative thresholds required by AASB 8, management has concluded Although the broadcasting segment does not meet the quantitative thresholds required by AASB 8, management has concluded that disclosure of this segment would be beneficial to users of the financial statements. that disclosure of this segment would be beneficial to users of the financial statements. (B) RESULTS BY OPERATING SEGMENT (B) RESULTS BY OPERATING SEGMENT The segment information provided to the Board of Directors, CEO and CFO for the reportable segments for the year ended 27 June The segment information provided to the Board of Directors, CEO and CFO for the reportable segments for the year ended 27 June 2010 is as follows: 2010 is as follows: 27 June 2010 27 June 2010 Australian Regional Media Australian Regional Media Metropolitan Media Metropolitan Media Specialist Media Specialist Media New Zealand Media New Zealand Media Printing Operations Printing Operations Online Online Broadcasting Broadcasting Other Other Consolidated entity Consolidated entity Revenue Revenue Segment Segment Intersegment Intersegment from external from external Underlying Underlying Depreciation Depreciation Underlying Underlying revenue revenue $'000 $'000 revenue revenue customers customers EBITDA EBITDA amortisation amortisation $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 EBIT EBIT $'000 $'000 519,272 519,272 896,669 896,669 279,750 279,750 383,324 383,324 535,961 535,961 212,568 212,568 109,536 109,536 15,370 15,370 (12,626) (12,626) (1,062) (1,062) (65) (65) (1,029) (1,029) (452,946) (452,946) (123) (123) - - - - 506,646 506,646 895,607 895,607 279,685 279,685 382,295 382,295 83,015 83,015 212,445 212,445 109,536 109,536 15,370 15,370 147,976 147,976 102,513 102,513 67,238 67,238 75,969 75,969 111,016 111,016 111,075 111,075 28,664 28,664 (5,395) (5,395) (7,165) (7,165) (12,141) (12,141) (3,327) (3,327) (9,431) (9,431) (66,956) (66,956) (11,640) (11,640) (1,912) (1,912) (1,051) (1,051) 140,811 140,811 90,372 90,372 63,911 63,911 66,538 66,538 44,060 44,060 99,435 99,435 26,752 26,752 (6,446) (6,446) 2,952,450 2,952,450 (467,851) (467,851) 2,484,599 2,484,599 639,056 639,056 (113,623) (113,623) 525,433 525,433 89 89 124 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 28 June 2009 Australian Regional Media Metropolitan Media Specialist Media New Zealand Media Printing Operations Online Broadcasting Other * Consolidated entity Segment Intersegment from external Underlying Depreciation Underlying Revenue revenue revenue customers EBITDA amortisation $'000 $'000 $'000 $'000 $'000 525,578 924,946 298,258 410,117 537,735 187,172 106,279 71,294 (15,954) (1,446) (45) (1,200) (440,412) (347) - - 509,624 923,500 298,213 408,917 97,323 186,825 106,279 71,294 151,683 101,863 61,504 84,187 108,814 90,784 24,895 (18,725) (8,405) (13,440) (3,455) (6,866) (68,196) (10,268) (2,141) (4,469) EBIT $'000 143,278 88,423 58,049 77,321 40,618 80,516 22,754 (23,194) 3,061,379 (459,404) 2,601,975 605,005 (117,240) 487,765 * Other includes results of the Southern Star Group and REPA (C) OTHER SEGMENT INFORMATION Segment revenue (i) Segment revenue reconciles to total revenue and income as follows: Total segment revenue from external customers Interest income Share of net profits of associates and joint ventures Gain on repurchase of medium term notes Total revenue and income Consolidated Consolidated 27 June 2010 28 June 2009 $'000 $'000 2,484,599 2,601,975 7,943 (2,226) - 4,430 (2,050) 5,167 2,490,316 2,609,522 Revenue from external customers includes the operating segments share of net profits from associates and joint ventures. The consolidated entity operates predominantly in two geographic segments, Australia and New Zealand. The amount of its revenue from external customers in Australia is $2,016.2 million (2009: $2,120.7 million), and the amount of revenue from external customers in New Zealand is $474.1 million (2009: $488.8 million). Segment revenues are allocated based on the country in which the customer is located. EBIT (ii) The Board of Directors, CEO and CFO assess the performance of the operating segments based on a measure of underlying EBIT. This measurement basis excludes the effects of non-recurring items from the operating segments such as restructuring costs and goodwill, masthead or radio licence impairments when the impairment is the result of an isolated, non-recurring event. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the centralised treasury function, which manages the cash position of the group. 90 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 125 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 A reconciliation of underlying EBIT to operating profit/(loss) before income tax is provided as follows: EBIT Interest income Gain on repurchase of medium term notes Finance costs Impairment of mastheads, licences, goodwill and investments Impairment of property, plant and equipment Restructuring and redundancy charges Onerous lease property costs Net profit/(loss) before tax Consolidated Consolidated 27 June 2010 28 June 2009 $'000 $'000 525,433 487,765 7,943 - (135,911) - - - - 4,430 5,167 (179,291) (551,708) (23,228) (85,694) (8,857) 397,465 (351,416) Information provided to the Board of Directors, CEO and CFO in respect of assets and liabilities is presented on a group basis consistent with the consolidated financial statements. A summary of non-recurring items by operating segments is provided for the period ended 28 June 2009. There were no non-recurring items included in EBIT in the current period. Australian Regional Media Metropolitan Media Specialist Media New Zealand Media Printing Operations Online Broadcasting Other $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 28 June 2009 Onerous lease property costs Impairment of mastheads, licences, goodwill and - 4,227 1,234 63 investments 66,074 285,438 27,709 63,371 - - 4,568 1,467 - - 16,000 - - - 774 2,559 70,395 1,193 - - 3,999 42,147 1,179 9,845 11,859 3,393 92 13,180 Impairment of property, plant and equipment Restructuring and redundancy charges (iii) Segment assets The total of non-current assets other than financial instruments, deferred tax assets and employment benefit assets (there are no rights arising under insurance contracts) located in Australia is $6,091.7 million (2009: $6,398.1 million), and the total of these non-current assets located in New Zealand is $680.5 million (2009: $418.5 million). Segment assets are allocated to countries based on where the assets are located. 91 126 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 39. Events subsequent to balance sheet date No significant events subsequent to the balance sheet date have occurred. 92 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 127 DIRECTORS’ DECLARATION Directors’ Declaration fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES fOR THE PERIOD ENDED 27 JUNE, 2010 Fairfax Media Limited and Controlled Entities for the period ended 27 June, 2010 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 27 June 2010 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 27 June 2010. 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 29 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 Roger Corbett Chairman Brian McCarthy Chief Executive Officer and Managing Director 20 September 2010 128 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS Of fAIRfAX MEDIA LIMITED Independent auditor’s report to the members of Fairfax Media Limited Report on the Financial Report We have audited the accompanying financial report of Fairfax Media Limited, which comprises the balance sheet as at 27 June 2010, and income statement and statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors’ also state that the financial report, comprising the financial statement and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Liability limited by a scheme approved under Professional Standards Legislation FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 129 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS Of fAIRfAX MEDIA LIMITED Auditor’s Opinion In our opinion: 1. including: the financial report of Fairfax Media Limited is in accordance with the Corporations Act 2001, i ii giving a true and fair view of the balance sheet of Fairfax Media Limited and the consolidated entity at 27 June 2010 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. International Accounting Standards Board. the financial report also complies with International Financial Reporting Standards as issued by the Report on the Remuneration Report We have audited the Remuneration Report included in pages 20 to 28 of the directors’ report for the year ended 27 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Fairfax Media Limited for the year ended 27 June 2010, complies with section 300A of the Corporations Act 2001. Ernst & Young Christopher George Partner Sydney 20 September 2010 130 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 SHAREHOLDER INFORMATION Shareholder Information fAIRfAX MEDIA LIMITED Fairfax Media Limited TWENTY LARGEST HOLDERS OF SECURITIES AT 8 SEPTEMBER 2010 ORDINARY SHARES (FXJ) National Nominees Limited J P Morgan Nominees Australia Limited Marinya Media Pty Ltd HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Cogent Nominees Pty Limited Citicorp Nominees Pty Limited Tasman Asset Management Ltd ANZ Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited AMP Life Limited Australian Reward Investment Alliance RBC Dexia Investor Services Australia Nominees Pty Limited Cogent Nominees Pty Limited J P Morgan Nominees Australia Limited Argo Investments Limited UBS Wealth Management Australia Nominees Pty Ltd Citicorp Nominees Pty Limited Queensland Investment Corporation Australian Foundation Investment Company Limited STAPLED PREFERENCE SECURITIES (SPS) (FXJPB) J P Morgan Nominees Australia Limited UBS Nominees Pty Ltd National Nominees Limited ANZ Nominees Limited HSBC Custody Nominees (Australia) Limited - A/C 3 HSBC Custody Nominees (Australia) Limited - GSCO ECA Brispot Nominees Pty Ltd Avanteos Investments Limited Citicorp Nominees Pty Limited Buttonwood Nominees Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Questor Financial Services Limited RBC Dexia Investor Services Australia Nominees Pty Limited UBS Wealth Management Australia Nominees Pty Ltd ANZ Trustees Limited Citicorp Nominees Pty Limited M F Custodians Ltd Equity Trustees Limited Cogent Nominees Pty Limited ANZ Trustees Limited Number of securities 440,968,076 393,981,759 227,650,358 207,261,142 142,890,559 109,202,634 93,710,244 38,210,878 32,342,812 29,105,539 29,069,694 21,128,269 19,478,532 16,578,896 16,551,345 15,779,138 13,816,429 13,480,000 12,974,406 9,000,000 1,883,180,710 553,295 225,993 184,829 163,739 160,600 116,356 105,114 92,051 80,594 72,901 53,446 47,938 34,039 27,419 27,069 25,379 25,030 24,945 23,600 20,000 2,064,337 % 18.75% 16.75% 9.68% 8.81% 6.08% 4.64% 3.98% 1.62% 1.38% 1.24% 1.24% 0.90% 0.83% 0.70% 0.70% 0.67% 0.59% 0.57% 0.55% 0.38% 80.07% 18.44% 7.53% 6.16% 5.46% 5.35% 3.88% 3.50% 3.07% 2.69% 2.43% 1.78% 1.60% 1.13% 0.91% 0.90% 0.85% 0.83% 0.83% 0.79% 0.67% 68.81% DEBENTURES National Financial Services Corp. 281 100 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 131 SHAREHOLDER INFORMATION Shareholder Information fAIRfAX MEDIA LIMITED 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 8 September 2010 are: Marinya Media Pty Ltd National Australia Bank Limited Group Commonwealth Bank of Australia Maple-Brown Abbott Limited DISTRIBUTION OF HOLDINGS AT 8 SEPTEMBER 2010 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 232,512,219 229,191,115 201,410,754 136,691,699 No. of ordinary shareholders 10,294 18,667 6,661 5,977 378 41,977 3,378 No. of SPS holders 1,209 169 20 17 7 1,422 1 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. 132 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 FIVE YEAR PERFORMANCE SUMMARY Five Year Performance Summary fAIRfAX MEDIA LIMITED AND CONTROLLED ENTITIES Fairfax Media Limited and Controlled Entities Income Statement Total revenue Revenues from operations Earnings/(loss) before depreciation, interest and tax (EBITDA) Depreciation Earnings/(loss) before interest and tax Net interest expense Profit/(loss) before tax Income tax expense Net profit/(loss) attributable to members of the Company Net profit before significant items Balance Sheet Total equity Total assets Total borrowings Statistical Analysis Number of shares and debentures Number of shareholders Number of SPS holders EBITDA to operating revenue EBIT to operating revenue Basic earnings/(loss) 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 Market price per share Market capitalisation Number of full-time employees Number of part-time and casual employees 2010 2009 2008 2007 2006 2,490.3 2,476.8 2,609.5 2,599.1 2,934.0 2,900.9 2,178.5 2,111.4 1,909.9 1,907.8 639.1 113.6 525.4 128.0 397.5 115.1 282.1 290.5 5,306.7 7,394.1 1,478.5 2,352.0 43,231 1,516 25.8 21.2 11.5 11.8 19.1 2.5 21.7 5.0 27.9 5.5 1.36 (59.0) 117.6 (176.6) 174.9 (351.4) 29.7 (380.1) 242.4 5,011.8 7,487.6 1,908.3 2,352.0 49,050 1,388 (2.3) (6.8) (21.6) 12.4 16.4 2.0 - 3.5 38.1 4.8 1.23 818.3 108.3 710.0 186.9 523.2 135.7 386.9 395.3 4,965.3 8,293.1 2,511.9 1,513.5 50,184 1,010 28.2 24.5 22.9 23.4 27.7 20.0 87.3 4.4 50.6 8.0 2.69 560.7 111.3 449.4 111.2 338.2 76.6 263.5 267.8 493.5 79.8 413.7 97.1 316.6 88.5 227.5 234.3 4,961.0 8,000.5 2,347.7 2,136.8 4,087.1 1,507.9 1,479.6 50,843 939.1 40,301 733 26.6 21.3 22.7 23.2 24.7 20.0 88.1 5.3 47.3 5.4 4.36 564 26.0 21.7 24.4 24.5 30.7 19.5 79.9 5.1 70.6 11.0 3.48 $m $m $m $m $m $m $m $m $m $m $m $m $m m % % cents cents cents cents % Times % % $ $m 3,198.7 2,892.9 4,071.4 6,451.2 3,268.0 8,778 1,801 8,979 1,828 9,800 2,106 9,474 1,942 6,468 2,168 47 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 133 DIRECTORY Directory fAIRfAX MEDIA LIMITED Fairfax Media Limited ANNUAL GENERAL MEETING The annual general meeting will be held at 10.30am on Thursday 11 November 2010 at the Palladium, Level 1, Crown Towers, 8 Whiteman Street, Southbank, Melbourne, Vic. 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”. FINANCIAL CALENDAR 2010 Stapled preference securities dividend Annual general meeting 1 November 2010 10 November 2010 2011 (estimated) Interim result Stapled preference securities dividend Preliminary final result Annual general meeting February 2011 April 2011 August 2011 November 2011 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 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. HOW TO OBTAIN 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 obtained from 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. 134 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 PUBLICATIONS AND WEBSITES Publications and Websites FAIRFAX MEDIA AUSTRALIAN PUBLICATIONS Metropolitan Newspapers The Sydney Morning Herald The Sun-Herald The Age The Sunday Age Canberra/Newcastle/Illawarra/ Seniors Group ACT The Canberra Times The Chronicle Public Sector Informant Sunday Canberra Times The Queanbeyan Age Illawarra Illawarra Mercury Wollongong Advertiser Newcastle Lakes Mail Port Stephens Examiner The Newcastle Herald The Star (Newcastle and Lake Macquarie) Senior Publications Australian Senior Queensland Senior Senior Traveller South Australia Senior Tasmanian Senior Victorian Senior West Australian Senior Community Newspapers (NSW) Auburn Review Bankstown-Canterbury Torch Blacktown Sun Campbelltown Macarthur Advertiser Camden Advertiser Cooks River Valley Times Fairfield City Champion Hills News Holroyd Sun Liverpool City Champion Parramatta Sun Penrith City Star Rouse Hill-Stanhope Gardens News St George & Sutherland Shire Leader St Marys-Mt Druitt Star South West Advertiser Wollondilly Advertiser Community Newspapers (VIC) Banyule & Nillumbik Weekly Brimbank Weekly Casey Weekly - Berwick Casey Weekly - Cranbourne Northern City Weekly Frankston Weekly Greater Dandenong Weekly Hobsons Bay Weekly Hobsons Bay Weekly - Williamstown Hume Weekly Knox Weekly Macedon Ranges Weekly Maribyrnong Weekly Maroondah Weekly Melbourne Times Weekly Melbourne Weekly Melbourne Weekly Bayside Melbourne Weekly Eastern Melbourne Weekly Port Phillip Melton Weekly Monash Weekly Moonee Valley Weekly Moorabool Weekly Northern Weekly North West Weekly Pakenham Weekly Peninsula Weekly - Mornington Point Cook Weekly Sunbury Weekly Western Port Trader Western Port Weekly Wyndham Weekly Yarra Ranges Weekly Holiday Magazine Regional Publishing (NSW) Armidale Express Armidale Express Extra Bay Post (Batemans Bay) Bega District News Bellingen Shire Courier Sun Blayney Chronicle Blue Mountains Gazette Blue Mountains Wonderland Bombala Times Boorowa News Braidwood Times Camden Haven Courier Canowindra News Central Western Daily Coasting Cobar Age Coffs Harbour Independent Cooma Monaro Express Cootamundra Herald Country Leader Cowra Guardian Crookwell Gazette Daily Liberal Dungog Chronicle Eastern Riverina Chronicle Eurobodalla Shire Independent Forbes Advocate Gilgandra Weekly Glen Innes Examiner Gloucester Advocate Goulburn Post Great Lakes Advocate Guardian News Guyra Argus Harden Murrumburrah Express Hawkesbury Courier Hawkesbury Gazette Hibiscus Happynings Highlands Post (Bowral) Hunter Valley News Hunter Valley Town + Country Leader Lithgow Mercury Lower Hunter Star (Maitland) Macleay Argus Mailbox Shopper Manning Great Lakes Extra Manning River Times Merimbula News Weekly Midcoast Happenings Mid-Coast Observer Midstate Observer Milton Ulladulla Times Moree Champion Moruya Examiner Mudgee Guardian Mudgee Weekly Muswellbrook Chronicle Myall Coast NOTA Narooma News Narromine News North Coast Senior Lifestyle North Coast Town + Country Magazine Northern Daily Leader Nyngan Observer Oberon Review Parkes Champion Post Port Macquarie Express Port Macquarie News Sapphire Coaster Shoalhaven and Nowra News Singleton Argus Snowy Times Magazine South Coast Leisure Times South Coast Register Southern Cross (Junee) Southern Highland News (Bowral) Southern Weekly Magazine Summit Sun Tenterfield Star The Advertiser (Cessnock) The Area News (Griffith) The Border News The Daily Advertiser / The Weekend Advertiser (Wagga Wagga) The Grenfell Record The Inverell Times The Irrigator (Leeton) The Leader (Riverina) The Magnet (Eden/Imlay) The Maitland Mercury The Observer (Coleambally) The Post Weekly (Goulburn) The Ridge News The Rural (Wagga Wagga) The Scone Advocate Town & Country Magazine Walcha News Warren Advocate Wauchope Gazette Wellington Times Western Advocate Western Magazine FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 135 PUBLICATIONS AND WEBSITES Publications and Websites Western Times Wingham Chronicle Yass Tribune Young Witness Regional Publishing (VIC/TAS/SA/WA) Ararat Advertiser Ballarat News Bendigo Advertiser Gippsland Farmer Gippsland Times Latrobe Valley Express Midland Express Moe & Narracan News Sunraysia Daily The Advocate (Hepburn Shire) The Border Mail (Albury/Wodonga) The Courier (Ballarat) The Great Southern Tourist News (Victoria) The Guardian (Swan Hill) The Moyne Gazette The Northern Times (Kerang) The Standard (Warrnambool) The Stawell Times News The Warrnambool Extra Traralgon Journal Wimmera Mail Times Coastal Times (Burnie) Devonport Times East Coast News Island of Contrast Launceston Advertiser Meander Valley News Northern Midlands News Sunday Examiner, Tasmania Tamar Community Times Tasmanian Independent Publishing Tasmanian Travelways The Advocate (Burnie) The Examiner (Launceston) Western Herald (North West Tasmania) Barossa Light Herald Eyre Peninsula Tribune On The Coast (Victor Harbor) Northern Argus (Clare Valley) Port Lincoln Times Roxby Downs Sun The Flinders News (SA) The Independent Weekly The Islander (Kangaroo Island) The Murray Valley Standard The Recorder (Port Pirie) The Times (Victor Harbor) The Transcontinental (Port Augusta) West Coast Sentinel (Ceduna) Whyalla News Albany & Great Southern Weekender Augusta Margaret River Mail Avon Advocate (Northam) Bunbury Mail Busselton-Dunsborough Mail Central Midlands & Coastal Advocate (Northam) Collie Mail Donnybrook Bridgetown Mail Harvey Mail Mandurah Mail Merredin-Wheatbelt Mercury 136 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 Murray Mail Senior Post (WA) Sun City News The Esperance Express The Wagin Argus Agricultural and Queensland/NT Regional Publishing National Australian Cotton Outlook Australian Dairyfarmer Australian Farm Journal Australian Horticulture 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 Bayside Bulletin Goondiwindi Argus Katherine Times Mt Isa Print Northwest Country Tennant & District Times The North West Star The Redlands Directory The Redland Times USA Agricultural Publications American Agriculturist Californian Farmer Carolina-Virginia Farmer Dakota Farmer Direct-fed Microbila, Enzyme + Forage Additive Compendium The Farmer The Farmer-Stockman Feedstuffs Feed Additive Compendium Annual Feedstuffs Reference Issue Farm Futures Indiana Prairie Farmer Kansas Farmer Michigan Farmer Mid-South Farmer Missouri Ruralist Nebraska Farmer Ohio Farmer Prairie Farmer Southern Farmer Tack 'n' Togs Wallaces Farmer (Iowa) Western Farmer-Stockman Wisconsin Agriculturist Farm Shows Farm Progress Show Hay Expo Husker Harvest Days New York Farm Show FAIRFAX MAGAZINES Good Weekend Sport & Style (Melbourne) Sport & Style (Sydney) Sunday Life theage(melbourne)magazine the(sydney)magazine PUBLICATIONS AND WEBSITES Publications and Websites FINANCIAL REVIEW GROUP FAIRFAX RADIO NETWORK FAIRFAX DIGITAL - AUSTRALIA Australia Publications Metropolitan News Talk News 2UE Sydney 3AW Melbourne 4BC Brisbane 6PR Perth Metropolitan Music Magic 1278 Melbourne 4BH Brisbane 96fm Perth Regional 4BU & Hitz FM Bundaberg 5RM & Magic FM the Riverland 5CC & Magic FM Port Lincoln 5AU / 5CS & Magic FM Spencer Gulf Narrowcast KIX AM / FM Bundaberg Hervey Bay, Maryborough, Gladstone, Rockhampton, Mackay, Townsville, Emerald, the Coalfields, Spencer Gulf, the Clare Valley, Port Lincoln and the Riverland AFR BOSS AFR Smart Investor Asset The Australian Financial Review The Australian Financial Review – Weekend Edition The Australaian Financial Review Magazine BRW CFO Life&Leisure Luxury Life & Leisure The Sophisticated Traveller MIS Australia Online www.afr.com www.afrmarketwrap.com www.brw.com.au www.misaustralia.com www.afrsmartinvestor.com.au www.afrmagazine.com www.afrboss.com www.cfoweb.com.au www.assetmag.com.au Business Intelligence AssetLink Connect4 Fairfax Business Research MarketBase Education Financial Review Professional Education Asia Publications CIO Asia Computerworld Singapore Computerworld Malaysia MIS Asia MIS Asia 100 Strategic 100 Asia On-line www.mis-asia.com www.smh.com.au www.theage.com.au www.brisbanetimes.com.au www.WAtoday.com.au www.sunherald.com.au www.canberratimes.com.au www.newsbreak.com.au www.nationaltimes.com.au Business and Finance www.brisbanetimes.com.au/business www.brisbanetimes.com.au/executive- style www.brisbanetimes.com.au/money www.businessday.com.au www.investsmart.com.au www.moneymanager.com.au www.mysmallbusiness.com.au www.smh.com.au/business www.smh.com.au/executive-style www.smh.com.au/money www.theage.com.au/business www.theage.com.au/executive-style www.theage.com.au/money www.tradingroom.com.au www.watoday.com.au/business www.watoday.com.au/executive-style www.watoday.com.au/money Education www.education.theage.com.au Lifestyle and Entertainment www.brisbanetimes.com.au/ entertainment www.brisbanetimes.com.au/ goodfoodguide www.brisbanetimes.com.au/lifestyle www.cuisine.com.au www.essentialbaby.com.au www.findababysitter.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.brisbanetimes.com.au/sport www.leaguehq.com.au www.protipping.com.au www.realfooty.com.au www.rugbyheaven.com.au www.smh.com.au/sport www.theage.com.au/sport www.watoday.com.au/sport FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 137 PUBLICATIONS AND WEBSITES Publications and Websites Subscriber Services Mobile Regional Network www.subscribers.theage.com.au www.mobile.fairfax.com.au Technology Weather www.brisbanetimes.com.au/digital-life www.brisbanetimes.com.au/technology www.smh.com.au/digital-life www.smh.com.au/technology www.theage.com.au/digital-life www.theage.com.au/technology www.watoday.com.au/digital-life www.watoday.com.au/technology Travel/Accommodation www.brisbanetimes.com.au/travel www.smh.com.au/travel www.stayz.com.au www.theage.com.au/travel www.traveller.com.au www.watoday.com.au/travel Video www.media.smh.com.au www.media.theage.com.au www.media.thecanberratimes.com.au www.media.watoday.com.au Property www.apm.com.au (Australian Property Monitors) www.brisbanetimes.domain.com.au www.commercialrealestate.com.au www.desktop.com.au www.domain.com.au www.homepriceguide.com.au www.smh.domain.com.au www.theage.domain.com.au www.watoday.domain.com.au Automotive www.bikes.drive.com.au www.brisbanetimes.drive.com.au www.countrycars.com.au www.countryshed.com.au www.drive.com.au www.smh.drive.com.au www.theage.drive.com.au www.watoday.drive.com.au Dating www.mytype.com.au www.rsvp.com.au Employment www.mycareer.com.au www.thebigchair.com.au www.indigenousjobsaustralia.com.au 138 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 www.marineweather.com.au www.weather.brisbanetimes.com.au www.weather.smh.com.au www.weather.theage.com.au www.weather.watoday.com.au www.weatherzone.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.rhsgnews.com.au www.southwestadvertiser.com.au www.stmarysstar.com.au www.theleader.com.au www.wollondillyadvertiser.com.au FCN Victoria www.banyuleandnillumbikweekly. com.au www.brimbankweekly.com.au www.caseyweeklyberwick.com.au www.caseyweeklycranbourne.com.au www.frankstonweekly.com.au www.greaterdandenongweekly.com.au www.hobsonsbayweekly.com.au www.humeweekly.com.au www.knoxweekly.com.au www.macedonrangesweekly.com.au www.maribyrnongweekly.com.au www.maroondahweekly.com.au www.melbournetimesweekly.com.au www.melbourneweekly.com.au www.melbourneweeklybayside.com.au www.melbourneweeklyeastern.com.au www.melbourneweeklyportphillip.com.au www.meltonweekly.com.au www.monashweekly.com.au www.mooneevalleyweekly.com.au www.mooraboolweekly.com.au www.northernweekly.com.au www.northwestweekly.com.au www.pakenhamweekly.com.au www.peninsulaweekly.com.au www.pointcookweekly.com.au www.sunburyweekly.com.au www.thecityweekly.com.au www.westernportweekly.com.au www.wyndhamweekly.com.au www.yarrarangesweekly.com.au www.holidaymagazine.com.au www.araratadvertiser.com.au www.areanews.com.au www.armidalexpress.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 www.busseltonmail.com.au www.camdencourier.com.au www.canowindranews.com.au www.capitalnews.com.au/custom.asp www.centraladvocate.com.au www.centralwesterndaily.com.au www.cessnockadvertiser.com.au www.coastaltimes.com.au www.coastingtoday.com.au www.cobarage.com.au www.coffscoastindependent.com.au www.colliemail.com.au www.colypointobserver.com.au www.coomaexpress.com.au www.cootamundraherald.com.au www.cowraguardian.com.au www.crookwellgazette.com.au www.dailyadvertiser.com.au www.dailyliberal.com.au www.devonporttimes.com.au www.donnybrookmail.com.au www.dungogchronicle.com.au www.easternriverinachronicle.com.au www.edenmagnet.com.au www.esperanceexpress.com.au www.examiner.com.au www.eyretribune.com.au www.forbesadvocate.com.au www.gippslandtimes.com.au www.gleninnesexaminer.com.au www.gloucesteradvocate.com.au www.goondiwindiargus.com.au www.goulburnpost.com.au www.greatlakesadvocate.com.au www.grenfellrecord.com.au www.guyraargus.com.au www.hardenexpress.com.au www.hepburnadvocate.com.au www.illawarramercury.com.au www.independentweekly.com.au www.inverelltimes.com.au www.irrigator.com.au www.islandofcontrast.com.au www.juneesoutherncross.com.au www.katherinetimes.com.au www.lakesmail.com.au www.latrobevalleyexpress.com.au www.launcestontimes.com.au www.lithgowmercury.com.au www.macleayargus.com.au www.mailtimes.com.au www.maitlandmercury.com.au PUBLICATIONS AND WEBSITES Publications and Websites www.mandurahmail.com.au www.manningrivertimes.com.au www.margaretrivermail.com.au www.meandervalleynews.com.au www.merimbulanewsonline.com.au www.merredinmercury.com.au www.moreechampion.com.au www.moynegazette.com.au www.mudgeeguardian.com.au www.murrayvalleystandard.com.au www.muswellbrookchronicle.com.au www.myallcoastnota.com.au www.nambuccaguardian.com.au www.naroomanewsonline.com.au www.narrominenewsonline.com.au www.newcastlestar.com.au www.northernargus.com.au www.northerndailyleader.com.au www.northernmidlands.news.com.au www.northweststar.com.au www.nynganobserver.com.au www.oberonreview.com.au www.parkeschampionpost.com.au www.portlincolntimes.com.au www.portnews.com.au www.portpirierecorder.com.au www.portstephensexaminer.com.au www.queanbeyanage.com.au www.riverinaleader.com.au www.roxbydownssun.com.au www.sconeadvocate.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.sunraysiadaily.com.au www.taseastcoastnews.com.au www.tastamartimes.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.thenortherntimes.com.au www.theridgenews.com.au www.therural.com.au www.townandcountrymagazine.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 www.wellingtontimes.com.au www.westcoastsentinel.com.au www.westernadvocate.com.au www.westernherald.com.au www.westernmagazine.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.agquip.com.au www.autoguide.com.au www.businessquickfind.com.au www.buyersguide.com.au www.farmonline.com.au www.holidaysaway.net www.horsedeals.com.au www.jobsguide.com.au www.lifeislocal.com.au www.propertyguide.com.au www.rpinteractive.com.au www.ruralbookshop.com.au www.ruralpress.com.au www.ruralpresssales.com.au www.ruralpropertyguide.com.au www.yourguide.com.au Your Guide albany.yourguide.com.au bowral.yourguide.com.au colac.yourguide.com.au huntervalleynews.yourguide.com.au kerang.yourguide.com.au kyneton.yourguide.com.au mildura.yourguide.com.au swanhill.yourguide.com.au tennantcreek.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/alfalo tfeeding/index.aspx www.farmonline.com.au/farmmags/austr aliancottonoutlook/index.aspx www.farmonline.com.au/farmmags/austr aliandairyfarmer/index.aspx www.farmonline.com.au/farmmags/austr alianlandcare/index.aspx www.farmonline.com.au/horticulture www.farmonline.com.au/horticulture/goo dfruitvegetables/index.aspx www.farmonline.com.au/horticulture/irrig ationandwaterresources/index.aspx www.grapegrowers.com.au www.horticultureonline.com.au www.qldsmartfarmer.com.au www.turfcraft.com.au FAIRFAX DIGITAL - NEW ZEALAND www.bookit.co.nz www.findsomeone.co.nz www.oldfriends.co.nz www.safetrader.co.nz www.smaps.co.nz 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 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010 139 PUBLICATIONS AND WEBSITES Publications and Websites The Bay Chronicle Waiheke MarketPlace Western Leader Whangarei Leader Waikato/Bay of Plenty/Hawke’s Bay Community Newspapers Cambridge Edition City Weekend 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 Taranaki/Manawatu Community Newspapers Central District Times Central Districts Farmer Feilding Herald North Taranaki Midweek Rangitikei Mail South Taranaki Star The Tribune Wellington Community Newspapers Horowhenua Mail Kapi-Mana News Kapiti Observer The Hutt News The New Zealander (International) The Wellingtonian Upper Hutt Leader Wairarapa News South Island Community Newspapers Central Canterbury News Clutha Leader D-Scene High Country Herald Kaikoura Star Motueka-Golden Bay News Newslink Otago Southland Farmer Taieri Herald The Christchurch Mail The Invercargill Eye The Leader - Nelson City Leader The Leader - Richmond & Waimea 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.fairfaxbm.co.nz www.jobuniverse.co.nz www.pcworld.co.nz www.pressf1.pcworld.co.nz www.reseller.co.nz NEW ZEALAND WEBSITES www.actv8.co.nz www.aucklandcityharbournews.co.nz www.aucklandstuff.co.nz www.businessday.co.nz www.centralleader.co.nz www.cuisine.co.nz www.dompost.co.nz www.eastandbayscourier.co.nz www.easterncourier.co.nz www.manawatustandard.co.nz www.manukaucourier.co.nz www.marlexpress.co.nz www.nelsonmail.co.nz 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.press.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.unlimited.co.nz www.waihekemarketplace.co.nz www.waikatotimes.co.nz www.westernleader.co.nz NEW ZEALAND PUBLISHING Metropolitan Newspapers The Christchurch Press The Dominion Post Waikato Times Regional Newspapers Manawatu Standard Taranaki Daily News The Marlborough Express The Nelson Mail The Southland Times The Timaru Herald National Newspapers Best Bets Sunday News Sunday Star-Times The Independent Turf Digest Magazines Actv8 Avenues Boating New Zealand Cuisine Fish & Game New Zealand New Zealand Fishing News New Zealand Gardener New Zealand Horse & Pony New Zealand Lifestyle Block New Zealand Trucking NZ Autocar NZ House & Garden NZ Life & Leisure Sky Sport Skywatch Sunday (host Sunday Star-Times) The Cut The TV Guide Truck Trader Unlimited 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 140 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2010

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