ANNUAL REPORT 2010
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POWERFUL NEWS BRANDS
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WORLD-CLASS SPORTS
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COMPELLING ENTERTAINMENT
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News Corporation
A LETTER FROM RUPERT MURDOCH
Dear Fellow Stockholders:
I am pleased to report that, even as world economies
remain fragile, News Corporation has completed fi scal
2010 renewed and fundamentally stronger than when
I wrote to you at this time last year.
We entered this year facing strong economic headwinds and great
uncertainty about the health of our markets. We focused ourselves
on strengthening operations this past year and emerged with our
businesses improving more than the markets themselves.
Our impressive results are widely distributed across most of our
business segments and from varied sources around the world. They
are a testament to the clear vision our senior management has
maintained in the face of broad economic challenges, as well as to
the dedication of our more than 50,000 innovative colleagues. These
results also underscore how well positioned we are – fi scally, operationally and
strategically – for further growth across all of our markets. The growth of our cable
and subscription businesses is excellent and will continue to improve strongly.
But, let me be clear: I do not believe we are out of the turmoil yet. Sovereign debt
pressures, soaring defi cits and unacceptable U.S. unemployment levels are key
obstacles to the global economic recovery. Others may see more positive signs, but
I believe until these issues are addressed, markets, governments, currencies and
consumer behavior will be unpredictable.
Even more unpredictable is the fundamental transformation that is disrupting the
media industry. Each day new platforms and new ways of communicating and
sharing content challenge us to evolve our businesses. But it is just this disruption
that provides us long-term opportunities, upon which I will refl ect more later.
In the midst of all these uncertainties, News Corporation has more than endured
the recent downturn; we have thrived. Our full-year revenues in 2010 rose 8 percent
to $32.8 billion and net income for the full year was $2.5 billion. Earnings were
$0.97 per share. And our cash balance was $8.7 billion.
Rupert Murdoch
Chairman and Chief Executive Officer
News Corporation
6 News Corporation
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Strategically, we made a number of moves this past year to strengthen our
operations, including:
(cid:81) Negotiating new retransmission consent agreements with a number of
cable providers which will help ensure we return to a robust U.S. broadcast
television business;
(cid:81) Expanding successful franchises like National Geographic Channel,
which launched Nat Geo WILD and the Fox International Channels, which
launched 29 channels this past year;
(cid:81) Delivering on the promise of 3D with Avatar – a big gamble that not only
OUR CONTENT CHANNELS
resulted in the most successful fi lm of all time, but ushered in a new era
in fi lm and television production;
(cid:81) Developing new economic models for digital journalism that will help us
expand our brands.
Finally, we took steps this fi scal year for what I believe is a logical and
disciplined plan for using our cash and strong balance sheet. We have
HAVE NEVER BEEN
STRONGER, OUR VIDEO
PRODUCTION BUSINESS
CONTINUES TO THRIVE,
made an attractive all-cash offer of 700 pence per share to acquire the
AND OUR NEWSPAPERS
61% of BSkyB that News Corporation does not already own.
ARE EXPANDING THEIR
BSkyB is a well-run business with talented and committed people who have
brought many innovations to customers in the U.K. and Ireland since we
BRANDS THROUGH NEW
founded it in 1989. It’s also a core business in which we have extensive
expertise. In the past, we have considered an offer to buy the outstanding
shares, but we feel now is the right time for both companies. So, we continue
to move forward to obtain regulatory approvals. The bold, strategic moves
that News Corporation makes throughout the year put us squarely in the
news spotlight. But it is the consistency of our Company’s core strategy, and
the clarity it brings to our operations, that resonates with me each summer
when I sit down to write this letter to you and refl ect upon our performance.
TECHNOLOGIES
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2010 Annual Report 7
When you have been in business as long as we have, you are no stranger to adversity
or to instability. We hedge against uncertainty by investing in diversifi ed assets at all
stages of growth. So as we strengthen our existing businesses, we are developing
the next generation, like STAR India and new digital content models. Finally, we
enjoy the fl exibility that comes from a well-managed balance sheet.
From our vibrant news businesses to our newest digital initiatives, our strategy
AVATAR WAS A BIG
once again paid off in 2010, with double digit segment operating income growth at
GAMBLE, RESULTING
the majority of our businesses. Our content channels have never been stronger,
our video production business continues to thrive, and our newspapers are
IN THE MOST
SUCCESSFUL FILM
OF ALL TIME AND
USHERING IN A NEW
ERA IN FILM
AND TELEVISION
PRODUCTION
expanding their brands through new technologies.
The Cable Network Programming segment was again our biggest growth driver.
In 2010, operating income increased 37% over the prior year to a record
$2.3 billion. All major networks showed impressive growth and, in the U.S.,
the FOX News Channel is simply unstoppable. FNC led the increase in affi liate
revenue growth and outperformed CNN, MSNBC and CNBC combined in total
viewers, for both prime time and total day categories.
Ratings growth is fueling ad dollars, even in this diffi cult market. Across our
cable segment, we launched several new shows and networks, including Justifi ed
on FX, one of the most successful new programs in cable television. We are
capitalizing on the world’s most popular sport at the Fox Soccer Channel, which
launched Fox Soccer Plus, a new premium network featuring premier interna-
tional competition from the world’s fi nest soccer leagues. Our Big Ten Network
is now seen in almost 50 million U.S. households. And Nat Geo WILD, now with
nearly 40 million subscribers, marks one of the most successful and widely
distributed launches in cable history.
Our vast international cable operations fostered signifi cant profi t growth, lifted by
higher affi liate fees, gains in advertising revenues and increased subscriptions.
STAR India saw particularly robust advertising growth and we continue to develop
market-leading capabilities in that important and burgeoning region. With recent
investments in Asianet and other regional channels in India, as well as Rotana in
the Middle East, we are positioning ourselves to drive and capture growth in these
rapidly developing markets.
8 News Corporation
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Pay-TV is an incredibly important business for us – as evidenced in our support
over the years of BSkyB. We know what these platforms can become with the
right leadership and we are committed to this business long term.
This past year at SKY Italia, we faced continued economic and competitive
challenges but our renewed focus on premium services like HD and PVRs and
the expanding choice in our programming packages is leading to lower churn.
While Italy remains challenged, we’re starting to see strong stabilization
in our business.
Sky Deutschland is at a much earlier stage of growth. We believe there is great
opportunity for pay television in Germany and we are making moves to strengthen
operations. There are still huge challenges ahead, but we believe the management
team of Sky Deutschland has the right strategy to build a sustainable business
for the future.
This past year, our television segment saw a 15% growth in operating income.
Fox Broadcasting Company was once again the number one television network
in the U.S. with hit shows like Glee and American Idol and our local stations
saw signifi cant growth during the year. We continue to balance FOX profi tability
goals with a longer-term objective of maintaining its ratings lead as TV
audiences fragment.
A noticeable turnaround in world advertising toward the end of calendar 2009
resulted in solid revenue growth, not only in our local TV markets in the U.S.,
but across our worldwide newspaper properties. At our popular U.K. titles,
The Sun delivered its highest year ever in advertising revenues in 2010. The
leading global news brand, The Wall Street Journal was the only major U.S. title
to grow in circulation.
ALL OF OUR MAJOR
NETWORKS SHOWED
IMPRESSIVE GROWTH
AND, IN THE U.S.,
THE FOX NEWS
CHANNEL IS SIMPLY
The Filmed Entertainment segment operating profi t grew to a record $1.3 billion
last year. I am only half joking when I wonder if there is anyone left on this planet
UNSTOPPABLE
who has yet to see Avatar. That groundbreaking fi lm’s critical reception and
outstanding box offi ce, coupled with the theatrical and home entertainment
performances of Ice Age: Dawn of the Dinosaurs, prove to me that audiences
everywhere are still hungry for quality storytelling, particularly when it’s merged
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2010 Annual Report 9
with the latest technology. And our television production company had big
success with the two breakout comedies of the year: Modern Family and Glee,
which have both been sold into syndication after one season.
Across our Company, we are using rapid advancements in technology to our
advantage. News Corporation’s greatest strength has always been our ability to
provide the highest quality and broadest array of content to the greatest number
of people, whenever, wherever and however they want it – at a reasonable price.
We see tremendous opportunity in all of the new devices, e-readers and smart-
phones coming to market, because they will allow consumers to access our
news, sports and entertainment. The latest Wall Street Journal and Times
of London apps, for example, have been early successes – attracting leading
advertisers. All of our newspaper brands around the world are collaborating
on iPad, e-reader and other mobile device offerings.
We are also leading our industry in the charge to develop new models to ensure
fair payment for our journalism. For newspapers in the 21st century, reinvention
means moving from a digital model that relied almost entirely on advertising to
ACROSS OUR COMPANY,
one with more balance. Quality journalism requires a big investment – fi nding
good reporters and editors, creating state-of-the-art newsrooms, deploying
resources around the world. The Wall Street Journal has long been a leader in
combining advertising with digital subscription fees and we have moved to this
more balanced model at The Times and The Sunday Times of London as well.
At News Corporation, we are focused on working with other leaders in the
publishing and technology fi elds to re-imagine the entire news and publishing
industry. Our long-term goal is to harness the power of technology and today’s
devices to advance the consumer media experience in totally new ways. We are
committed to “reinventing” how consumers get informed – exploring how they
can more easily fi nd, discover and consume information; organize it, access it,
store it, and more.
I fi rmly believe ours is the era of innovation – a digital renaissance that is
bringing us closer to a global meritocracy than at any time in human history.
Innovation only accelerates as human freedom advances and human beings
have more chances to interact.
WE’RE USING RAPID
ADVANCEMENTS IN
TECHNOLOGY TO OUR
ADVANTAGE
10 News Corporation
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The era of innovation is asymmetric – the winners will be rewarded handsomely
and the laggards will be left languishing far behind. Everyone understands that
we live in a world of technological change. But companies that do not innovate
I REMAIN EXCITED
will struggle to survive. They will be digitally disoriented, quickly losing touch
with their customers, who will be more technologically literate than those who
seek to provide them with services and products.
As I glance over the horizon, I suspect that the successful news and entertainment
company of the future will also need to fully embrace technology. To put it
another way, in a market where selling quality content increasingly depends
on a killer app, the day has arrived when our media companies must fi nd our
media talent partnering with our engineering talent to create new consumer
experiences.
So, far from killing us off, I see the great disruptions we are now going through
as the prelude to a new golden era for companies like News Corporation.
ABOUT OUR FUTURE
AND SEE BOUNDLESS
OPPORTUNITIES
TO PLAY TO OUR
INHERENT STRENGTHS
AS THE WORLD’S
LEADING CONTENT
I remain excited about our future and see boundless opportunities to play to
our inherent strengths as the world’s leading content provider. Technological
PROVIDER
advancements are giving us new ways to showcase our strengths, enhance
our coverage and encourage interactivity.
News Corporation has always been at the forefront of these opportunities.
And because of our talent, vision and initiative, I am certain we will maintain
our leadership position for decades to come.
Rupert Murdoch
Chairman and Chief Executive Officer
News Corporation
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2010 Annual Report 11
News Corporation
Selected Financial data
The selected consolidated financial data should be read in conjunction with “ Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Financial Statements and Supplementary Data” and the other financial information included elsewhere herein.
For the years ended June 30,
(in millions, except per share data)
2010(1)
2009(1)
2008(1)
2007(2)
2006(3)
Statement of Operations Data:
Revenues
Income (loss) from continuing operations attributable to
News Corporation stockholders
Net income (loss) attributable to
News Corporation stockholders
Basic income (loss) from continuing operations attributable
to News Corporation stockholders per share: (4)
Class A
Class B
Diluted income (loss) from continuing operations attributable
to News Corporation stockholders per share: (4)
Class A
Class B
Basic income (loss) attributable to News Corporation
stockholders per share: (4)
Class A
Class B
Diluted income (loss) attributable to News Corporation
stockholders per share: (4)
Class A
Class B
$ 32,778
$ 30,423
$ 32,996
$ 28,655
$ 25,327
2,539
(3,378)
5,387
3,426
2,812
2,539
(3,378)
5,387
3,426
2,314
$
0.97
$
(1.29)
$ 1.82
$
0.97
$
(1.29)
$ 1.81
$
0.97
$
(1.29)
$ 1.82
$
0.97
$
(1.29)
$ 1.81
$ 1.14
$ 0.95
$ 0.92
$ 0.77
$ 1.14
$ 0.95
$ 0.92
$ 0.77
$ 1.14
$ 0.95
$ 0.76
$ 0.63
$ 1.14
$ 0.95
$ 0.76
$ 0.63
Cash dividend per share: (4) (5)
$ 0.135
$ 0.120
Class A
Class B
As of June 30,
Balance Sheet Data:
Cash and cash equivalents
Total assets
Borrowings
$ 0.120
$ 0.110
$ 0.120
$ 0.100
$ 0.130
$ 0.130
2010
2009
2008
2007
2006
(in millions)
$ 8,709
54,384
13,320
$ 6,540
53,121
14,289
$ 4,662
62,308
13,511
$ 7,654
62,343
12,502
$ 5,783
56,649
11,427
(1) See Notes 2, 3, 4, 6 and 9 to the Consolidated Financial Statements of News Corporation for information with respect to significant acquisitions, disposals, changes in accounting,
impairment charges, restructuring charges and other transactions during fiscal 2010, 2009 and 2008.
(2) Fiscal 2007 results included the disposal of the Company’s investment in SKY Brasil to The DIRECTV Group, Inc. (“DIRECTV”) resulting in a total pretax gain of $426 million of which $261
million was recognized in fiscal 2007. The remaining $165 million was realized when the Company’s interest in DIRECTV was disposed of in fiscal 2008.
(3) Fiscal 2006 results included the dispositions of TSL Education Ltd. and Sky Radio Limited. The Company recorded gains totaling approximately $515 million on these transactions, which
were included in gain on disposition of discontinued operations in the consolidated statements of operations for the fiscal year ended June 30, 2006. In addition, the Company adopted
certain provisions of Accounting Standards Codification (“ASC”) 805 “Business Combinations” (“ASC 805”) limiting the use of the residual method when valuing intangible assets other
than goodwill during fiscal 2006. As a result of the adoption, the Company recorded a charge of $1.6 billion ($1 billion net of tax, or ($0.33) per diluted share of Class A common stock,
$0.01 par value per share, (“Class A Common Stock”) and ($0.28) per diluted share of Class B common stock, $0.01 par value per share, (“Class B Common Stock”) in fiscal 2006, to
reduce the intangible balances attributable to its television station licenses.
(4) Shares of the Class A Common Stock carried rights to a greater dividend than shares of the Class B Common Stock through fiscal 2007. As such, for the periods through fiscal 2007, net
income available to the Company’s stockholders was allocated between shares of Class A Common Stock and Class B Common Stock. The allocation between these classes of common
stock was based upon the two-class method. Subsequent to the final fiscal 2007 dividend payment, shares of Class A Common Stock ceased to carry any rights to a greater dividend than
shares of Class B Common Stock.
(5) The Company’s Board of Directors (the “Board”) currently declares an interim and final dividend each fiscal year. The final dividend is determined by the Board subsequent to the fiscal
year end. The total dividend declared related to fiscal 2010 results was $0.15 per share of Class A Common Stock and Class B Common Stock. The total dividend declared related to fiscal
2009 results was $0.12 per share of Class A Common Stock and Class B Common Stock.
12 News Corporation
News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This document contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. The words “expect,”
“estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking
statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s
financial condition or results of operations. The readers of this document are cautioned that any forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other
factors is set forth under the heading “Risk Factors” in Item 1A of the Annual Report on Form 10-K (the “Annual Report”). The Company
does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to
publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as
required by law. Readers should carefully review this document and the other documents filed by the Company with the Securities and
Exchange Commission (the “SEC”). This section should be read together with the audited Consolidated Financial Statements of News
Corporation and related notes set forth elsewhere in this Annual Report.
INTRODUCTION
Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of
News Corporation and its subsidiaries’ (together “News Corporation” or the “Company”) financial condition, changes in financial condition
and results of operations. This discussion is organized as follows:
• Overview of the Company’s Business–This section provides a general description of the Company’s businesses, as well as
developments that occurred either during fiscal 2010 or early fiscal 2011 that the Company believes are important in understanding
its results of operations and financial condition or to disclose known trends.
• Results of Operations–This section provides an analysis of the Company’s results of operations for the three fiscal years ended
June 30, 2010. This analysis is presented on both a consolidated and a segment basis. In addition, a brief description is provided of
significant transactions and events that impact the comparability of the results being analyzed.
• Liquidity and Capital Resources–This section provides an analysis of the Company’s cash flows for the three fiscal years ended
June 30, 2010, as well as a discussion of the Company’s outstanding debt and commitments, both firm and contingent, that existed
as of June 30, 2010. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to
fund the Company’s future commitments and obligations, as well as a discussion of other financing arrangements.
• Critical Accounting Policies–This section discusses accounting policies considered important to the Company’s financial condition
and results of operations, and which require significant judgment and estimates on the part of management in application. In
addition, Note 2 to the accompanying Consolidated Financial Statements of News Corporation summarizes the Company’s significant
accounting policies, including the critical accounting policy discussion found in this section.
OVERVIEW OF THE COMPANY’S BUSINESS
The Company is a diversified global media company, which manages and reports its businesses in eight segments. During fiscal 2010,
the Company reclassified STAR Group Limited (“STAR”), which develops, produces and distributes television programming in Asia, from
the Television segment to the Cable Network Programming segment. This reclassification was the result of a restructuring to combine the
sales and distribution operations of the STAR channels with those of the Company’s other international cable businesses. In addition, the
Magazines and Inserts segment was renamed the Integrated Marketing Services segment. The Company has revised its segment
information for prior fiscal years to conform to the fiscal 2010 presentation. The Company’s eight segments are:
• Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for
distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television
programming worldwide.
• Television, which principally consists of the broadcasting of network programming in the United States and the operation of 27 full
power broadcast television stations, including nine duopolies, in the United States (of these stations, 17 are affiliated with the FOX
Broadcasting Company (“FOX”) and ten are affiliated with the MyNetworkTV Programming Distribution Service, Inc.
(“MyNetworkTV”)).
• Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable
television systems and direct broadcast satellite operators primarily in the United States, Latin America, Europe and Asia.
• Direct Broadcast Satellite Television, which consists of the distribution of basic and premium programming services via satellite
and broadband directly to subscribers in Italy.
• Integrated Marketing Services, which principally consists of the publication of free-standing inserts, which are promotional
booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the
provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States
and Canada.
• Newspapers and Information Services, which principally consists of the publication of four national newspapers in the United
Kingdom, the publication of approximately 146 newspapers in Australia, the publication of a metropolitan newspaper and a national
newspaper (with international editions) in the United States and the provision of information services.
• Book Publishing, which principally consists of the publication of English language books throughout the world.
• Other, which principally consists of the Company’s digital media properties and News Outdoor, an advertising business which offers
display advertising in outdoor locations primarily throughout Russia and Eastern Europe.
2010 Annual Report 13
2010 Annual Report 13
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Filmed Entertainment
The Filmed Entertainment segment derives revenue from the production and distribution of feature motion pictures and television
series. In general, motion pictures produced or acquired for distribution by the Company are exhibited in U.S. and foreign theaters,
followed by home entertainment, video-on-demand and pay-per-view television, on-line and mobile distribution, premium subscription
television, network television and basic cable and syndicated television exploitation. Television series initially produced for the networks
and first-run syndication are generally licensed to domestic and international markets concurrently and subsequently released in seasonal
DVD box sets. More successful series are later syndicated in domestic markets. The length of the revenue cycle for television series will
vary depending on the number of seasons a series remains in active production and, therefore, may cause fluctuations in operating results.
License fees received for television exhibition (including international and U.S. premium television and basic cable television) are recorded
as revenue in the period that licensed films or programs are available for such exhibition, which may cause substantial fluctuations in
operating results.
The revenues and operating results of the Filmed Entertainment segment are significantly affected by the timing of the Company’s
theatrical and home entertainment releases, the number of its original and returning television series that are aired by television networks
and the number of its television series in off-network syndication. Theatrical and home entertainment release dates are determined by
several factors, including timing of vacation and holiday periods and competition in the marketplace. The distribution windows for the
release of motion pictures theatrically and in various home entertainment formats have been compressing and may continue to change in
the future. A further reduction in timing between theatrical and home entertainment releases could adversely affect the revenues and
operating results of this segment.
The Company enters into arrangements with third parties to co-produce many of its theatrical productions. These arrangements,
which are referred to as co-financing arrangements, take various forms. The parties to these arrangements include studio and non-studio
entities, both domestic and foreign. In several of these agreements, other parties control certain distribution rights. The Filmed
Entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the film, as the
investor assumes full risk for that portion of the film asset acquired in these transactions. The substance of these arrangements is that the
third-party investors own an interest in the film and, therefore, receive a participation based on the respective third-party investor’s
interest in the profits or losses incurred on the film. Consistent with the requirements of ASC 926-605 “Entertainment–Films–Revenue
Recognition,” (“ASC 926-605”), the estimate of a third-party investor’s interest in profits or losses incurred on the film is determined by
reference to the ratio of actual revenue earned to date in relation to total estimated ultimate revenues.
Operating costs incurred by the Filmed Entertainment segment include: exploitation costs, primarily theatrical prints and advertising
and home entertainment marketing and manufacturing costs; amortization of capitalized production, overhead and interest costs; and
participations and talent residuals. Selling, general and administrative expenses include salaries, employee benefits, rent and other
routine overhead.
The Company competes with other major studios, such as Disney, Paramount, Sony, Universal, Warner Bros. and independent film
producers in the production and distribution of motion pictures and DVDs. As a producer and distributor of television programming, the
Company competes with studios, television production groups and independent producers and syndicators, such as Disney, Sony, NBC
Universal, Warner Bros. and Paramount Television, to sell programming both domestically and internationally. The Company also
competes to obtain creative talent and story properties, which are essential to the success of the Company’s filmed entertainment
businesses.
Television and Cable Network Programming
The Company’s television operations primarily consist of FOX, MyNetworkTV and the 27 television stations owned by the Company.
The television operations derive revenues primarily from the sale of advertising and retransmission compensation. Adverse changes
in general market conditions for advertising may affect revenues. The U.S. television broadcast environment is highly competitive and the
primary methods of competition are the development and acquisition of popular programming. Program success is measured by ratings,
which are an indication of market acceptance, with the top rated programs commanding the highest advertising prices. FOX is a broadcast
network and MyNetworkTV is a programming distribution service. FOX and MyNetworkTV compete with other broadcast networks, such as
CBS, ABC, NBC and The CW, independent television stations, cable program services, as well as other media, including DVDs, video games,
print and the Internet for audiences and programming and, in the case of FOX, also for advertising revenues. In addition, FOX and
MyNetworkTV compete with the other broadcast networks and other programming distribution services to secure affiliations with
independently owned television stations in markets across the country.
MyNetworkTV is a programming distribution service, airing off-network programming and movies as well as World Wrestling
Entertainment’s Friday Night SmackDown.
Retransmission consent rules provide a mechanism for the television stations owned by the Company to seek and obtain payment
from multi-channel video programming distributors who carry broadcasters’ signals. Retransmission compensation consists of per
subscriber-based compensatory fees paid to the Company from cable and satellite distribution systems for their retransmission of FOX
and MyNetworkTV.
The television stations owned by the Company compete for programming, audiences and advertising revenues with other television
stations and cable networks in their respective coverage areas and, in some cases, with respect to programming, with other station
groups, and in the case of advertising revenues, with other local and national media. The competitive position of the television stations
owned by the Company is largely influenced by the strength of FOX and MyNetworkTV, and, in particular, the prime-time viewership of the
respective network, as well as the quality of the programming of FOX and MyNetworkTV.
14 News Corporation
14 News Corporation
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company’s U.S. cable network operations primarily consist of the Fox News Channel (“FOX News”), the FX Network (“FX”),
Regional Sports Networks (“RSNs”), the National Geographic Channels, SPEED and the Big Ten Network. The Company’s international
cable networks consist of the Fox International Channels (“FIC”) and STAR. FIC produces and distributes entertainment, factual, sports,
and movie channels through television channels in Europe, Africa, Asia and Latin America using several brands, including Fox, Fox Crime,
Fox Life and National Geographic Channel. STAR’s owned and affiliated channels are distributed in the following countries and regions:
India; Greater China; Indonesia; the rest of South East Asia; Pakistan; the Middle East and North Africa; the United Kingdom and Europe;
and North America.
Generally, the Company’s cable networks, which target various demographics, derive a majority of their revenues from monthly
affiliate fees received from cable television systems and direct broadcast satellite (“DBS”) operators based on the number of their
subscribers. Affiliate fee revenues are net of the amortization of cable distribution investments (capitalized fees paid to a cable operator or
DBS operator to facilitate the launch of a cable network). The Company defers the cable distribution investments and amortizes the
amounts on a straight-line basis over the contract period. Cable television and DBS are currently the predominant means of distribution of
the Company’s program services in the United States. Internationally, distribution technology varies region by region.
The Company’s cable networks compete for carriage on cable television systems, DBS systems and other distribution systems with
other program services. A primary focus of competition is for distribution of the Company’s cable network channels that are not already
distributed by particular cable television or DBS systems. For such program services, distributors make decisions on the use of bandwidth
based on various considerations, including amounts paid by programmers for launches, subscription fees payable by distributors and
appeal to the distributors’ subscribers.
The most significant operating expenses of the Television segment and the Cable Network Programming segment are the acquisition
and production expenses related to programming and the production and technical expenses related to operating the technical facilities of
the broadcaster or cable network. Other expenses include promotional expenses related to improving the market visibility and awareness
of the broadcaster or cable network and its programming. Additional expenses include sales commissions paid to the in-house advertising
sales force, as well as salaries, employee benefits, rent and other routine overhead expenses.
The Company has several multi-year sports rights agreements, including contracts with the National Football League (“NFL”) through
fiscal 2014, contracts with the National Association of Stock Car Auto Racing (“NASCAR”) for certain races and exclusive rights for certain
ancillary content through calendar year 2014 and a contract with Major League Baseball (“MLB”) through calendar year 2013. These
contracts provide the Company with the broadcast rights to certain U.S. national sporting events during their respective terms. The costs of
these sports contracts are charged to expense based on the ratio of each period’s operating profit to estimated total operating profit for the
remaining term of the contract.
The profitability of these long-term U.S. national sports contracts is based on the Company’s best estimates at June 30, 2010 of
attributable revenues and costs; such estimates may change in the future and such changes may be significant. Should revenues decline
from estimates applied at June 30, 2010, additional amortization of rights may be recorded. Should revenues improve as compared to
estimated revenues, the Company may have an improved operating profit related to the contract, which may be recognized over the
remaining contract term.
While the Company seeks to ensure compliance with federal indecency laws and related Federal Communications Commission
(“FCC”) regulations, the definition of “indecency” is subject to interpretation and there can be no assurance that the Company will not
broadcast programming that is ultimately determined by the FCC to violate the prohibition against indecency. Such programming could
subject the Company to regulatory review or investigation, fines, adverse publicity or other sanctions, including the loss of station licenses.
Direct Broadcast Satellite Television
The DBS segment’s operations consist of SKY Italia, which provides basic and premium programming services via satellite and
broadband directly to subscribers in Italy. SKY Italia derives revenues principally from subscriber fees. The Company believes that the
quality and variety of programming, audio and interactive programming including personal video recorders, quality of picture including
high definition channels, access to service, customer service and price are the key elements for gaining and maintaining market share.
SKY Italia’s competition includes companies that offer video, audio, interactive programming, telephony, data and other information and
entertainment services, including broadband Internet providers, digital terrestrial transmission (“DTT”) services, wireless companies and
companies that are developing new media technologies. Since 2003, SKY Italia had been prohibited from owning a DTT frequency or
providing a pay television DTT offer under a commitment made to the European Commission (the “EC”) through December 31, 2011. In July
2010, the EC modified such commitment to allow SKY Italia to bid for one DTT frequency. However, if SKY Italia was to successfully bid for
such a DTT frequency, the EC would limit SKY Italia’s use of such frequency to exclusively free-to-air channels through 2015.
SKY Italia’s most significant operating expenses are those related to the acquisition of entertainment, movie and sports programming
and subscribers and the production and technical expenses related to operating the technical facilities. Operating expenses related to
sports programming are generally recognized over the course of the related sport season, which may cause fluctuations in the operating
results of this segment.
Integrated Marketing Services
The Integrated Marketing Services segment derives revenues from the sale of advertising space in free-standing inserts, in-store
marketing products and services, promotional advertising and production fees. Adverse changes in general market conditions for
advertising may affect revenues. Operating expenses for the Integrated Marketing Services segment include paper, printing, retail
commissions, distribution and production costs. Selling, general and administrative expenses include salaries, employee benefits, rent and
other routine overhead.
2010 Annual Report 15
2010 Annual Report 15
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Newspapers and Information Services
The Newspapers and Information Services segment derives revenues primarily from the sale of advertising space, the sale of
published newspapers, subscriptions and contract printing. Adverse changes in general market conditions for advertising may affect
revenues. Circulation revenues can be greatly affected by changes in the cover prices of the Company’s and/or competitors’ newspapers,
as well as by promotional activities.
Operating expenses for the Newspapers and Information Services segment include costs related to newsprint, ink, printing,
distribution and editorial content. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine
overhead.
The Newspapers and Information Services segment’s advertising volume, circulation and the price of newsprint are the key variables
whose fluctuations can have a material effect on the Company’s operating results and cash flow. The Company has to anticipate the level of
advertising volume, circulation and newsprint prices in managing its businesses to maximize operating profit during expanding and
contracting economic cycles. Newsprint is a basic commodity and its price is sensitive to the balance of supply and demand. The
Company’s costs and expenses are affected by the cyclical increases and decreases in the price of newsprint. The newspapers published
by the Company compete for readership and advertising with local and national newspapers and also compete with television, radio,
Internet and other media alternatives in their respective markets. Competition for newspaper circulation is based on the news and editorial
content of the newspaper, service, cover price and, from time to time, various promotions. The success of the newspapers published by the
Company in competing with other newspapers and media for advertising depends upon advertisers’ judgments as to the most effective use
of their advertising budgets. Competition for advertising among newspapers is based upon circulation levels, readership levels, reader
demographics, internet reach, advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of
alternative media, circulation and quality of readership demographics. In recent years, the newspaper industry has experienced difficulty
increasing circulation volume and revenues. This is due to, among other factors, increased competition from new media formats and
sources and shifting preferences among some consumers to receive all or a portion of their news from sources other than a newspaper.
The Newspapers and Information Services segment also derives revenue from the provision of subscriber-based information services
and the licensing of products and content to third-parties. Losses in the number of subscribers for these information services may affect
revenues. The information services provided by the Company also compete with other media sources (free and subscription-based) and
new media formats. Licensing revenues depend on new and renewed customer contracts, and may be affected if the Company is unable to
generate new licensing business or if existing customers renew for lesser amounts, terminate early or forego renewal.
The Company believes that competition from new media formats and sources and shifting consumer preferences will continue to pose
challenges within the Newspapers and Information Services industries.
Book Publishing
The Book Publishing segment derives revenues from the sale of general and children’s books in the United States and internationally.
The revenues and operating results of the Book Publishing segment are significantly affected by the timing of the Company’s releases and
the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand in the summer
months and during the end-of-year holiday season. This marketplace continues to change due to technical innovations, electronic book
devices and other factors. Each book is a separate and distinct product, and its financial success depends upon many factors, including
public acceptance.
Major new title releases represent a significant portion of the Company’s sales throughout the fiscal year. Consumer books are
generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Company
is subject to global trends and local economic conditions.
Operating expenses for the Book Publishing segment include costs related to paper, printing, authors’ royalties, editorial, art and
design expenses. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other
routine overhead.
Other
The Other segment consists primarily of:
Digital Media Group
The Company sells advertising, sponsorships and subscription services on the Company’s various digital media properties. Significant
expenses associated with the Company’s digital media properties include development costs, advertising and promotional expenses,
salaries, employee benefits and other routine overhead. The Company’s digital media properties include, among others, MySpace.com,
IGN.com and Fox Audience Network.
News Outdoor
News Outdoor sells outdoor advertising space on various media, primarily in Russia. Significant expenses associated with the News
Outdoor business include site lease costs, direct production, maintenance and installation expenses, salaries, employee benefits and other
routine overhead. The Company is currently exploring the possible sale of the News Outdoor business.
16 News Corporation
16 News Corporation
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other Business Developments
During fiscal 2010, the Company acquired additional shares of Sky Deutschland, increasing its ownership from approximately 38% at
June 30, 2009 to approximately 45% at June 30, 2010. The aggregate cost of the shares acquired was approximately $200 million and the
majority of the shares were newly registered shares issued pursuant to a capital increase. On August 2, 2010, the Company agreed to
backstop €340 million (approximately $448 million) of financing measures that are being initiated by Sky Deutschland. The financing
measures are structured such that the Company’s shareholding in Sky Deutschland will not exceed 49.9% unless the Company elects to do
so. The rights offering of up to 269.6 million newly issued registered shares may be combined with a bond issued to the Company, that is
convertible for up to 53.9 million underlying Sky Deutschland shares, and/or a loan provided by the Company. The Company will have the
right to convert the bond into equity at any time following a 40-day holding period, subject to certain black-out periods. If not converted, the
Company will have the option to redeem the bond for cash upon its maturity in four years. The financing measures are expected to be
completed by no later than January 31, 2011.
During fiscal 2010, the Company completed two transactions related to its financial indexes businesses:
The Company sold its 33% interest in STOXX AG (“STOXX”), a European market index provider, to its partners, Deutsche Börse AG and
SIX Group AG, for approximately $300 million in cash. The Company is entitled to receive additional consideration up to approximately $40
million if STOXX achieves certain revenue targets in calendar year 2010.
The Company and CME Group Inc. (“CME”) formed a joint venture to operate a global financial index service business (the “Venture”),
to which the Company contributed its Dow Jones Indexes business valued at $675 million (which included the Company’s agreement to
provide to the Venture an annual media credit for advertising on the Company’s Dow Jones media properties averaging approximately $3.5
million a year for a ten year term) and CME contributed a business which provides certain market data services valued at $608 million. The
Company and CME own 10% and 90% of the Venture, respectively. The Venture issued approximately $613 million in third-party debt due in
March 2018 that has been guaranteed by CME (the “Venture Financing”). The Venture used the proceeds from the debt issuance to make a
special distribution at the time of the closing of approximately $600 million solely to the Company. The Company agreed to indemnify CME
with respect to any payments of principal, premium and interest that CME makes under its guarantee of the Venture Financing and certain
refinancing of such debt. In the event the Company is required to perform under this indemnity, the Company will be subrogated to and
acquire all rights of CME. The maximum potential amount of undiscounted future payments related to this indemnity is approximately $828
million at June 30, 2010. The Company has made a determination that there is no recognition of this potential future payment in the
accompanying Consolidated Financial Statements of News Corporation.
The Company has the right to cause the Venture to purchase its 10% interest at fair market value in 2016 and the Venture has the right
to call the Company’s 10% interest at fair market value in 2017.
During fiscal 2010, the Company sold the majority of its terrestrial television operations in Eastern Europe led by the sale of its
Bulgarian terrestrial TV business, bTV. The aggregate cash received in connection with these sales was approximately $372 million, net of
expense, and a gain of approximately $195 million on these sales was included in Other, net in the consolidated statements of operations
for the fiscal year ended June 30, 2010. The Company continues to operate a terrestrial TV business, FOX TV, a Turkish national general
interest free-to-air broadcast television station. The net income, assets, liabilities and cash flow attributable to the terrestrial television
operations sold are not material to the Company in any of the periods presented and, accordingly, have not been presented separately.
During fiscal 2010, the Company acquired an approximate 9% interest in Rotana Holding FZ-LLC (“Rotana”), which operates a
diversified film, television, audio, advertising and entertainment business across the Middle East and North Africa, for $70 million. A
significant stockholder of the Company, who owns approximately 7% of the Company’s Class B Common Stock, owns a controlling interest
in Rotana. The Company has an option to purchase an approximate 9% additional interest for $70 million through November 2011. The
Company also has an option to sell its interests in Rotana in fiscal year 2015 at the higher of the price per share based on a bona fide sale
offer or the original subscription price.
In June 2010, the Company announced that it had proposed to the board of directors of British Sky Broadcasting Group plc (“BSkyB”),
in which the Company currently has an approximate 39% interest, to make a cash offer of 700 pence per share for the BSkyB shares that
the Company does not already own. The Company and the independent members of BSkyB’s board of directors were unable to reach a
mutually agreeable price at the time of the public announcement; however, the parties entered into a cooperation agreement pursuant to
which the parties agreed to work together to proceed with the regulatory process in order to facilitate a proposed transaction. There can be
no assurance that the Company will make a binding offer. The Company will pay BSkyB a breakup fee of approximately $60 million as of
June 30, 2010 if the regulatory approvals are obtained and the Company does not make a binding offer within five months thereafter of at
least 700 pence per share. The Company believes that a potential transaction will result in increased geographic diversification of the
Company’s earnings base and reduce its exposure to cyclical advertising revenues through an increase in direct consumer subscription
revenues. If the Company makes a binding offer and proceeds with the proposed transaction, the Company plans to finance the transaction
by using a significant portion of the available cash on its balance sheet plus borrowed funds.
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2010 Annual Report 17
2010 Annual Report 17
News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Results of Operations–Fiscal 2010 versus Fiscal 2009
The following table sets forth the Company’s operating results for fiscal 2010 as compared to fiscal 2009.
For the years ended June 30,
Revenues
Operating expenses
Selling, general and administrative
Depreciation and amortization
Impairment and restructuring charges
Equity earnings (losses) of affiliates
Interest expense, net
Interest income
Other, net
Income (loss) before income tax expense
Income tax (expense) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interests
2010
2009
Change
% Change
($ millions)
$ 32,778
$ 30,423
$ 2,355
(21,015)
(19,563)
(1,452)
8%
7%
7%
4%
**
**
7%
—
(6,164)
(1,138)
(9,208)
(309)
(927)
91
(455)
(47)
8,955
757
(64)
—
1,256
(1,187)
(95)%
(5,539)
8,862
2,229
(2,908)
(3,310)
5,954
**
**
**
(68)
(37)
54%
(6,619)
(1,185)
(253)
448
(991)
91
69
3,323
(679)
2,644
(105)
Net income (loss) attributable to News Corporation stockholders
$ 2,539
$ (3,378) $ 5,917
**
** not meaningful
Overview–The Company’s revenues increased 8% for the fiscal year ended June 30, 2010 as compared to fiscal 2009. The increase was
primarily due to revenue increases at the Filmed Entertainment, Cable Network Programming and Newspapers and Information Services
segments. Filmed Entertainment segment revenues increased primarily due to increased worldwide theatrical and home entertainment
revenues. The increase at the Cable Network Programming segment was primarily due to increases in net affiliate and advertising
revenues. The increase at the Newspapers and Information Services segment was primarily due to favorable foreign exchange
fluctuations. These revenue increases were partially offset by decreased revenues at the Other segment, primarily due to decreased
revenues at the Company’s digital media properties and the sale of a portion of the Company’s ownership stake in NDS Group plc (“NDS”)
in February 2009. As a result of the sale, the Company’s portion of NDS’s operating results subsequent to February 2009 is included within
Equity earnings (losses) of affiliates.
Operating expenses for the fiscal year ended June 30, 2010 increased 7% as compared to fiscal 2009. The increase was primarily due
to increased amortization of production costs and higher participation costs at the Filmed Entertainment segment and higher
programming costs at the Television, Cable Network Programming and DBS segments, as well as unfavorable foreign exchange
fluctuations. These increases were partially offset by the absence of costs related to NDS in the Other segment, reflecting the sale of a
portion of the Company’s NDS ownership stake as noted above, as well as the effect of company-wide cost containment initiatives.
Selling, general and administrative expenses for the fiscal year ended June 30, 2010 increased 7% as compared to fiscal 2009. This
increase was primarily due to a $500 million charge related to the legal settlement with Valassis Communications, Inc. (“Valassis”) at the
Integrated Marketing Services segment, partially offset by the absence of costs related to NDS as noted above and the effects of company-
wide cost containment initiatives.
Depreciation and amortization increased 4% for the fiscal year ended June 30, 2010 as compared to fiscal 2009. The increase was
primarily due to higher depreciation at the DBS segment resulting from increased depreciation of set-top boxes and unfavorable foreign
exchange fluctuations, which was partially offset by the absence of depreciation and amortization related to NDS.
Impairment and restructuring charges–As discussed in Note 9 to the Consolidated Financial Statements of News Corporation, the
Company determined that it was more likely than not its News Outdoor and Fox Mobile Group (“Fox Mobile”) businesses which are
considered reporting units under ASC 350 “Intangibles–Goodwill and Other” (“ASC 350”), will be sold or disposed. In connection with such
potential sales, the Company reviewed these businesses for impairment and recognized a non-cash impairment charge of $200 million in
the fiscal year ended June 30, 2010. The impairment charge consisted of a write-down of $52 million in finite-lived intangible assets, a
write-down of $137 million in goodwill and a write-down of fixed assets of $11 million.
As discussed in Note 4 to the Consolidated Financial Statements of News Corporation, the Company recorded approximately $53
million of restructuring charges in the consolidated statements of operations in the fiscal year ended June 30, 2010. The restructuring
charges reflect an $18 million charge related to the sales and distribution operations of the STAR channels, $19 million charge related to
termination benefits recorded at the Newspapers and Information Services segment and a $16 million charge at the Other segment related
to the restructuring program at Fox Mobile and the accretion on facility termination obligations.
18 News Corporation
18 News Corporation
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During fiscal 2009, the Company performed an interim impairment review in advance of its annual impairment assessment because
the Company believed events had occurred and circumstances had changed that would more likely than not reduce the fair value of the
Company’s goodwill and indefinite-lived intangible assets below their carrying amounts. These events included: (a) the decline of the price
of the Company’s Class A Common Stock and Class B Common Stock below the carrying value of the Company’s stockholders’ equity;
(b) the reduced growth in advertising revenues; (c) the decline in the operating profit margins in some of the Company’s advertising-based
businesses; and (d) the decline in the valuations of other television stations, newspapers and advertising-based companies as determined
by the current trading values of those companies. In addition, the Company performed an annual impairment assessment of goodwill and
indefinite-lived intangible assets.
As a result of the impairment reviews performed, the Company recorded non-cash impairment charges of approximately $8.9 billion
($7.2 billion, net of tax) during the fiscal year ended June 30, 2009. The charges consisted of a write-down of the Company’s indefinite-lived
intangible assets (primarily FCC licenses in the Television segment) of $4.6 billion, a write-down of $4.1 billion of goodwill and a write-
down of the Newspapers and Information Services segment’s fixed assets of $185 million in accordance with ASC 360 “Property, Plant and
Equipment” (“ASC 360”).
During the fiscal year ended June 30, 2009, the Company recorded restructuring charges of approximately $312 million. These
restructuring charges reflect a number of the Company’s businesses that implemented a series of operational restructuring actions to
address the Company’s cost structure, including the restructuring of the Company’s digital media properties to align resources more
closely with business priorities. This restructuring program included significant job reductions, both domestically and internationally, to
enable the businesses to operate on a more cost effective basis. In conjunction with this restructuring program, the Company also
eliminated excess facility requirements. In fiscal 2009, several other businesses of the Company implemented similar plans, including the
U.K. and Australian newspapers, HarperCollins, MyNetworkTV and Fox Television Stations.
Equity earnings (losses) of affiliates–Equity earnings of affiliates increased $757 million for the fiscal year ended June 30, 2010 as
compared to fiscal 2009, primarily due to higher contributions from BSkyB as a result of a favorable litigation settlement, as well as a gain
recognized by BSkyB on the sale of a portion of its investment in ITV plc (“ITV”) and the absence of write-downs related to ITV recorded by
BSkyB during fiscal 2009. Also contributing to the increase was the absence of a $422 million write-down of the Company’s investment in
Sky Deutschland recorded in fiscal 2009.
For the years ended June 30,
The Company’s share of equity earnings (losses) of affiliates principally consists of:
DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity earnings (losses) of affiliates
** not meaningful
2010
2009
Change % Change
($ millions)
$341
$(374) $715
66
41
59
6
7
35
$448
$(309) $757
**
12%
**
**
Interest expense, net–Interest expense, net for the fiscal year ended June 30, 2010 increased $64 million as compared to the fiscal
year ended June 30, 2009, primarily due to the issuance of borrowings in February 2009 and August 2009. This increase was partially offset
by the retirement of $200 million and $150 million of the Company’s borrowings in October 2008 and March 2010, respectively.
Other, net
For the years ended June 30,
Gain (loss) on the sale of eastern European television stations(a)
Loss on the financial indexes business transaction(a)
Loss on Photobucket transaction(a)
Gain on sale of NDS shares(a)
Gain on the sale of the Stations(a)
Impairment of cost based investments(b)
Gain on sale of China Network Systems(b)
Change in fair value of exchangeable securities(c)
Other
Total Other, net
(a) See Note 3 to the Consolidated Financial Statements of News Corporation.
(b) See Note 6 to the Consolidated Financial Statements of News Corporation.
2010
2009
(in millions)
$195
$ (100)
(23)
(32)
—
—
— 1,249
—
(3)
4
3
(75)
232
(113)
6
77
(95)
$ 69
$1,256
2010 Annual Report 19
2010 Annual Report 19
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(c) The Company had certain exchangeable debt securities which contained embedded derivatives. Pursuant to ASC 815 “Derivatives and Hedging” (“ASC 815”), these embedded derivatives
were not designated as hedges and, as such, changes in their fair value were recognized in Other, net in the consolidated statements of operations. The Company redeemed the
exchangeable debt securities in fiscal year 2010. (See Note 11 to the Consolidated Financial Statements of News Corporation.)
Income tax (expense) benefit–The Company’s tax provision and related tax rate for the fiscal year ended June 30, 2010 were lower than
the statutory rate primarily related to the recognition of prior year tax credits, permanent differences and the recognition of tax assets on
the disposition of certain assets. The recognition of prior year tax credits relates to the Company’s election to credit certain prior year taxes
instead of claiming deductions.
The Company’s tax provision and related tax rate for the fiscal year ended June 30, 2009 were different from the statutory rate
primarily due to the recognition of a non-cash benefit related to the reduction of accruals for uncertain positions resulting from the
resolution of certain tax matters and a permanent difference on the gain on the sale of a portion of a subsidiary. The tax provision and tax
rate for the fiscal year ended June 30, 2009 reflect these items, which were offset in part by the non-deductible goodwill included within
the impairment charges taken in fiscal 2009.
Net income (loss)–Net income increased for the fiscal year ended June 30, 2010 as compared to fiscal 2009. The increase was
primarily due to a reduction in impairment charges recorded in fiscal 2010, as well as the higher revenues and equity earnings of affiliates
as noted above. This increase was partially offset by the charge related to the litigation settlement charge recorded in fiscal 2010, the
absence of the gain on the sale of a portion of the Company’s ownership stake in NDS in February 2009, the gain on the sale of eight of the
Company’s television stations in July 2008 (the “Stations”) and the non-cash tax benefit in fiscal 2009 noted above.
Net income attributable to noncontrolling interests–Net income attributable to noncontrolling interests increased for the fiscal year
ended June 30, 2010 as compared to fiscal 2009, primarily due to higher results at the Company’s majority owned businesses. This
increase was partially offset by the absence of income from NDS due to the sale of a portion of the Company’s ownership stake in February
2009, resulting in the Company’s remaining interest in NDS being accounted for under the equity method of accounting.
Segment Analysis:
The following table sets forth the Company’s revenues and segment operating income for fiscal 2010 as compared to fiscal 2009.
2010
2009
Change
% Change
($ millions)
$ 7,631
$ 5,936
$1,695
4,228
7,038
3,802
1,192
6,087
1,269
1,531
4,051
6,131
3,760
1,168
5,858
1,141
2,378
29%
4%
15%
1%
2%
4%
11%
177
907
42
24
229
128
(847)
(36)%
$32,778
$30,423
$2,355
8%
$ 1,349
$
220
2,268
230
(151)
530
88
848
191
1,653
393
353
466
17
$ 501
29
615
(163)
(504)
64
71
(575)
(363)
(212)
$ 3,959
$ 3,558
$ 401
59%
15%
37%
(41)%
**
14%
**
58%
11%
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total revenues
Segment operating income (loss):
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total segment operating income
** not meaningful
20 News Corporation
20 News Corporation
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management believes that total segment operating income is an appropriate measure for evaluating the operating performance of the
Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the
performance and allocate resources within the Company’s businesses. Total segment operating income provides management, investors
and equity analysts a measure to analyze operating performance of each of the Company’s business segments and its enterprise value
against historical data and competitors’ data, although historical results may not be indicative of future results (as operating performance
is highly contingent on many factors, including customer tastes and preferences). The following table reconciles total segment operating
income to income (loss) before income tax expense.
For the years ended June 30,
Total segment operating income
Impairment and restructuring charges
Equity earnings (losses) of affiliates
Interest expense, net
Interest income
Other, net
Income (loss) before income tax expense
2010
2009
(in millions)
$3,959
$ 3,558
(253)
(9,208)
448
(991)
91
69
(309)
(927)
91
1,256
$3,323
$(5,539)
Filmed Entertainment (23% and 20% of the Company’s consolidated revenues in fiscal 2010 and 2009, respectively)
For the fiscal year ended June 30, 2010, revenues at the Filmed Entertainment segment increased $1,695 million, or 29%, as
compared to fiscal 2009, primarily due to increased worldwide theatrical and home entertainment revenues. The revenue increase was
primarily driven by the successful worldwide theatrical and home entertainment releases of Avatar, Alvin and the Chipmunks: The
Squeakquel and Ice Age: Dawn of the Dinosaurs, as well as the worldwide theatrical release of Date Night. Also contributing to the increase in
revenues were the home entertainment releases of X-Men Origins: Wolverine and Night at the Museum: Battle of the Smithsonian.
For the fiscal year ended June 30, 2010, the Filmed Entertainment segment operating income increased $501 million, or 59%, as
compared to fiscal 2009, primarily due to the revenue increases noted above, partially offset by increased amortization of production costs,
higher participation and releasing costs and higher home entertainment manufacturing and marketing costs.
Television (13% of the Company’s consolidated revenues in fiscal 2010 and 2009)
For the fiscal year ended June 30, 2010, Television segment revenues increased $177 million, or 4%, as compared to fiscal 2009. The
increase was primarily due to higher advertising revenues at the television stations owned by the Company as a result of higher pricing due
to continued improvements in the advertising market, partially offset by lower political advertising revenues due to the absence of
advertising revenues related to the 2008 presidential election. In addition, higher NFL and MLB revenues due to increased post-season
ratings were more than offset by the absence of revenue from the Bowl Championship Series National Championship, which was broadcast
on FOX in fiscal 2009, and lower ratings for NASCAR.
The Television segment reported an increase in operating income for the fiscal year ended June 30, 2010 of $29 million, or 15%, as
compared to fiscal 2009. The increase in operating income was primarily the result of the revenue increases noted above and the effects of
cost containment initiatives, as well as improved operating results at MyNetworkTV, partially offset by higher prime-time entertainment
programming and sports costs at FOX.
Cable Network Programming (21% and 20% of the Company’s consolidated revenues in fiscal 2010 and 2009, respectively)
For the fiscal year ended June 30, 2010, revenues at the Cable Network Programming segment increased $907 million, or 15%, as
compared to fiscal 2009. Revenue increased 14% and 18% at the domestic and international cable channels, respectively, primarily due to
higher net affiliate and advertising revenues. Domestic net affiliate and advertising revenues increased 19% and 3%, respectively, primarily
due to increases at FOX News, the RSNs and FX. International net affiliate and advertising revenues increased 15% and 25%, respectively,
primarily due to increases at FIC and STAR.
For the fiscal year ended June 30, 2010, FOX News’ revenues increased 23% as compared to fiscal 2009, primarily due to increases in
net affiliate and advertising revenues. Net affiliate revenues increased 40% as compared to fiscal 2009, primarily due to higher average
rates per subscriber and a higher number of subscribers. Advertising revenues increased 9% as compared to fiscal 2009, primarily due to
higher pricing. As of June 30, 2010, FOX News reached over 98 million Nielsen households.
The RSNs’ revenues increased 12% for the fiscal year ended June 30, 2010 as compared to fiscal 2009 driven by higher net affiliate and
advertising revenues. Net affiliate revenues increased 14% as compared to fiscal 2009, primarily due to higher average rates per
subscriber and a higher number of subscribers. Advertising revenues increased 3% as compared to fiscal 2009, primarily due to higher
National Basketball Association, MLB and collegiate football revenues resulting from higher pricing and additional commercial spots sold.
The Company’s international cable operations’ revenues increased 18% as compared to fiscal 2009, primarily due to higher advertising
revenues at STAR, as well as higher net affiliate and advertising revenues at FIC. The higher advertising revenues at STAR were primarily
due to the strengthening of the advertising market in India and improved performance at the regional channels, while the strengthening of
the worldwide advertising markets led to improvements at FIC. The higher net affiliate revenues at FIC resulted from increases in
subscribers at existing channels in Europe and Latin America.
2010 Annual Report 21
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FX’s revenues increased 11% for the fiscal year ended June 30, 2010 as compared to fiscal 2009, primarily due to higher net affiliate
and advertising revenues. Net affiliate revenues increased 16% for the fiscal year ended June 30, 2010, primarily due to higher average
rates per subscriber. Advertising revenues for the fiscal year ended June 30, 2010 increased 3% as compared to fiscal 2009, primarily due
to additional commercial spots sold. As of June 30, 2010, FX reached approximately 96 million Nielsen households.
For the fiscal year ended June 30, 2010, operating income at the Cable Network Programming segment increased $615 million, or
37%, as compared to fiscal 2009, primarily due to the revenue increases noted above. Also contributing to this increase was the absence of
a $30 million settlement relating to the termination of a distribution agreement at the Company’s international cable operations in fiscal
2009. These increases were partially offset by a $292 million increase in operating expenses, primarily due to higher movie acquisition
costs, sports rights amortization and original programming costs.
Direct Broadcast Satellite Television (12% of the Company’s consolidated revenues in fiscal 2010 and 2009)
For the fiscal year ended June 30, 2010, SKY Italia’s revenues increased $42 million, or 1%, as compared to fiscal 2009, as increases
from higher advertising revenues primarily due to the FIFA World Cup and favorable foreign exchange fluctuations, were partially offset by
lower pay-per-view and other revenues. The number of SKY Italia subscribers decreased by approximately 56,000 during fiscal 2010,
bringing the total subscriber base to 4.7 million at June 30, 2010. The total churn for fiscal 2010 was approximately 630,000 subscribers on
an average subscriber base of 4.8 million, as compared to churn of approximately 635,000 subscribers on an average subscriber base of
4.7 million in fiscal 2009. Subscriber churn for the period represents the number of SKY Italia subscribers whose service was disconnected
during the period. During the fiscal year ended June 30, 2010, the weakening of the U.S. dollar against the Euro resulted in an increase in
revenue of approximately 1% as compared to fiscal 2009.
Average revenue per subscriber (“ARPU”) of approximately €43 in the fiscal year ended June 30, 2010 decreased from approximately
€44 in fiscal 2009. The decrease in ARPU for the fiscal year ended June 30, 2010, was primarily due to lower average tier mix and reduced
pay-per-view revenue. SKY Italia calculates ARPU by dividing total subscriber-related revenues for the period by the average subscribers
for the period and dividing that amount by the number of months in the period. Subscriber-related revenues are comprised of total
subscription revenue, pay-per-view revenue and equipment rental revenue for the period. Average subscribers are calculated for the
respective periods by adding the beginning and ending subscribers for the period and dividing by two.
Subscriber acquisition costs per subscriber (“SAC”) of approximately €310 in the fiscal year ended June 30, 2010 increased from fiscal
2009, primarily due to higher marketing costs on a per subscriber basis. SAC is calculated by dividing total subscriber acquisition costs for
a period by the number of gross SKY Italia subscribers added during the period. Subscriber acquisition costs include the cost of the
commissions paid to retailers and other distributors, the cost of equipment sold directly by SKY Italia to subscribers and the costs related
to installation and acquisition advertising, net of any upfront activation fee. SKY Italia excludes the value of equipment capitalized under
SKY Italia’s equipment lease program, as well as payments and the value of returned equipment related to disconnected lease program
subscribers from subscriber acquisition costs.
For the fiscal year ended June 30, 2010, SKY Italia’s operating income decreased $163 million, or 41%, as compared to fiscal 2009,
resulting from higher sports rights amortization, primarily due to the 2010 FIFA World Cup and Winter Olympics, and increased set-top box
depreciation. During the fiscal year ended June 30, 2010, the weakening of the U.S. dollar against the Euro resulted in a decrease in
operating income of approximately 4% as compared to fiscal 2009.
Integrated Marketing Services (4% of the Company’s consolidated revenues in fiscal 2010 and 2009)
For the fiscal year ended June 30, 2010, revenues at the Integrated Marketing Services segment increased $24 million, or 2%, as
compared to fiscal 2009. The increase in revenues was primarily due to increases in volume and rates of in-store marketing products sold,
partially offset by lower revenues for free-standing insert products.
For the fiscal year ended June 30, 2010, operating income at the Integrated Marketing Services segment decreased $504 million as
compared to fiscal 2009, as the revenue increase noted above was more than offset by the $500 million charge relating to the settlement of
the Valassis litigation.
Newspapers and Information Services (18% and 19% of the Company’s consolidated revenues in fiscal 2010 and 2009, respectively)
For the fiscal year ended June 30, 2010, revenues at the Newspapers and Information Services segment increased $229 million, or 4%,
as compared to fiscal 2009. The revenue increase for the fiscal year ended June 30, 2010 was primarily due to favorable foreign exchange
fluctuations. Operating income increased $64 million, or 14%, for the fiscal year ended June 30, 2010 as compared to fiscal 2009, primarily
due to the revenue increase noted above, as well as the impact of cost containment initiatives.
For the fiscal year ended June 30, 2010, the Australian newspapers’ revenues increased 16% as compared to fiscal 2009, primarily due
to the impact of favorable foreign exchange fluctuations. The weakening of the U.S. dollar against the Australian dollar resulted in revenue
increases of approximately 19% for the fiscal year ended June 30, 2010. Local currency revenues decreased for the fiscal year ended
June 30, 2010, primarily due to lower circulation and lower advertising revenues as a result of a decrease in classified advertising volume.
Operating income in the fiscal year ended June 30, 2010 was consistent with that of fiscal 2009, as the revenue increases noted above and
reduction in operating costs resulting from cost containment initiatives were offset by higher newsprint costs and costs associated with
various initiatives. The weakening of the U.S. dollar against the Australian dollar resulted in an operating income increase of approximately
16% for the fiscal year ended June 30, 2010.
For the fiscal year ended June 30, 2010, the U.K. newspapers’ revenues decreased 2% as compared to fiscal 2009, primarily due to
lower circulation revenues resulting from a decrease in volume. This decrease was partially offset by an increase in advertising revenues
22 News Corporation
22 News Corporation
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
primarily due to higher volumes for display advertising. Operating income increased for the fiscal year ended June 30, 2010 as compared to
fiscal 2009, primarily due to lower marketing and production costs and the impact of cost containment initiatives. The strengthening of the
U.S. dollar against the British pound resulted in revenue and operating income decreases of 1% for the fiscal year ended June 30, 2010.
For the fiscal year ended June 30, 2010, revenues at Dow Jones & Company, Inc. (“Dow Jones”) decreased 1% as compared to fiscal
2009, primarily due to lower information services revenues and a decrease in revenue from the disposition of the financial indexes
businesses. The revenue decrease for the fiscal year ended June 30, 2010 was partially offset by higher circulation revenues resulting from
higher pricing at The Wall Street Journal and higher digital advertising revenues. Dow Jones’ operating income increased for the fiscal year
ended June 30, 2010 as compared to fiscal 2009, primarily due to cost containment initiatives and lower newsprint costs.
Book Publishing (4% of the Company’s consolidated revenues in fiscal 2010 and 2009)
For the fiscal year ended June 30, 2010, revenues at the Book Publishing segment increased $128 million, or 11%, as compared to
fiscal 2009, primarily due to higher sales at the General Books and Children’s divisions and favorable foreign exchange fluctuations. Also
contributing to the increase during the fiscal year ended June 30, 2010 were revenues from licensing fees received from a settlement. The
increase at the General Books division was primarily due to the success of Going Rogue by Sarah Palin and higher electronic book sales.
Strong sales of Where the Wild Things Are by Maurice Sendak, The Vampire Diaries by L.J. Smith and LA Candy by Lauren Conrad led to the
increase at the Children’s division. During the fiscal year ended June 30, 2010, HarperCollins had 164 titles on The New York Times
Bestseller List with 19 titles reaching the number one position.
Operating income for the fiscal year ended June 30, 2010 increased $71 million as compared to fiscal 2009, primarily due to the
revenue increases noted above and operating cost reductions resulting from cost containment initiatives. The increased operating income
was partially offset by higher royalty and manufacturing costs resulting from higher sales.
Other (5% and 8% of the Company’s consolidated revenues in fiscal 2010 and 2009, respectively)
Revenues at the Other segment decreased $847 million, or 36%, for the fiscal year ended June 30, 2010, as compared to fiscal 2009,
primarily due to decreased revenues from NDS and the Company’s digital media properties. The decrease at NDS of $413 million was due
to the absence of revenues for the fiscal year ended June 30, 2010, reflecting the sale of a portion of the Company’s ownership stake in
NDS in February 2009. As a result of the sale, the Company’s portion of NDS’s operating results subsequent to February 2009 is included
within Equity earnings (losses) of affiliates. The revenue decrease at the Company’s digital media properties of $276 million was principally
due to lower search and advertising revenues.
Operating results for the fiscal year ended June 30, 2010 decreased $212 million, or 58%, as compared to fiscal 2009. The decrease
was primarily due to lower operating results from NDS and the Company’s digital media properties. The decrease at NDS was due to the
absence of $121 million of operating income during the fiscal year ended June 30, 2010, resulting from the sale of a portion of the
Company’s ownership stake in NDS as noted above. The decrease at the Company’s digital media properties of $135 million for the fiscal
year ended June 30, 2010 was primarily due to the revenue declines noted above, partially offset by cost containment initiatives.
Results of Operations–Fiscal 2009 versus Fiscal 2008
The following table sets forth the Company’s operating results for fiscal 2009 as compared to fiscal 2008.
For the years ended June 30,
Revenues
Operating expenses
Selling, general and administrative
Depreciation and amortization
Impairment and restructuring charges
Equity (losses) earnings of affiliates
Interest expense, net
Interest income
Other, net
(Loss) income before income tax expense
Income tax benefit (expense)
Net (loss) income
Less: Net income attributable to noncontrolling interests
2009
2008
Change
% Change
($ millions)
$ 30,423
$ 32,996
$ (2,573)
(8)%
(19,563)
(20,531)
(6,164)
(1,138)
(9,208)
(309)
(927)
91
(5,984)
(1,207)
(19)
327
(926)
246
968
(180)
69
(9,189)
(636)
(1)
(155)
1,256
2,419
(1,163)
(5,539)
2,229
(3,310)
(68)
7,321
(12,860)
(1,803)
4,032
(8,828)
5,518
(131)
63
(48)%
(5)%
3%
(6)%
**
**
**
(63)%
(48)%
**
**
**
Net (loss) income attributable to News Corporation stockholders
$ (3,378) $ 5,387
$ (8,765)
**
** not meaningful
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Overview–The Company’s revenues decreased 8% for the fiscal year ended June 30, 2009 as compared to the fiscal year ended
June 30, 2008. The decrease was primarily due to revenue decreases at the Television, Filmed Entertainment and Other segments, as well
as unfavorable foreign exchange fluctuations. Television segment revenues decreased primarily due to the absence of revenues from the
Stations sold in July 2008, lower advertising revenues as a result of general weakness in the advertising markets and the absence of
revenue from the Super Bowl which was broadcast on FOX during the fiscal year ended June 30, 2008. The decrease at the Filmed
Entertainment segment was primarily due to decreased worldwide home entertainment and theatrical revenues. The Other segment’s
revenue decrease reflects the sale of a portion of the Company’s ownership stake in NDS in February 2009. As a result of the sale, the
Company’s portion of NDS operating results subsequent to February 5, 2009 is included within Equity (losses) earnings of affiliates. These
decreases were partially offset by increased revenues at the Cable Network Programming segment, primarily due to an increase in net
affiliate revenues.
Operating expenses for the fiscal year ended June 30, 2009 decreased 5% as compared to the fiscal year ended June 30, 2008. The
decrease was primarily due to decreased amortization of production and participation costs and lower home entertainment manufacturing
and marketing costs at the Filmed Entertainment segment, as well as favorable foreign currency fluctuations. Also contributing to these
decreases was the absence of costs related to the Super Bowl and the Stations sold in fiscal 2009 at the Television segment and the
incremental decrease of costs related to NDS in the Other segment, reflecting the sale of a portion of the Company’s ownership stake in
February 2009. These decreases were partially offset by higher programming costs at the Cable Network Programming segment, higher
programming costs due to increases in entertainment programming license fees at FOX, as well as costs associated with the return of
several programs in fiscal 2009 which were not broadcast in fiscal 2008 due to the Writer’s Guild of America strike in the Television
segment and, in the Newspapers and Information Services segment, incremental expenses from Dow Jones, which was acquired in
December 2007.
Selling, general and administrative expenses for the fiscal year ended June 30, 2009 increased approximately 3% as compared to
fiscal 2008. The Newspapers and Information Services segment’s cost increase for the fiscal year ended June 30, 2009 was primarily due to
incremental expenses from Dow Jones. Also contributing to this increase were higher employee costs partially offset by favorable foreign
currency fluctuations and decreased costs related to NDS and the Stations.
Depreciation and amortization decreased 6% for the fiscal year ended June 30, 2009 as compared to fiscal 2008. The decrease was
primarily due to the absence of depreciation on the decommissioned U.K. printing presses included in fiscal 2008, which was partially
offset by higher depreciation due to additional property, plant and equipment placed into service and incremental depreciation and
amortization from the acquisition of Dow Jones.
Impairment and restructuring charges–As a result of the impairment reviews performed, in fiscal 2009 discussed above, the Company
recorded non-cash impairment charges of approximately $8.9 billion ($7.2 billion, net of tax) in the fiscal year ended June 30, 2009. The
charges consisted of a write-down of the Company’s indefinite-lived intangible assets (primarily FCC licenses in the Television segment) of
$4.6 billion, a write-down of $4.1 billion of goodwill and a write-down of the Newspapers and Information Services segment’s fixed assets
of $185 million in accordance with ASC 360.
As discussed above the Company recorded restructuring charges of approximately $312 million in the fiscal year ended June 30, 2009.
During the fiscal year ended June 30, 2008, restructuring charges included $19 million related to a redundancy program in the United
Kingdom in connection with printing press upgrades.
Equity (losses) earnings of affiliates–Equity earnings of affiliates decreased $636 million for the fiscal year ended June 30, 2009 as
compared to fiscal 2008. The decrease was primarily a result of the inclusion of losses from Sky Deutschland, principally representing a
write-down of $422 million of the Company’s investment in the fiscal year ended June 30, 2009. Also contributing to the decrease in
earnings from equity affiliates was the absence of contributions from DIRECTV due to the exchange of the Company’s entire interest in
DIRECTV to Liberty Media Corporation (“Liberty”) in February 2008 and the disposition of the Company’s entire interest in Gemstar-TV
Guide International, Inc. (“Gemstar”) in May 2008. These decreases were partially offset by higher contributions from BSkyB, principally
from reduced write-downs related to its ITV investment.
For the years ended June 30,
The Company’s share of equity (losses) earnings of affiliates principally consists of:
DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity (losses) earnings of affiliates
** not meaningful
2009
2008
Change % Change
($ millions)
$(374) $138
$(512)
**
59
6
98
91
(39)
(85)
(40)%
(93)%
$(309) $327
$(636)
**
Interest expense, net–Interest expense, net for the fiscal year ended June 30, 2009 was relatively consistent with the fiscal year ended
June 30, 2008, as the issuance in November 2007 of $1.25 billion 6.65% Senior Notes due 2037 and the issuance in February 2009 of $700
million 6.90% Senior Notes due 2019 and $300 million 7.85% Senior Notes due 2039 were partially offset by the retirement of the
Company’s $350 million 6.625% Senior Notes due January 2008 and $200 million 7.38% Senior Notes due October 2008.
Interest income–Interest income decreased $155 million for the fiscal year ended June 30, 2009 as compared to the fiscal year ended
June 30, 2008, primarily due to lower interest rates.
24 News Corporation
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other, net–
For the years ended June 30,
Gain on sale of NDS shares(a)
Gain on the sale of the Stations(a)
Loss on the sale of eastern European television stations(a)
Gain on the Exchange(a)
Gain on sale of UK land(a)
Impairment of cost based investments(b)
Gain on sale of China Network Systems(b)
Gain on sale of Fox Sports Net Bay Area(b)
Gain on sale of Gemstar(b)
Change in fair value of exchangeable securities(c)
Other
Total Other, net
(a) See Note 3 to the Consolidated Financial Statements of News Corporation.
(b) See Note 6 to the Consolidated Financial Statements of News Corporation.
2009
2008
(in millions)
$1,249
$ —
232
(100)
—
—
— 1,676
—
(113)
6
—
—
77
126
(125)
133
208
112
307
(95)
(18)
$1,256
$2,419
(c) The Company had certain exchangeable debt securities which contained embedded derivatives. Pursuant to ASC 815, these embedded derivatives were not designated as hedges and, as
such, changes in their fair value were recognized in Other, net in the consolidated statements of operations. The Company redeemed the exchangeable debt securities in fiscal year
2010. (See Note 11 to the Consolidated Financial Statements of News Corporation.)
Income tax benefit (expense)–The Company’s tax provision and related tax rate for the fiscal year ended June 30, 2009 were different
from the statutory rate primarily due to the recognition of a non-cash benefit related to the reduction of accruals for uncertain positions
resulting from the resolution of certain tax matters and a permanent difference on the gain on the sale of a portion of a subsidiary. The tax
provision and tax rate for the fiscal year ended June 30, 2009 reflect these items, which were offset in part by the non-deductible goodwill
included within the impairment charges taken in fiscal 2009.
The Company’s tax provision and related tax rates for the fiscal year ended June 30, 2008 were also different from the statutory rate
due to the closing of the tax-free exchange transaction with Liberty (See Note 3 to the Consolidated Financial Statements of News
Corporation) and the reversal of previously deferred tax liabilities for DIRECTV and three RSNs. The exchange transaction with Liberty
qualified as a tax-free split-off in accordance with Section 355 of the Internal Revenue Code of 1986, as amended, and, as a result, no
income tax provision was recorded against the gain recorded on the transaction.
Net (loss) income–Net income decreased for the fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30, 2008.
The decrease was primarily due to the impairment and restructuring charges and revenue decreases noted above. Also contributing to the
decrease in net income for the fiscal year ended June 30, 2009 was decreased earnings from equity affiliates noted above, as well as the
absence of the tax-free gain on the exchange of DIRECTV in fiscal 2008. These decreases were partially offset by the gain on the NDS
Transaction and the non-cash tax benefit noted above.
Net income attributable to noncontrolling interests–Net income attributable to noncontrolling interests decreased $63 million for the
fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30, 2008. This decrease was primarily due to a decrease in net
income attributable to the noncontrolling interests of NDS due to the reduction in the Company’s ownership interest which resulted in the
Company’s remaining interest in NDS being accounted for under the equity method of accounting. Also contributing to this decrease were
lower results at other majority-owned businesses.
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2010 Annual Report 25
2010 Annual Report 25
News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Segment Analysis:
The following table sets forth the Company’s revenues and segment operating income for fiscal 2009 as compared to fiscal 2008.
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total revenues
Segment operating income (loss):
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total segment operating income
** not meaningful
2009
2008
Change
% Change
($ millions)
$ 5,936
$ 6,699
$ (763)
4,051
6,131
3,760
1,168
5,858
1,141
2,378
5,190
5,610
3,749
1,124
6,248
1,388
2,988
(1,139)
521
11
44
(390)
(247)
(610)
(11)%
(22)%
9%
**
4%
(6)%
(18)%
(20)%
$30,423
$32,996
$(2,573)
(8)%
$
848
191
1,653
393
353
466
17
(363)
$ 1,246
$ (398)
1,039
1,356
419
352
786
160
(84)
(848)
297
(26)
1
(320)
(143)
(279)
(32)%
(82)%
22%
(6)%
**
(41)%
(89)%
**
$ 3,558
$ 5,274
$(1,716)
(33)%
Management believes that total segment operating income is an appropriate measure for evaluating the operating performance of the
Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the
performance and allocate resources within the Company’s businesses. Total segment operating income provides management, investors
and equity analysts a measure to analyze operating performance of each of the Company’s business segments and its enterprise value
against historical data and competitors’ data, although historical results may not be indicative of future results (as operating performance
is highly contingent on many factors, including customer tastes and preferences). The following table reconciles total segment operating
income to income before income taxes.
For the years ended June 30,
Total segment operating income
Impairment and restructuring charges
Equity (losses) earnings of affiliates
Interest expense, net
Interest income
Other, net
(Loss) income before income tax expense
2009
2008
(in millions)
$ 3,558
$5,274
(9,208)
(309)
(927)
91
(19)
327
(926)
246
1,256
2,419
$(5,539) $7,321
Filmed Entertainment (20% of the Company’s consolidated revenues in fiscal 2009 and 2008)
For the fiscal year ended June 30, 2009, revenues at the Filmed Entertainment segment decreased $763 million, or 11%, as compared
to fiscal 2008. The revenue decrease was primarily due to a decrease in worldwide home entertainment revenues from theatrical and
television products, as well as a decrease in worldwide theatrical revenues as a result of the difficult comparisons to the revenues from
The Simpsons Movie and Live Free or Die Hard released in the fiscal year ended June 30, 2008.
The fiscal year ended June 30, 2009 included the worldwide theatrical and home entertainment releases of Taken and Marley & Me, the
home entertainment and pay television availability of What Happens in Vegas and Horton Hears a Who!, the worldwide pay television
26 News Corporation
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
availability of Juno and The Simpsons Movie, the worldwide theatrical releases and the related initial releasing costs of X-Men Origins:
Wolverine and Night at the Museum: Battle of the Smithsonian and the initial releasing costs of Ice Age: Dawn of the Dinosaurs. The fiscal year
ended June 30, 2008 included the successful worldwide theatrical and home entertainment performances of The Simpsons Movie, Alvin and
the Chipmunks, Live Free or Die Hard, Juno and Fantastic Four: Rise of the Silver Surfer. Also included in fiscal 2008 were the theatrical
releases of What Happens in Vegas, The Happening and Horton Hears a Who!, as well as their related initial releasing costs.
For the fiscal year ended June 30, 2009, the Filmed Entertainment segment’s operating income decreased $398 million, or 32%, as
compared to fiscal 2008. The decrease was primarily due to the revenue decreases noted above, partially offset by lower theatrical
releasing costs, decreased amortization of production and participation costs and lower home entertainment marketing and
manufacturing costs.
Television (13% and 16% of the Company’s consolidated revenues in fiscal 2009 and 2008, respectively)
For the fiscal year ended June 30, 2009, Television segment revenues decreased $1,139 million, or 22%, as compared to the fiscal year
ended June 30, 2008. The decrease was primarily due to the absence of revenues from the Stations sold in July 2008 of $294 million, lower
advertising revenues at the television stations owned by the Company due to the general weakness in the advertising markets, with
automotive advertising experiencing the largest decrease, and the absence of the Super Bowl and Emmy® Awards which were broadcast
on FOX during the fiscal year ended June 30, 2008. Also contributing to the decrease was lower advertising revenues from MLB post-
season due to one less game broadcast and NASCAR due to lower ratings and fewer available commercial units. The revenue decreases
were partially offset by an increase in political advertising revenues at the television stations owned by the Company.
The Television segment reported a decrease in operating income for the fiscal year ended June 30, 2009 of $848 million from the fiscal
year ended June 30, 2008. The decrease in operating income was primarily the result of the revenue decreases noted above, as well as
higher programming costs due to increased entertainment programming license fees and higher sports programming costs at FOX. The
costs associated with the return of several programs in fiscal 2009 which were not broadcast in fiscal 2008 due to the Writer’s Guild of
America strike and the absence of $86 million of operating income from the Stations sold in July 2008. The operating income decrease for
the fiscal year ended June 30, 2009 was partially offset by lower costs for local sports rights due to fewer games broadcast at the television
stations owned by the Company.
Cable Network Programming (20% and 17% of the Company’s consolidated revenues in fiscal 2009 and 2008, respectively)
For the fiscal year ended June 30, 2009, revenues at the Cable Network Programming segment increased $521 million, or 9%, as
compared to fiscal 2008. This increase was driven by higher net affiliate and advertising revenues at FOX News, the Big Ten Network and
FX, as well as higher net affiliate revenues at the Company’s international cable operations. The increase for the fiscal year ended June 30,
2009 was partially offset by revenue decreases at the RSNs of $143 million due to the divestiture of three RSNs to Liberty in February 2008.
For the fiscal year ended June 30, 2009, FOX News’ revenues increased 26% as compared to fiscal 2008, primarily due to an increase
in net affiliate and advertising revenues. Net affiliate revenues increased 61% as compared to fiscal 2008, primarily due to higher average
rates per subscriber and lower cable distribution amortization as compared to fiscal 2008. Advertising revenues increased 1% as
compared to fiscal 2008, primarily due to higher pricing and volume. As of June 30, 2009, FOX News reached approximately 97 million
Nielsen households.
The Big Ten Network’s revenue increase for the fiscal year ended June 30, 2009 was primarily due to a 53% increase in the number of
subscribers from fiscal 2008, as the channel gained distribution on all major pay television platforms in the Big Ten markets in fiscal 2009.
FX’s revenues increased 10% for the fiscal year ended June 30, 2009 as compared to fiscal 2008, driven by net affiliate and advertising
revenue increases. Net affiliate revenues increased 7% for the fiscal year ended June 30, 2009 as a result of an increase in average rate
per subscriber and the number of subscribers. Advertising revenues for the fiscal year ended June 30, 2009 increased 9% as compared to
fiscal 2008 due to higher pricing and volume. As of June 30, 2009, FX reached approximately 95 million Nielsen households.
The Company’s international cable operations’ revenues increased for the fiscal year ended June 30, 2009 as compared to fiscal 2008,
primarily due to improved net affiliate revenues, as well as the launch of new international channels. The increase was partially offset by a
decline in advertising revenue in the Indian market, lower syndication revenues and unfavorable foreign exchange fluctuations.
The RSNs’ revenues decreased 2% for the fiscal year ended June 30, 2009 as compared to fiscal 2008, as increases in net affiliate
revenues were more than offset by the absence of revenues from the divestiture of three RSNs to Liberty in February 2008 and lower
advertising revenues.
For the fiscal year ended June 30, 2009, operating income at the Cable Network Programming segment increased $297 million, or
22%, as compared to fiscal 2008, primarily due to the revenue increases noted above. The revenue increases were partially offset by a $224
million increase in operating expenses, primarily due to higher sports rights amortization and higher selling, general and administrative
expenses, primarily due to the launch of new international channels. Also partially offsetting the operating income increase was lower
operating results at the RSNs, primarily due to the absence of $38 million of operating profit from the three RSNs that were divested to
Liberty and a settlement of approximately $30 million relating to the termination of a distribution agreement at the international cable
operations.
Direct Broadcast Satellite Television (12% and 11% of the Company’s consolidated revenues in fiscal 2009 and 2008, respectively)
For the fiscal year ended June 30, 2009, SKY Italia revenues increased $11 million as compared with fiscal 2008, as revenue growth
primarily attributed to an increase in the average subscriber base combined with a price increase and higher penetration of premium
services was partially offset by unfavorable foreign currency fluctuations. SKY Italia had an increase of approximately 235,000 subscribers
during fiscal 2009, which increased SKY Italia’s total subscriber base to approximately 4.8 million at June 30, 2009. The total churn for the
2010 Annual Report 27
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
fiscal year ended June 30, 2009 was approximately 635,000 subscribers on an average subscriber base of 4.7 million, as compared to churn
of approximately 429,000 subscribers on an average subscriber base of 4.4 million in fiscal 2008. Subscriber churn for the period represents
the number of SKY Italia subscribers whose service was disconnected during the period. During the fiscal year ended June 30, 2009, the
strengthening of the U.S. dollar against the Euro resulted in a decrease in revenue of approximately 7% as compared to fiscal 2008.
ARPU for the fiscal year ended June 30, 2009 was approximately €44, which was consistent with the ARPU for fiscal 2008.
SAC of approximately €250 in fiscal 2009 decreased as compared to fiscal 2008, primarily due to lower marketing costs on a per
subscriber basis, as well as lower take-up of a full installation offer.
For the fiscal year ended June 30, 2009, SKY Italia’s operating income decreased $26 million, or 6%, as compared to fiscal 2008,
primarily due to an increase in operating expenses, partially offset by the revenue increases noted above and unfavorable foreign exchange
fluctuations. The increase in operating expenses for fiscal 2009 was primarily due to higher programming costs as a result of the launch of
new channels, higher contractual sports rights amortization and higher fees paid for programming costs as a result of the increase in the
number of subscribers. Also contributing to increased costs was increased overall marketing costs to support new promotional offerings.
During the fiscal year ended June 30, 2009, the strengthening of the U.S. dollar against the Euro resulted in a decrease in operating income
of approximately 4% as compared to fiscal 2008.
Integrated Marketing Services (4% of the Company’s consolidated revenues in fiscal 2009 and 2008)
For the fiscal year ended June 30, 2009, revenues at the Integrated Marketing Services segment increased $44 million, or 4%, as
compared to fiscal 2008. The increase in revenues primarily resulted from higher custom publishing revenue, higher volume of free-
standing insert products and higher rates for in-store marketing products, partially offset by a decrease in sales volume for in-store
marketing products.
For the fiscal year ended June 30, 2009, operating income was consistent with fiscal 2008 as the revenue increases noted above were
offset by higher store commissions for in-store marketing products, higher printing and paper costs for free-standing insert products and
higher legal costs.
Newspapers and Information Services (19% of the Company’s consolidated revenues in fiscal 2009 and 2008)
For the fiscal year ended June 30, 2009, revenues at the Newspapers and Information Services segment decreased $390 million, or
6%, as compared to fiscal 2008. The revenue decrease for the fiscal year ended June 30, 2009 was primarily due to the strengthening of the
U.S. dollar against the British pound sterling and Australian dollar on the revenues reported by the Company’s U.K. and Australian
newspapers and general weakness in these advertising markets as compared to fiscal 2008. This decrease was partially offset by the
inclusion of approximately $1 billion of incremental revenue from Dow Jones, which was acquired in December 2007.
During the fiscal year ended June 30, 2009, the strengthening of the U.S. dollar against the British pound sterling and Australian dollar
resulted in a decrease of approximately 15% in revenues as compared to fiscal 2008.
Operating income at the Newspapers and Information Services segment decreased $320 million, or 41%, for the fiscal year ended
June 30, 2009 as compared to fiscal 2008, primarily due to the strengthening of the U.S. dollar against the British pound sterling and
Australian dollar and the advertising weakness noted above. These decreases were partially offset by the absence of approximately $170
million in depreciation and other costs related to the redundancy program in the United Kingdom in connection with printing press
upgrades, which was completed in fiscal 2008. The decrease was also partially offset by the inclusion of incremental Dow Jones operating
income of $55 million in fiscal 2009. During the fiscal year ended June 30, 2009, the strengthening of the U.S. dollar against the British
pound sterling and Australian dollar resulted in a decrease in operating income of approximately 12% as compared to fiscal 2008.
For the fiscal year ended June 30, 2009, the Australian newspapers’ revenues decreased 24% as compared to fiscal 2008, primarily
due to the impact of unfavorable foreign exchange fluctuation and lower classified and display advertising revenues. Operating income
decreased 36% in the fiscal year ended June 30, 2009 as compared to fiscal 2008, primarily due to the revenue decreases noted above and
increased other employee related costs.
For the fiscal year ended June 30, 2009, the U.K. newspapers’ revenues decreased 25% as compared to fiscal 2008, primarily due to
the impact of unfavorable foreign exchange fluctuation and lower classified and display advertising revenues across most titles. Operating
income decreased for the fiscal year ended June 30, 2009 as compared to fiscal 2008, primarily as a result of unfavorable foreign exchange
movements, the revenue decreases noted above and higher newsprint and promotional costs. The operating income decreases were
partially offset by the absence of depreciation on decommissioned printing presses.
Book Publishing (4% of the Company’s consolidated revenues in fiscal 2009 and 2008)
For the fiscal year ended June 30, 2009, revenues at Book Publishing segment decreased $247 million, or 18%, from fiscal 2008. The
decreases were primarily due to lower sales of general books mainly due to the weak retail market, as well as notable sales performances
of several titles during fiscal 2008, including The Dangerous Book for Boys by Conn and Hal Iggulden and Deceptively Delicious by Jessica
Seinfeld, with fewer comparable titles in fiscal 2009. During the fiscal year ended June 30, 2009, HarperCollins had 165 titles on The New
York Times Bestseller List with 15 titles reaching the number one position. During fiscal 2009, the strengthening of the U.S. dollar resulted
in a decrease in revenue of approximately 7% as compared to fiscal 2008.
For the fiscal year ended June 30, 2009, operating income decreased $143 million as compared to fiscal 2008. The decrease was
primarily due to the revenue decreases noted above and a higher provision for bad debt due to the bankruptcy filing of a major distributor
in December 2008.
28 News Corporation
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other (8% and 9% of the Company’s consolidated revenues in fiscal 2009 and 2008, respectively)
Revenues at the Other segment decreased $610 million, or 20%, for the fiscal year ended June 30, 2009 as compared to the fiscal year
ended June 30, 2008. The decrease was primarily due to decreases in revenues from NDS, the Company’s digital media properties, Fox
Mobile and News Outdoor. The decrease at NDS reflects the sale of a portion of the Company’s ownership stake in February 2009. As a
result of the sale, the Company’s portion of NDS operating results subsequent to February 5, 2009 is included within Equity (losses)
earnings of affiliates. The revenue decrease at the Company’s digital media properties was due to decreased advertising revenues at
MySpace. News Outdoor’s revenues decreased due to lower rates, lower advertising space utilization and unfavorable foreign exchange
fluctuations.
Operating results for the fiscal year ended June 30, 2009 decreased $279 million as compared to the fiscal year ended June 30,
2008. The decrease was primarily due to the revenue declines noted above, as well as decreased operating income from NDS and the
Company’s digital media properties. The NDS decline was primarily due to the sale of a portion of the Company’s ownership stake as noted
above. The decline in the Company’s digital media properties operating results was driven by increased costs associated with the launch of
MySpace Music and the addition of new features.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
Impact of the Current Economic Environment
The United States and global economies have undergone a period of economic uncertainty, and the related capital markets have
experienced significant volatility. In certain of the markets in which the Company’s businesses operate, there was a weakening in the
overall economic climate resulting in pressure on the labor markets, retail sales and consumer confidence, which impacted advertising
revenues at the Company’s Television, Newspapers and Information Services and Other segments, as well as the retail sales of books and
DVDs. Despite these trends, the Company believes the cash generated internally and available financing will continue to provide the
Company sufficient liquidity for the foreseeable future.
Current Financial Condition
The Company’s principal source of liquidity is internally generated funds. The Company also has a $2.25 billion revolving credit facility,
which expires in May 2012, and has access to various film co-production alternatives to supplement its cash flows. In addition, the
Company has access to the worldwide capital markets, subject to market conditions. As of June 30, 2010, the availability under the
revolving credit facility was reduced by stand-by letters of credit issued which totaled approximately $71 million. As of June 30, 2010, the
Company was in compliance with all of the covenants under the revolving credit facility, and it does not anticipate any violation of such
covenants. The Company’s internally generated funds are highly dependent upon the state of the advertising markets and public
acceptance of its film and television products.
The principal uses of cash that affect the Company’s liquidity position include the following: investments in the production and
distribution of new feature films and television programs; the acquisition of and payments under programming rights for entertainment
and sports programming; paper purchases; operational expenditures including employee costs; capital expenditures; interest expense;
income tax payments; investments in associated entities; dividends; acquisitions; and stock repurchases.
In June 2010, the Company announced that it had proposed to the board of directors of BSkyB, in which the Company currently has an
approximate 39% interest, to make a cash offer of 700 pence per share for the BSkyB shares that the Company does not already own. The
Company and the independent members of BSkyB’s board of directors were unable to reach a mutually agreeable price at the time of the
public announcement; however, the parties entered into a cooperation agreement pursuant to which the parties agreed to work together to
proceed with the regulatory process in order to facilitate a proposed transaction. There can be no assurance that the Company will make a
binding offer. The Company will pay BSkyB a breakup fee of approximately $60 million as of June 30, 2010 if the regulatory approvals are
obtained and the Company does not make a binding offer within five months thereafter of at least 700 pence per share. If the Company
makes a binding offer and proceeds with the proposed transaction, the Company plans to finance the transaction by using a significant
portion of the available cash on its balance sheet plus borrowed funds. Potential fluctuations in the British pound sterling may increase or
decrease the amount of cash needed to effect a potential transaction.
The Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses. Such
transactions may be material and may involve cash, the Company’s securities or the assumption of additional indebtedness.
Total borrowings decreased approximately $969 million during the fiscal year ended June 30, 2010, primarily due to the redemption of
the Company’s 0.75% Senior Exchangeable BUCS and 5% TOPrS, as well as the retirement of the Company’s $150 million 4.75% Senior
Debentures due March 2010. These decreases were partially offset by the issuance of the Company’s 6.90% Senior Notes due 2039 and
5.65% Senior Notes due 2020 in August 2009. As of June 30, 2010, the Company had $129 million classified as current borrowings. Included
in this amount was the remaining balance of the LYONs which is redeemable by option of the holders on February 28, 2011. Also included in
current borrowings was bank debt of $48 million due in fiscal 2011. The Company’s consolidated cash and cash equivalents of approximately
$8.7 billion at June 30, 2010 and internally generated funds are sufficient to meet the Company’s foreseeable liquidity needs.
The Company’s assets and liabilities can fluctuate significantly due to short term liquidity needs. Working capital, defined as current
assets less current liabilities, was $9.2 billion as of June 30, 2010 and $5.2 billion as of June 30, 2009. The increase in working capital
reflects the $2 billion increase in cash and cash equivalents discussed below, as well as the $2 billion in repayment of borrowings
classified as current in fiscal 2009.
2010 Annual Report 29
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sources and Uses of Cash–Fiscal 2010 vs. Fiscal 2009
Net cash provided by operating activities for the fiscal years ended June 30, 2010 and 2009 is as follows (in millions):
Years Ended June 30,
Net cash provided by operating activities
2010
2009
$3,854
$2,248
The increase in net cash provided by operating activities during fiscal 2010 as compared to fiscal 2009 primarily reflects higher profits
and higher worldwide theatrical receipts at the Filmed Entertainment segment, higher affiliate receipts at the Cable Network
Programming segment, higher receipts at the Book Publishing segment and lower tax payments. The increase was partially offset by the
$500 million payment relating to the settlement of the Valassis litigation, higher payments for programming rights, higher pension
contributions and higher interest payments.
Net cash used in investing activities for the fiscal years ended June 30, 2010 and 2009 is as follows (in millions):
Years Ended June 30,
Net cash used in investing activities
2010
2009
$(313)
$(627)
Net cash used in investing activities during the fiscal year ended June 30, 2010 decreased as compared to fiscal 2009, primarily due to
a reduction in cash used for acquisitions and lower property, plant and equipment purchases. This was partially offset by lower cash
proceeds from disposals. Fiscal 2009 included proceeds from the sale of eight of the Company’s television stations and a portion of the
Company’s interest in NDS. Fiscal 2010 included cash proceeds of $840 million related to the disposition of the financial indexes
businesses and $372 million related to the sale of a majority of the Company’s eastern European television stations.
Net cash (used in) provided by financing activities for the fiscal years ended June 30, 2010 and 2009 is as follows (in millions):
Years Ended June 30,
Net cash (used in) provided by financing activities
2010
2009
$(1,445)
$315
Net cash used in financing activities during the fiscal year ended June 30, 2010 increased as compared to fiscal 2009, primarily due to
the redemption of the Company’s 0.75% Senior Exchangeable BUCS and 5% TOPrS, as well as the repayment of $150 million Senior Notes
due March 2010. The increase in cash used in financing activities was partially offset by the issuance of $600 million 6.90% Senior Notes
due 2039 and $400 million 5.65% Senior Notes due 2020 in August 2009.
The total dividends declared related to fiscal 2010 results were $0.15 per share of Class A Common Stock and Class B Common Stock.
In August 2010, the Company declared the final dividend on fiscal 2010 results of $0.075 per share for Class A Common Stock and Class B
Common Stock. This together with the interim dividend of $0.075 per share of Class A Common Stock and Class B Common Stock
constitute the total dividend relating to fiscal 2010.
Based on the number of shares outstanding as of June 30, 2010, the total aggregate cash dividends expected to be paid to
stockholders in fiscal 2011 is approximately $393 million.
Sources and Uses of Cash–Fiscal 2009 vs. Fiscal 2008
Net cash provided by operating activities for the fiscal years ended June 30, 2009 and 2008 is as follows (in millions):
Years Ended June 30,
Net cash provided by operating activities
2009
2008
$2,248
$3,925
The decrease in net cash provided by operating activities during the fiscal year ended June 30, 2009 as compared to fiscal 2008 reflects
lower profits and lower worldwide theatrical and home entertainment receipts at the Filmed Entertainment segment, lower advertising
receipts and higher payments for sports programming at the Television segment, higher sports and entertainment rights payments at the
DBS and Cable Network Programming segments and lower advertising receipts at the Newspapers and Information Services
segment. Also contributing to this decrease was the absence of the Super Bowl, which was not broadcast on FOX in fiscal 2009, the
Stations, which were sold in July 2008, and NDS, which as of the beginning of February 2009 is accounted for under the equity method of
accounting. These decreases were partially offset by higher affiliate receipts at the Cable Network Programming segment due to higher
average rates per subscriber, lower motion picture production spending at the Filmed Entertainment segment and lower tax payments.
Net cash used in investing activities for the fiscal years ended June 30, 2009 and 2008 is as follows (in millions):
Years Ended June 30,
Net cash used in investing activities
30 News Corporation
30 News Corporation
2009
2008
$(627)
$(6,347)
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net cash used in investing activities during the fiscal year ended June 30, 2009 decreased as compared to fiscal 2008, primarily due to
a reduction in cash used for acquisitions, which included the Company’s acquisitions of Dow Jones and Photobucket and the Company’s
initial equity investment in Sky Deutschland. Also contributing to the decreased net cash used in investing activities was the $1,011 million
net cash proceeds received from the sale of the Stations in July 2008 and $735 million net cash proceeds received from the sale of a
portion of the Company’s interest in NDS, as well as lower property, plant and equipment purchases which were partially offset by the sale
of Gemstar in April 2008.
Net cash provided by (used in) financing activities for the fiscal years ended June 30, 2009 and 2008 is as follows (in millions):
Years Ended June 30,
Net cash provided by (used in) financing activities
2009
2008
$315
$(643)
The improvement in financing activities was primarily due to the absence of share repurchases during the fiscal year ended June 30,
2009. Net cash provided by financing activities for fiscal 2009 reflects the issuance of $700 million 6.90% Senior Notes due 2019 and $300
million 7.85% Senior Notes due 2039 in February 2009, partially offset by the retirement of the Company’s $200 million 7.38% Senior Note
due 2008 and dividend payments. In addition to the share repurchases noted above, cash used by financing activities in fiscal 2008 reflects
the retirement of the Company’s $350 million 6.625% Senior Notes due 2008, the retirement of the $225 million 3.875% notes due 2008 and
$131 million in commercial paper which were assumed as part of the Dow Jones acquisition and dividend payments. Partially offsetting the
cash used by financing activities in fiscal 2008 was net proceeds of $1,237 million from the issuance of $1,250 million 6.65% Senior Notes
due 2037 in November 2007.
The total dividends declared related to fiscal 2009 results were $0.12 per share of Class A Common Stock and Class B Common Stock.
In August 2009, the Company declared the final dividend on fiscal 2009 results of $0.06 per share for Class A Common Stock and Class B
Common Stock. This together with the interim dividend of $0.06 per share of Class A Common Stock and Class B Common Stock constitute
the total dividend relating to fiscal 2009.
Debt Instruments and Guarantees
Debt Instruments(1)
Years ended June 30,
Borrowings
Notes due August 2039
Notes due August 2020
Notes due March 2019
Notes due March 2039
Notes due November 2037
Bank loans
All other
Total borrowings
Repayments of borrowings
BUCS(2)
TOPrS(2)
Notes due March 2010
Notes due October 2008
Notes due January 2008
Notes due February 2008(3)
Bank loans
All other
Total repayment of borrowings
(1) See Note 10 to the Consolidated Financial Statements of News Corporation for information with respect to borrowings.
(2) See Note 11 to the Consolidated Financial Statements of News Corporation for information with respect to the redemptions of the BUCS and TOPrS.
(3) Debt acquired in the acquisition of Dow Jones. See Note 3 to the Consolidated Financial Statements of News Corporation.
2010
2009
2008
(in millions)
$ 593
$ — $ —
396
—
—
—
—
38
—
690
283
—
—
—
— 1,237
30
37
7
48
$ 1,027
$1,040
$1,292
$(1,655) $ — $ —
(134)
(150)
—
—
—
(82)
(59)
—
—
(200)
—
—
(64)
(79)
—
—
—
(350)
(225)
—
(153)
$(2,080) $ (343) $ (728)
2010 Annual Report 31
2010 Annual Report 31
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Ratings of the Public Debt
The table below summarizes the Company’s credit ratings as of June 30, 2010.
Rating Agency
Moody’s
S&P
Revolving Credit Agreement
Senior Debt
Baa1
BBB+
Outlook
Stable
Stable
In May 2007, News America Incorporated (“NAI”) entered into a credit agreement (the “Credit Agreement”), among NAI as Borrower,
the Company as Parent Guarantor, the lenders named therein (the “Lenders”), Citibank, N.A. as Administrative Agent and JPMorgan Chase
Bank, N.A. as Syndication Agent. The Credit Agreement provides a $2.25 billion unsecured revolving credit facility with a sub-limit of $600
million available for the issuance of letters of credit. Borrowings are in U.S. dollars only, while letters of credit are issuable in U.S. dollars
or Euros. The significant terms of the agreement include the requirement that the Company maintain specific leverage ratios and
limitations on secured indebtedness. The Company pays a facility fee of 0.08% regardless of facility usage. The Company pays interest for
borrowings at LIBOR plus 0.27% and pays commission fees on letters of credit at 0.27%. The Company pays an additional fee of 0.05% if
borrowings under the facility exceed 50% of the committed facility. The interest and fees are based on the Company’s current debt rating.
The maturity date is in May 2012; however, NAI may request a $250 million increase in the amount of the credit facility and may also
request that the Lenders’ commitments be extended until May 2013. As of June 30, 2010, approximately $71 million in standby letters of
credit, for the benefit of third parties, were outstanding.
Commitments and Guarantees
The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These
firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following
table summarizes the Company’s material firm commitments as of June 30, 2010.
As of June 30, 2010
Payments Due by Period
Total
1 year
2-3 years
4-5 years
After 5
years
(in millions)
Contracts for capital expenditure
$
337
$ 284
$
53
$ — $
—
Operating leases(a)
Land and buildings
Plant and machinery
Other commitments
Borrowings
Sports programming rights(b)
Entertainment programming rights
Other commitments and contractual obligations(c)
3,180
1,492
349
189
617
354
523
294
1,691
655
13,320
16,027
3,269
3,893
129
2,867
1,530
901
532
5,254
1,120
1,174
880
11,779
3,033
467
687
4,873
152
1,131
Total commitments, borrowings and contractual obligations
$41,518
$6,249
$9,104
$5,884
$20,281
The Company also has certain contractual arrangements in relation to certain investees that would require the Company to make
payments or provide funding if certain circumstances occur (“contingent guarantees”). The Company does not expect that these contingent
guarantees will result in any material amounts being paid by the Company in the foreseeable future. The timing of the amounts presented
in the table below reflect when the maximum contingent guarantees will expire and does not indicate that the Company expects to incur an
obligation to make payments during that time frame.
Contingent guarantees:
Sports programming rights(d)
Indemnity(e)
Letters of credit and other
Total
Amounts
Committed
Amount of Guarantees Expiration Per
Period
1 year
2 -3 years
4 -5 years
After 5
years
(in millions)
$ 429
$120
$ 80
$229
$ —
828
149
27
149
54
—
54
—
693
—
$1,406
$296
$134
$283
$693
(a) The Company leases transponders, office facilities, warehouse facilities, equipment and microwave transmitters used to carry broadcast signals. These leases, which are classified as
operating leases, expire at certain dates through fiscal 2090. In addition, the Company leases various printing plants, which have leases that expire at various dates through fiscal 2095.
32 News Corporation
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(b) The Company’s contract with MLB gives the Company rights to broadcast certain regular season and post season games, as well as exclusive rights to broadcast MLB’s World Series
and All-Star Game through the 2013 MLB season.
Under the Company’s contract with NFL, remaining future minimum payments for program rights to broadcast certain football games are payable over the remaining term of the
contract through fiscal 2014.
The Company’s contracts with NASCAR give the Company rights to broadcast certain races and ancillary content through calendar year 2014.
Under the Company’s contract with the Big Ten Conference, remaining future minimum payments for program rights to broadcast certain Big Ten Conference sporting events are
payable over the remaining term of the contract through fiscal 2032.
Under the Company’s contract with Italy’s National League Football, remaining future minimum payments for programming rights to broadcast National League Football matches are
payable over the remaining term of the contract through fiscal 2012.
In addition, the Company has certain other local sports broadcasting rights.
(c) Includes obligations relating to third party printing contracts, television rating services, a distribution agreement and paper purchase obligations.
(d) A joint-venture in which the Company owns a 50% equity interest entered into an agreement for global programming rights. Under the terms of the agreement, the Company and the
other joint-venture partner have jointly guaranteed the programming rights obligation.
(e) In connection with the transaction related to the Dow Jones financial index businesses, the Company agreed to indemnify CME with respect to any payments of principal, premium and
interest CME makes under its guarantee of the venture financing. (See Note 3 to the Consolidated Financial Statement of News Corporation for further discussion of this transaction.)
The table excludes the Company’s pension, other postretirement benefits (“OPEB”) obligations and the gross unrecognized tax
benefits for uncertain tax positions as the Company is unable to reasonably predict the ultimate amount and timing. The Company made
contributions of $338 million and $214 million to its pension plans in fiscal 2010 and fiscal 2009, respectively. The majority of these
contributions were voluntarily made to improve the funding status of the plans. Future plan contributions are dependent upon actual plan
asset returns and interest rates and statutory requirements. Assuming that actual plan asset returns are consistent with the Company’s
expected plan returns in fiscal 2011 and beyond, and that interest rates remain constant, the Company would not be required to make any
material contributions to its U.S. pension plans for the immediate future. The Company expects to make a combination of voluntary
contributions and statutory contributions of approximately $50 million to its pension plans in fiscal 2011. Payments due to participants
under the Company’s pension plans are primarily paid out of underlying trusts. Payments due under the Company’s OPEB plans are not
required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent
upon the future cost of retiree medical benefits under the Company’s pension plans. The Company expects its OPEB payments to
approximate $18 million in fiscal 2011. (See Note 17 to the Consolidated Financial Statements of News Corporation for further discussion
of the Company’s pension and OPEB plans.)
Contingencies
Other than as disclosed in the notes to the accompanying Consolidated Financial Statements of News Corporation, the Company is
party to several purchase and sale arrangements which become exercisable over the next ten years by the Company or the counter-party
to the agreement. In the next twelve months, none of these arrangements that become exercisable are material. Purchase arrangements
that are exercisable by the counter- party to the agreement, and that are outside the sole control of the Company, are accounted for in
accordance with ASC 480-10-S99-3A “Distinguishing Liabilities from Equity.” Accordingly, the fair values of such purchase arrangements
are classified in redeemable noncontrolling interests.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending
litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the
Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the
expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have
a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results and if it requires
significant judgment and estimates on the part of management in its application. The development and selection of these critical
accounting policies have been determined by management of the Company and the related disclosures have been reviewed with the Audit
Committee of the Company’s Board of Directors. For the Company’s summary of significant accounting policies, see Note 2 to the
Consolidated Financial Statements of News Corporation.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial
statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and
actions that the Company may undertake in the future, actual results may differ from the estimates.
Revenue Recognition
Filmed Entertainment–Revenues from distribution of feature films are recognized in accordance with ASC 926-605. Revenues from the
theatrical distribution of motion pictures are recognized as they are exhibited and revenues from home video and DVD sales, net of a
reserve for estimated returns, together with related costs, are recognized on the date that video and DVD units are made widely available
for sale by retailers and all Company-imposed restrictions on the sale of video and DVD units have expired. Revenues from television
distribution are recognized when the motion picture or television program is made available to the licensee for broadcast.
2010 Annual Report 33
2010 Annual Report 33
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management bases its estimates of ultimate revenue for each film on the historical performance of similar films, incorporating factors
such as the past box office record of the lead actors and actresses, the genre of the film, pre-release market research (including test
market screenings) and the expected number of theaters in which the film will be released. Management updates such estimates based on
information available on the actual results of each film through its life cycle.
License agreements for the broadcast of theatrical and television product in the broadcast network, syndicated television and cable
television markets are routinely entered into in advance of their available date for broadcast. Cash received and amounts billed in
connection with such contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred
revenue generally relates to contracts for the licensing of theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period for
broadcast under the terms of the related licensing agreement.
Television, Cable Network Programming and Direct Broadcast Satellite–Advertising revenue is recognized as the commercials are
aired, net of agency commissions. Subscriber fees received from subscribers, cable systems and DBS operators are recognized as revenue
in the period that services are provided, net of amortization of cable distribution investments, in the case of Cable Network Programming
revenues. The Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the contract
period.
Filmed Entertainment and Television Programming Costs
Accounting for the production and distribution of motion pictures and television programming is in accordance with ASC 926-605,
which requires management’s judgment as it relates to total revenues to be received and costs to be incurred throughout the life of each
program or its license period. These judgments are used to determine the amortization of capitalized filmed entertainment and television
programming costs, the expensing of participation and residual costs associated with revenues earned and any fair value adjustments.
In accordance with ASC 926-605, the Company amortizes filmed entertainment and television programming costs using the individual-
film-forecast method. Under the individual-film-forecast method, such programming costs are amortized for each film or television
program in the ratio that current period actual revenue for such title bears to management’s estimated ultimate revenue as of the
beginning of the current fiscal year to be recognized over approximately a six year period or operating profits to be realized from all media
and markets for such title. Management bases its estimates of ultimate revenue for each film on factors such as historical performance of
similar films, the star power of the lead actors and actresses and once released actual results of each film. For each television program,
management bases its estimates of ultimate revenue on the performance of the television programming in the initial markets, the
existence of future firm commitments to sell additional episodes of the program and the past performance of similar television programs.
Management regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a
change in the rate of amortization and/or a write-down of the asset to fair value.
The costs of national sports contracts at FOX and for international sports rights agreements are charged to expense based on the ratio
of each period’s operating profit to estimated total remaining operating profit of the contract. Estimates of total operating profit can change
and accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future could be material.
The costs of local and regional sports contracts for a specified number of events are amortized on an event-by-event basis, while costs
for local and regional sports contracts for a specified season are amortized over the season on a straight-line basis.
Original cable programming is amortized on an accelerated basis. Management regularly reviews, and revises when necessary, its
total revenue estimates on a contract basis, which may result in a change in the rate of amortization and/or a write-down of the asset to
fair value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated on a straight-line method over the estimated useful lives of
such assets. Changes in circumstances, such as technological advances, changes to the Company’s business model or capital strategy,
could result in the actual useful lives differing from the Company’s estimates. In those cases, where the Company determines that the
useful life of buildings and equipment should be shortened, the Company would depreciate the asset over its revised remaining useful life
thereby increasing depreciation expense.
Intangible Assets
The Company has a significant amount of intangible assets, including goodwill, FCC licenses, and other copyright products and
trademarks. Intangible assets acquired in business combinations are recorded at their estimated fair value at the date of acquisition.
Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair values assigned to its tangible and
identifiable intangible net assets and is assigned to one or more reporting units for purposes of testing for impairment. The judgments
made in determining the estimated fair value assigned to each class of intangible assets acquired, their reporting unit, as well as their
useful lives can significantly impact net income.
The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of acquisitions is
allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated
fair values of the tangible net assets acquired is recorded as intangibles. Amounts recorded as goodwill are assigned to one or more
reporting units. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves
the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates,
asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill to them requires judgment
involving the aggregation of business units with similar economic characteristics and the identification of existing business units that
benefit from the acquired goodwill.
34 News Corporation
34 News Corporation
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment in
accordance with ASC 350. The Company’s impairment review is based on, among other methods, a discounted cash flow approach that
requires significant management judgments. The Company uses its judgment in assessing whether assets may have become impaired
between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive
activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired.
The Company uses the direct valuation method to value identifiable intangibles for purchase accounting and impairment testing. The
direct valuation method used for FCC licenses requires, among other inputs, the use of published industry data that are based on
subjective judgments about future advertising revenues in the markets where the Company owns television stations. This method also
involves the use of management’s judgment in estimating an appropriate discount rate reflecting the risk of a market participant in the
U.S. broadcast industry. The resulting fair values for FCC licenses are sensitive to these long-term assumptions and any variations to such
assumptions could result in an impairment to existing carrying values in future periods and such impairment could be material.
The Company’s goodwill impairment reviews are determined using a two-step process. The first step of the process is to compare the
fair value of a reporting unit with its carrying amount, including goodwill. In performing the first step, the Company determines the fair
value of a reporting unit by primarily using a discounted cash flow analysis and market-based valuation approach methodologies.
Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual
growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows
employed in the analyses are based on the Company’s estimated outlook and various growth rates have been assumed for years beyond
the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of
the respective reporting units. In assessing the reasonableness of its determined fair values, the Company evaluates its results against
other value indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the goodwill impairment review is required to be performed to estimate the implied
fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. That is, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of
that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the
estimated fair value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is compared
with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company’s annual impairment review of its goodwill and intangible assets for the fiscal year ended June 30, 2010 resulted in the
Company recording impairment charges for its News Outdoor and Fox Mobile businesses which are considered reporting units under ASC
350. The Company continues to monitor certain of its reporting units in the Other segment due to the impairment charges recorded in
fiscal 2009 and 2010. Goodwill at risk for future impairment in the Other segment totaled $647 million as of June 30, 2010. The Company
will continue to monitor its goodwill and intangible assets for possible future impairment.
Income Taxes
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions in which it operates. The Company computes
its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns
income. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.
Significant judgment is required in determining the Company’s tax expense and in evaluating its tax positions, including evaluating
uncertainties under ASC 740 “Income Taxes.”
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In
making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning
strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the
Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding
increase or charge to income.
Employee Costs
The measurement and recognition of costs of the Company’s various pension and other postretirement benefit plans require the use
of significant management judgments, including discount rates, expected return on plan assets, future compensation and other actuarial
assumptions.
The Company maintains defined benefit pension plans covering a significant number of its employees and retirees. The primary plans
have been closed to the majority of employees hired after January 1, 2008. For financial reporting purposes, net periodic pension expense
(income) is calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations and an expected rate of
return on plan assets. The Company considers current market conditions, including changes in investment returns and interest rates, in
making these assumptions. In developing the expected long-term rate of return, the Company considered the pension portfolio’s past
average rate of returns, and future return expectations of the various asset classes. The expected long-term rate of return is based on an
asset allocation assumption of 52% equities, 37% fixed-income securities and 11% in cash and other investments.
The discount rate reflects the market rate for high-quality fixed-income investments on the Company’s annual measurement date of
June 30 and is subject to change each fiscal year. The discount rate assumptions used to account for pension and other postretirement
benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined by matching the
Company’s expected benefit payments for the primary plans to a hypothetical yield curve developed using a portfolio of several hundred
high-quality non-callable corporate bonds.
2010 Annual Report 35
2010 Annual Report 35
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News Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The key assumptions used in developing the Company’s fiscal 2010, 2009 and 2008 net periodic pension expense (income) for its plans
consist of the following:
Discount rate used to determine net periodic benefit cost
Assets:
Expected rate of return
Expected return
Actual return
Gain/(Loss)
One year actual return
Five year actual return
2010
2009
2008
($ in millions)
7.0%
6.7% 6.0%
7.0%
7.0% 7.0%
$ 138
$ 143
$ 166
$ 237
$ (230) $(140)
$ 99
$ (373) $(306)
12.7% (10.8)% (4.4)%
3.9%
3.5% 8.2%
The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the United
States, the United Kingdom and Australia as of the measurement date. The Company will utilize a weighted average discount rate of 5.7%
in calculating the fiscal 2011 net periodic pension expense for its plans. The Company will continue to use a weighted average long-term
rate of return of 7.0% for fiscal 2011 based principally on a combination of asset mix and historical experience of actual plan returns. The
accumulated net losses on the Company’s pension plans at June 30, 2010 were $940 million which increased from $663 million at June 30,
2009. This increase of $277 million was due primarily to lower discount rates. Lower discount rates increase present values of benefit
obligations and increase the Company’s deferred losses and also increase subsequent-year pension expense. Higher discount rates
decrease the present values of benefit obligations and reduce the Company’s accumulated net loss and also decrease subsequent-year
pension expense. The net accumulated losses at June 30, 2010 were primarily the result of changes in discount rates and deferred asset
losses. These deferred losses are being systematically recognized into future net periodic pension expense in accordance with ASC 715
“Compensation–Retirement Benefits.” Unrecognized losses in excess of 10% of the greater of the market-related value of plan assets or
the plans projected benefit obligation are recognized over the average future service of the plan participants.
The Company made contributions of $338 million, $214 million and $57 million to its pension plans in fiscal 2010, 2009 and 2008,
respectively. The majority of these contributions were voluntarily made to improve the funding status of the plans which were impacted by
the economic conditions noted above. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and
interest rate movements. Assuming that actual plan returns are consistent with the Company’s expected plan returns in fiscal 2010 and
beyond, and that interest rates remain constant, the Company would not be required to make any material statutory contributions to its
primary U.S. pension plans for the immediate future. The Company will continue to make voluntary contributions as necessary to improve
funded status.
Changes in net periodic pension expense may occur in the future due to changes in the Company’s expected rate of return on plan
assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company’s pension
obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:
Changes in Assumption
Impact on Annual
Pension Expense
Impact on PBO
0.25 percentage point decrease in discount rate
Increase $13 million
Increase $103 million
0.25 percentage point increase in discount rate
Decrease $13 million
Decrease $103 million
0.25 percentage point decrease in expected
rate of return on assets
Increase $6 million
0.25 percentage point increase in expected rate
of return on assets
Decrease $6 million
—
—
Net periodic pension expense for the Company’s pension plans is expected to be approximately $160 million in fiscal 2011. The
increase is primarily due to the amortization of deferred asset losses.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements of News Corporation for discussion of recent accounting pronouncements.
36 News Corporation
36 News Corporation
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News Corporation
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to several types of market risk: changes in foreign currency exchange rates, interest rates, and stock
prices. The Company neither holds nor issues financial instruments for trading purposes.
The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk, interest
rate risk and stock price risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair
value that can occur from changes in market conditions.
Foreign Currency Exchange Rates
The Company conducts operations in four principal currencies: the U.S. dollar; the British pound sterling; the Euro; and the Australian
dollar. These currencies operate as the functional currency for the Company’s U.S., United Kingdom, Italian and Australian operations,
respectively. Cash is managed centrally within each of the four regions with net earnings reinvested locally and working capital
requirements met from existing liquid funds. To the extent such funds are not sufficient to meet working capital requirements, draw downs
in the appropriate local currency are available from intercompany borrowings. Since earnings of the Company’s Australian, United
Kingdom and Italian operations are expected to be reinvested in those businesses indefinitely, the Company does not hedge its investment
in the net assets of those foreign operations.
At June 30, 2010, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an
aggregate fair value of $170 million (including the Company’s non-U.S. dollar-denominated fixed rate debt). The potential increase in the
fair values of these instruments resulting from a 10% adverse change in quoted foreign currency exchange rates would be approximately
$12 million at June 30, 2010.
Interest Rates
The Company’s current financing arrangements and facilities include approximately $13.3 billion of outstanding debt with fixed rates
of interest and the Credit Agreement, which carries a variable interest rate. Fixed and variable rate debts are impacted differently by
changes in interest rates. A change in the interest rate or yield of fixed rate debt will only impact the fair market value of such debt, while a
change in the interest rate of variable debt will impact interest expense, as well as the amount of cash required to service such debt. As of
June 30, 2010, substantially all of the Company’s financial instruments with exposure to interest rate risk were denominated in U.S. dollars
and had an aggregate fair value of approximately $15.0 billion. The potential change in fair market value for these financial instruments
from an adverse 10% change in quoted interest rates across all maturities, often referred to as a parallel shift in the yield curve, would be
approximately $856 million at June 30, 2010.
Stock Prices
The Company has common stock investments in several publicly traded companies that are subject to market price volatility. These
investments principally represent the Company’s equity affiliates and had an aggregate fair value of approximately $8.5 billion as of
June 30, 2010. A hypothetical decrease in the market price of these investments of 10% would result in a fair value of approximately $7.7
billion. Such a hypothetical decrease would result in a before tax decrease in comprehensive income of approximately $22 million, as any
changes in fair value of the Company’s equity affiliates are not recognized unless deemed other-than-temporary, as these investments are
accounted for under the equity method.
Credit Risk
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with
financial institutions of reputable credit and, therefore, bear minimal credit risk.
The Company’s receivables did not represent significant concentrations of credit risk at June 30, 2010 or 2009 due to the wide variety
of customers, markets and geographic areas to which the Company’s products and services are sold. However, in light of the recent
volatility in the domestic and global economies, the Company’s estimates and judgments with respect to the collectability of its receivables
have become subject to greater uncertainty than in more stable periods.
The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. At June 30,
2010, the Company did not anticipate nonperformance by any of the counterparties.
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2010 Annual Report 37
2010 Annual Report 37
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEWS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report On Internal Control Over Financial Reporting . . . . . . . . . . . .39
Report Of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Report Of Independent Registered Public Accounting Firm
On Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Consolidated Statements Of Operations For The Fiscal Years
Ended June 30, 2010, 2009 And 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Consolidated Balance Sheets As Of June 30, 2010 And 2009 . . . . . . . . . . . . . . . . . . .43
Consolidated Statements Of Cash Flows For The Fiscal Years
Ended June 30, 2010, 2009 And 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Consolidated Statements Of Equity And Other Comprehensive Income For The
Fiscal Years Ended June 30, 2010, 2009 And 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
38 News Corporation
38 News Corporation
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of News Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. News Corporation’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States
of America. The Company’s internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of News Corporation;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America;
• provide reasonable assurance that receipts and expenditures of News Corporation are being made only in accordance with
authorization of management and directors of News Corporation; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that
could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions
taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect
misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Also, the effectiveness of internal control over financial reporting was made as of a specific date.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the Company’s principal executive officer and principal financial officer, conducted an assessment of the
effectiveness of News Corporation’s internal control over financial reporting as of June 30, 2010, based on criteria for effective internal
control over financial reporting described in “Internal Control–Integrated Framework” issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Management’s assessment included an evaluation of the design of News Corporation’s internal control over
financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the
results of its assessment with the Audit Committee of News Corporation’s Board of Directors.
Based on this assessment, management determined that, as of June 30, 2010, News Corporation maintained effective internal control
over financial reporting.
Ernst & Young LLP, the independent registered public accounting firm who audited and reported on the Consolidated Financial
Statements of News Corporation included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2010, has audited the
Company’s internal control over financial reporting. Their report appears on the following page.
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2010 Annual Report 39
2010 Annual Report 39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors of News Corporation:
We have audited News Corporation’s internal control over financial reporting as of June 30, 2010, based on criteria established in
Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). News Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, News Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30,
2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of News Corporation as of June 30, 2010 and 2009, and the related consolidated statements of operations,
cash flows, and equity and other comprehensive income for each of the three years in the period ended June 30, 2010 and our report dated
August 6, 2010 expressed an unqualified opinion thereon.
New York, New York
August 6, 2010
40 News Corporation
40 News Corporation
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
To the Stockholders and Board of Directors of News Corporation:
We have audited the accompanying consolidated balance sheets of News Corporation as of June 30, 2010 and 2009, and the related
consolidated statements of operations, cash flows, and equity and other comprehensive income for each of the three years in the period
ended June 30, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
News Corporation at June 30, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in
the period ended June 30, 2010, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), News
Corporation’s internal control over financial reporting as of June 30, 2010, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 6, 2010
expressed an unqualified opinion thereon.
New York, New York
August 6, 2010
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2010 Annual Report 41
2010 Annual Report 41
News Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
Revenues
Operating expenses
Selling, general and administrative
Depreciation and amortization
Impairment and restructuring charges
Equity earnings (losses) of affiliates
Interest expense, net
Interest income
Other, net
Income (loss) before income tax expense
Income tax (expense) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interests
2010
2009
2008
(in millions, except per share amounts)
$ 32,778
$ 30,423
$ 32,996
(21,015)
(19,563)
(20,531)
(6,619)
(1,185)
(253)
448
(991)
91
69
3,323
(679)
2,644
(105)
(6,164)
(1,138)
(9,208)
(309)
(927)
91
1,256
(5,539)
2,229
(3,310)
(68)
(5,984)
(1,207)
(19)
327
(926)
246
2,419
7,321
(1,803)
5,518
(131)
Net income (loss) attributable to News Corporation stockholders
$ 2,539
$ (3,378)
$ 5,387
Weighted average shares:
Basic
Diluted
2,619
2,628
2,613
2,613
2,955
2,971
Net income (loss) attributable to News Corporation stockholders–basic
$ 0.97
$ (1.29)
$ 1.82
Net income (loss) attributable to News Corporation stockholders–diluted
$
0.97
$ (1.29)
$
1.81
The accompanying notes are an integral part of these audited consolidated financial statements.
42 News Corporation
42 News Corporation
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News Corporation
CONSOLIDATED BALANCE SHEETS
As of June 30,
Assets:
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other
Total current assets
Non-current assets:
Receivables
Investments
Inventories, net
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
Total assets
Liabilities and Equity:
Current liabilities:
Borrowings
Accounts payable, accrued expenses and other current liabilities
Participations, residuals and royalties payable
Program rights payable
Deferred revenue
Total current liabilities
Non-current liabilities:
Borrowings
Other liabilities
Deferred income taxes
Redeemable noncontrolling interests
Commitments and contingencies
Equity:
Class A common stock(1)
Class B common stock(2)
Additional paid-in capital
Retained earnings and accumulated other comprehensive income
Total News Corporation stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
2010
2009
(in millions, except share
and per share amounts)
$ 8,709
$ 6,540
6,431
2,392
492
6,287
2,477
532
18,024
15,836
346
3,515
3,254
5,980
8,306
282
2,957
3,178
6,245
8,925
13,749
14,382
1,210
1,316
$54,384
$53,121
$
129
$ 2,085
5,204
1,682
1,135
712
5,279
1,388
1,115
772
8,862
10,639
13,191
12,204
2,979
3,486
325
3,027
3,276
343
18
8
18
8
17,408
17,354
7,679
5,844
25,113
23,224
428
408
25,541
23,632
$54,384
$53,121
(1) Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,822,301,780 shares and 1,815,449,495 shares issued and outstanding, net of 1,776,740,787 and
1,776,865,809 treasury shares at par at June 30, 2010 and 2009, respectively.
(2) Class B common stock, $0.01 par value per share, 3,000,000,000 shares authorized, 798,520,953 shares issued and outstanding, net of 313,721,702 treasury shares at par at June 30,
2010 and 2009, respectively.
The accompanying notes are an integral part of these audited consolidated financial statements.
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News Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization
Amortization of cable distribution investments
Equity (earnings) losses of affiliates
Cash distributions received from affiliates
Impairment charges (net of tax of $19 million, $1,707 million and nil, respectively)
Other, net
Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets
Inventories, net
Accounts payable and other liabilities
Net cash provided by operating activities
Investing activities:
Property, plant and equipment, net of acquisitions
Acquisitions, net of cash acquired
Investments in equity affiliates
Other investments
Proceeds from sale of investments, other non-current assets and business disposals
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Repurchase of shares
Dividends paid
Purchase of subsidiary shares from noncontrolling interest
Other, net
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange movement of opening cash balance
2010
2009
2008
(in millions)
$ 2,644
$(3,310)
$ 5,518
1,185
1,138
1,207
84
(448)
317
181
(69)
(282)
(110)
352
3,854
(914)
(143)
(428)
(85)
1,257
(313)
1,027
(2,080)
24
—
(418)
—
2
(1,445)
2,096
6,540
73
88
309
298
7,189
(1,256)
194
(485)
(1,917)
2,248
(1,101)
(809)
(403)
(76)
1,762
(627)
1,040
(343)
4
—
(366)
(38)
18
315
1,936
4,662
(58)
80
(327)
350
—
(2,419)
(885)
(587)
988
3,925
(1,443)
(5,560)
(799)
(125)
1,580
(6,347)
1,292
(728)
90
(939)
(373)
(7)
22
(643)
(3,065)
7,654
73
Cash and cash equivalents, end of year
$ 8,709
$ 6,540
$ 4,662
The accompanying notes are an integral part of these audited consolidated financial statements.
44 News Corporation
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News Corporation
CONSOLIDATED STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE INCOME
Class A
Common Stock
Class B
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings and
Accumulated
Other
Comprehensive
Income
(in millions)
Total News
Corporation
Equity
Noncontrolling
Interests(1)
Total
Equity
Balance. June 30, 2007
Net income
2,139
—
$21
—
987
—
$10
—
$ 27,333
—
$ 5,558
5,387
$ 32,922
5,387
$ 286
101
$ 33,208
5,488
Unrealized holding losses on
securities, net of tax
Benefit plan adjustments
Foreign currency translation
adjustments
Comprehensive income
Acquisitions
Dividends declared
Shares issued
Shares repurchased
Change in value of redeemable
noncontrolling interest and other
Balance. June 30, 2008
Net (loss) income
Unrealized holding gains on
securities, net of tax
Benefit plan adjustments
Foreign currency translation
adjustments
Comprehensive income
Dividends declared
Shares issued
Change in value of redeemable
noncontrolling interest and other
—
—
—
—
—
—
16
(345)
—
—
—
—
—
—
—
(3)
—
1,810
—
—
$18
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(188)
—
799
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2)
—
$ 8
—
—
—
—
—
—
—
—
—
—
—
—
31
—
328
(10,527)
(69)
(86)
976
6,208
—
(338)
—
—
(69)
(86)
976
6,208
31
(338)
328
(10,532)
49
(45)
4
—
—
8
109
—
—
—
—
236
(69)
(86)
984
6,317
31
(338)
328
(10,532)
240
$ 17,214
—
$11,383
(3,378)
$ 28,623
(3,378)
$ 631
72
$ 29,254
(3,306)
—
—
—
—
—
77
63
2
(92)
(1,671)
(5,139)
(314)
—
2
(92)
(1,671)
(5,139)
(314)
77
—
—
(22)
50
—
—
2
(92)
(1,693)
(5,089)
(314)
77
(86)
(23)
(273)
(296)
$ 5,844
2,539
$ 23,224
2,539
$ 408
96
$ 23,632
2,635
Balance. June 30, 2009
Net income
1,815
$18
799
$ 8
$ 17,354
Unrealized holding gains on
securities, net of tax
Benefit plan adjustments
Foreign currency translation
adjustments
Comprehensive income
Dividends declared
Shares issued
Change in value of redeemable
noncontrolling interest and other
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
83
49
(208)
(248)
2,132
(353)
—
49
(208)
(248)
2,132
(353)
83
—
—
1
97
—
—
49
(208)
(247)
2,229
(353)
83
(29)
56
27
(77)
(50)
Balance. June 30, 2010
1,822
$18
799
$ 8
$ 17,408
$ 7,679
$ 25,113
$ 428
$ 25,541
(1) Net income attributable to noncontrolling interests excludes $9 million, $(4) million and $30 million relating to redeemable noncontrolling interests which is reflected in temporary
equity for the fiscal years ended June 30, 2010, 2009 and 2008, respectively. Foreign currency translation adjustments exclude $(3) million, $(16) million and $4 million relating to
redeemable noncontrolling interests for the fiscal years ended June 30, 2010, 2009 and 2008, respectively. Other activity attributable to noncontrolling interests excludes $(24) million,
nil and $53 million relating to redeemable noncontrolling interests for the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
The accompanying notes are an integral part of these audited consolidated financial statements.
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
News Corporation and its subsidiaries (together, “News Corporation” or the “Company”) is a Delaware corporation. News Corporation
is a diversified global media company, which manages and reports its businesses in eight segments: Filmed Entertainment, which
principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all
formats in all entertainment media worldwide, and the production of original television programming worldwide; Television, which
principally consists of the broadcasting of network programming in the United States and the operation of 27 full power broadcast
television stations, including nine duopolies, in the United States (of these stations, 17 are affiliated with the Fox Broadcasting Company
(“FOX”) and ten are affiliated with MyNetworkTV Programming Distribution Service, Inc. (“MyNetworkTV”) programming distribution
service); Cable Network Programming, which principally consists of the production and licensing of programming distributed through
cable television systems and direct broadcast satellite (“DBS”) operators primarily in the United States, Latin America, Europe and Asia;
Direct Broadcast Satellite Television, which consists of the distribution of basic and premium programming services via satellite and
broadband directly to subscribers in Italy; Integrated Marketing Services, which principally consists of the publication of free-standing
inserts, which are promotional booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United
States, and the provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United
States and Canada; Newspapers and Information Services, which principally consists of the publication of four national newspapers in the
United Kingdom, the publication of approximately 146 newspapers in Australia, the publication of a metropolitan newspaper and a national
newspaper (with international editions) in the United States and the provision of information services; Book Publishing, which principally
consists of the publication of English language books throughout the world; and Other, which includes the Company’s digital media
properties and News Outdoor Group (“News Outdoor”), an advertising business which offers display advertising primarily in outdoor
locations throughout Russia and Eastern Europe.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of all majority-owned and controlled subsidiaries. In addition, the
Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined by Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, “Consolidation” (“ASC 810-10”), and to assess
whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that
entity is consolidated in accordance with ASC 810-10. All significant intercompany accounts and transactions have been eliminated in
consolidation, including the intercompany portion of transactions with equity method investees.
Changes in the Company’s ownership interest in a consolidated subsidiary where a controlling financial interest is retained are
accounted for as a capital transaction. When the Company ceases to have a controlling interest in a consolidated subsidiary the Company
will recognize a gain or loss in net income upon deconsolidation.
Certain fiscal 2009 and fiscal 2008 amounts have been reclassified to conform to the fiscal 2010 presentation.
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30. Fiscal 2010, fiscal 2009 and fiscal 2008
were comprised of 52 weeks and ended on June 27, 2010, June 28, 2009 and June 29, 2008, respectively. For convenience purposes, the
Company continues to date its financial statements as of June 30.
Use of estimates
The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles in
the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts that are reported in the
consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.
Concentration of credit risk
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with
financial institutions of reputable credit and, therefore, bear minimal credit risk.
Receivables, net
Receivables, net are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be
collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in
customer demand and acceptance of the Company’s products. Based on this information, management reserves a percentage of each
dollar of product sales that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on
historical experience, receivable aging, current economic trends and specific identification of certain receivables that are at risk of not
being paid. In light of the recent volatility in the global economies, the Company’s estimates and judgments with respect to the
collectability of its receivables have become subject to greater uncertainty than in more stable periods.
46 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Receivables, net consist of:
At June 30,
Total receivables
Allowances for returns and doubtful accounts
Total receivables, net
Less: current receivables, net
Non-current receivables, net
Inventories
Filmed Entertainment Costs:
2010
2009
(in millions)
$ 7,947
$ 7,727
(1,170)
(1,158)
6,777
6,431
6,569
6,287
$ 346
$ 282
In accordance with ASC 926-605, “Entertainment–Films Revenue Recognition” (“ASC 926-605”) Filmed Entertainment costs include
capitalized production costs, overhead and capitalized interest costs, net of any amounts received from outside investors. These costs, as
well as participations and talent residuals, are recognized as operating expenses on an individual film or network series basis in the ratio
that fiscal 2010’s gross revenues bear to management’s estimate of total remaining ultimate gross revenues. Television production costs
incurred in excess of the amount of revenue contracted for each episode in the initial market are expensed as incurred on an
episode-by-episode basis. Estimates for initial syndication and basic cable revenues are not included in the estimated lifetime revenues of
network series until such sales are probable. Television production costs incurred subsequent to the establishment of secondary markets
are capitalized and amortized. Marketing costs and development costs under term deals are charged as operating expenses as incurred.
Development costs for projects not produced are written-off at the earlier of the time the decision is made not to develop the story or after
three years.
Filmed Entertainment costs are stated at the lower of unamortized cost or estimated fair value on an individual motion picture or
television product basis. Revenue forecasts for both motion pictures and television products are continually reviewed by management and
revised when warranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate
that a motion picture or television production has a fair value that is less than its unamortized cost, a loss is recognized currently for the
amount by which the unamortized cost exceeds the film or television production’s fair value.
Programming Costs:
In accordance with ASC 920, “Entertainment–Broadcasters,” costs incurred in acquiring program rights or producing programs for
the Television, DBS and Cable Network Programming segments are capitalized and amortized over the license period or projected useful
life of the programming. Program rights and the related liabilities are recorded at the gross amount of the liabilities when the license
period has begun, the cost of the program is determinable and the program is accepted and available for airing. Television broadcast
network and original cable programming are amortized on an accelerated basis. The Company has single and multi-year contracts for
broadcast rights of programs and sporting events. At the inception of these contracts and at least annually, the Company evaluates the
recoverability of the costs associated therewith, using aggregate estimated advertising and other revenues directly attributable to the
program material and related expenses. Where an evaluation indicates that a multi-year contract will result in an ultimate loss, additional
amortization is provided. The costs of national sports contracts at FOX are charged to expense based on the ratio of each period’s operating
profits to estimated total remaining operating profit of the contract. Estimates of total operating profit can change and, accordingly, are
reviewed periodically and amortization is adjusted as necessary. Such changes in the future could be material.
The costs of local and regional sports contracts for a specified number of events are amortized on an event-by-event basis while costs
for local and regional sports contracts for a specified season are amortized over the season on a straight-line basis.
Inventories for other divisions are valued at the lower of cost or net realizable value. Cost is primarily determined by the first in, first
out average cost method or by specific identification.
Investments
Investments in and advances to equity or joint ventures in which the Company has significant influence, but less than a controlling
voting interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an
interest between 20% and 50% and exercises significant influence. In certain circumstances, investments for which the Company owns
more than 50% but does not control policy decisions would be accounted for by the equity method.
Under the equity method of accounting the Company includes its investment and amounts due to and from its equity method
investments in its consolidated balance sheets. The Company’s consolidated statements of operations include the Company’s share of the
investees’ earnings (losses) and the Company’s consolidated statements of cash flows include all cash received from or paid to the
investee.
The difference between the Company’s investment and its share of the fair value of the underlying net assets of the investee is first
allocated to either finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. The Company follows ASC
350, “Intangibles–Goodwill and Other” (“ASC 350”), which requires that equity method finite-lived intangibles be amortized over their
estimated useful life while indefinite-lived intangibles and goodwill are not amortized.
Investments in which the Company has no significant influence (generally less than a 20% ownership interest) or does not exert
significant influence are designated as available-for-sale investments if readily determinable market values are available. If an
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
investment’s fair value is not readily determinable, the Company accounts for its investment at cost. The Company reports
available-for-sale investments at fair value based on quoted market prices. Unrealized gains and losses on available-for-sale investments
are included in accumulated other comprehensive income, net of applicable taxes and other adjustments until the investment is sold or
considered impaired. Dividends and other distributions of earnings from available-for-sale investments and cost investments are included
in Interest income in the consolidated statements of operations when declared.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over an estimated useful life
of two to 50 years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the life of
the lease. Costs associated with the repair and maintenance of property are expensed as incurred. Changes in circumstances, such as
technological advances or changes to the Company’s business model or capital strategy, could result in the actual useful lives differing
from the Company’s estimates. In those cases where the Company determines that the useful life of buildings and equipment should be
shortened, the Company would depreciate the asset over its revised remaining useful life, thereby increasing depreciation expense.
Goodwill and intangible assets
The Company has a significant amount of intangible assets, including goodwill, film and television libraries, Federal Communications
Commission (“FCC”) licenses, newspaper mastheads, distribution networks, publishing rights and other copyright products and
trademarks. Goodwill is recorded as the difference between the cost of acquiring entities and amounts assigned to their tangible and
identifiable intangible net assets. In accordance with ASC 350, the Company’s goodwill and indefinite-lived intangible assets, which
primarily consist of FCC licenses, are tested annually for impairment or earlier if events occur or circumstances change that would more
likely than not reduce the fair value below its carrying amount. Intangible assets with finite lives are generally amortized over their
estimated useful lives. This impairment assessment of indefinite-lived intangibles compares the fair value of these intangible assets to
their carrying value.
The Company’s goodwill impairment reviews are determined using a two-step process. The first step of the process is to compare the
fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount,
the goodwill of the reporting unit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the goodwill impairment review is required to be performed to estimate the implied
fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is compared with the carrying amount of
that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
Asset impairments
Investments
Equity method investments are regularly reviewed for impairment by initially comparing their fair value to their respective carrying
amounts each quarter. The Company determines the fair value of its public company investments by reference to their publicly traded
stock price. With respect to private company investments, the Company makes its estimate of fair value by considering other available
information, including recent investee equity transactions, discounted cash flow analyses, estimates based on comparable public company
operating multiples and, in certain situations, balance sheet liquidation values. If the fair value of the investment has dropped below the
carrying amount, management considers several factors when determining whether an other-than-temporary decline in market value has
occurred, including the length of the time and extent to which the market value has been below cost, the financial condition and near-term
prospects of the issuer, the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in market value and other factors influencing the fair market value, such as general market conditions.
The Company regularly reviews available-for-sale investment securities for other-than-temporary impairment based on criteria that
include the extent to which the investment’s carrying value exceeds its related market value, the duration of the market decline, the
Company’s ability to hold until recovery and the financial strength and specific prospects of the issuer of the security.
The Company regularly reviews investments accounted for at cost for other-than-temporary impairment based on criteria that include
the extent to which the investment’s carrying value exceeds its related estimated fair value, the duration of the estimated fair value decline,
the Company’s ability to hold until recovery and the financial strength and specific prospects of the issuer of the security.
Long-lived assets
ASC 360, “Property, Plant, and Equipment,” (“ASC 360”) and ASC 350 require that the Company periodically review the carrying
amounts of its long-lived assets, including property, plant and equipment and finite-lived intangible assets, to determine whether current
events or circumstances indicate that such carrying amounts may not be recoverable. If the carrying amount of the asset is greater than
the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is recognized if the carrying value of such
assets exceeds their fair value. The Company generally measures fair value by considering sale prices for similar assets or by discounting
estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to estimate the fair
value of assets, accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of
their financial statement carrying amount or fair value less their costs to sell.
Financial instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents and cost investments, approximate
fair value. The fair value of financial instruments is generally determined by reference to market values resulting from trading on a
national securities exchange or in an over-the-counter market. Derivative instruments embedded in other contracts, such as exchangeable
securities, are separated into their host and derivative financial instrument components. The derivative component is recorded at its
48 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated fair value in the consolidated balance sheets with changes in estimated fair value recorded in Other, net in the consolidated
statements of operations.
The TOPrS warrants and the BUCS were exercisable/convertible into ordinary shares of British Sky Broadcasting Group plc (“BSkyB”).
During fiscal 2010, the Company redeemed all of its outstanding TOPrS and BUCS (See Note 11–Exchangeable Securities). The Company
used the following assumptions to determine the fair value of the TOPrS warrants as of June 30, 2009: Stock price: $7.42; Exercise price:
$10.80; Historical volatility: 18.9%; Risk free rate: 2.83%; Expected term: 7.38 years; and Dividend yield: 2.4%.
In determining the fair value of the BUCS conversion feature, the Company calculated the difference between (i) the average of the bid
and asked prices for the BUCS as of each valuation date and (ii) the estimated value of a “straight” bond (i.e., no exchange feature) using
the period from the valuation date to the date of the first put. Key assumptions as of June 30, 2009 used to estimate the value of the
straight bond were as follows: News Corporation credit spread: 73bps; and Risk-free rate: 1.33%.
Guarantees
The Company follows ASC 460, “Guarantees” (“ASC 460”). ASC 460 requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing certain guarantees.
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service
has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the
appropriate accounting treatment.
Filmed Entertainment:
Revenues are recognized in accordance with ASC 926-605. Revenues from the distribution of motion pictures are recognized as they
are exhibited, and revenues from home entertainment sales, net of a reserve for estimated returns, are recognized on the date that DVD
units are made available for sale by retailers and all Company-imposed restrictions on the sale of DVD units have expired.
License agreements for the broadcast of theatrical and television product in the broadcast network, syndicated television and cable
television markets are routinely entered into in advance of their available date for broadcast. Cash received and amounts billed in
connection with such contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred
revenue generally relates to contracts for the licensing of theatrical and television products which have already been produced, the
recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period for
broadcast under the terms of the related licensing agreement.
Television, Cable Network Programming and DBS:
Advertising revenue is recognized as the commercials are aired. Subscriber fees received from cable systems and DBS operators for
cable network programming are recognized as revenue in the period services are provided. DBS subscription and pay-per-view revenues
are recognized when programming is broadcast to subscribers, while fees for equipment rental are recognized as revenue on a straight-
line basis over the contract period.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to a cable or DBS operator to facilitate
the launch of a cable network) against revenue in accordance with ASC 605-50, “Revenue Recognition–Customer Payments and Incentives”
(“ASC 605-50”). The Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the
contract period.
Newspapers and Information Services, Integrated Marketing Services and Book Publishing
Advertising revenue from newspapers and integrated marketing services is recognized when the advertisements are published.
Subscription revenues from the Company’s print and online publications and electronic information services is recognized as earned, pro
rata on a per-issue basis, over the subscription period. Revenues earned from book publishing are recognized upon passing of control to
the buyer.
Sales returns
Consistent with industry practice, certain of the Company’s products, such as home entertainment products, books and newspapers,
are sold with the right of return. The Company records, as a reduction of revenue, the estimated impact of such returns. In determining the
estimate of product sales that will be returned, management analyzes historical returns, current economic trends and changes in
customer demand and acceptance of the Company’s product. Based on this information, management reserves a percentage of each dollar
of product sales that provide the customer with the right of return.
Multiple Element Arrangements
Revenues or costs derived from contracts that contain multiple products and services are allocated based on the relative fair value of
each delivered or purchased item. If the Company has fair value evidence for each product or service being delivered or purchased, it
accounts for each separately, based on the relevant revenue or cost recognition accounting policies. In the event the fair value of the two
elements cannot be established, revenue or expense would be recognized over the term of the contract.
Subscriber acquisition costs
Subscriber acquisition costs in the DBS segment primarily consist of amounts paid for third-party customer acquisitions, which
consist of the cost of commissions paid to authorized retailers and dealers for subscribers added through their respective distribution
channels and the cost of hardware and installation subsidies for subscribers. All costs, including hardware, installation and commissions,
are expensed upon activation. However, where legal ownership is retained in the equipment, the cost of the equipment is capitalized and
depreciated over the useful life. Additional components of subscriber acquisition costs include the cost of print, radio and television
advertising, which are expensed as incurred.
2010 Annual Report 49
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising expenses
The Company expenses advertising costs as incurred, including advertising expenses for theatrical and television product in
accordance with ASC 720-35, “Other Expenses–Advertising Cost.” Advertising expenses recognized totaled $2.5 billion for each of the fiscal
years ended June 30, 2010, 2009 and 2008.
Translation of foreign currencies
Income and expense accounts of foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method,
whereby trading results are converted at the average rate of exchange for the period and assets and liabilities are converted at the closing
rates on the period end date. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive
income. Gains and losses from foreign currency transactions are included in income for the period.
Capitalization of interest
Interest cost on funds invested in major projects, primarily theatrical productions, with substantial development and construction
phases are capitalized until production or operations commence. Once production or operations commence, the interest costs are
expensed as incurred. Capitalized interest is amortized over future periods on a basis consistent with that of the project to which it relates.
Total interest capitalized was $44 million, $55 million and $44 million, for the fiscal years ended June 30, 2010, 2009 and 2008,
respectively. Amortization of capitalized interest for the fiscal years ended June 30, 2010, 2009 and 2008 was $73 million, $50 million and
$33 million, respectively.
Income taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires an asset and
liability approach for financial accounting and reporting for income taxes. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances are established where management determines that it is
more likely than not that some portion or all of a deferred tax asset will not be realized. Deferred taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries to the extent amounts are expected to be reinvested indefinitely.
On July 1, 2007, the Company adopted the additional provisions of ASC 740 relating to the accounting for uncertainty in income taxes,
which did not have a material impact to the Company’s liability for unrecognized tax benefits. The effects of the initial adoption on the
Company’s consolidated balance sheets as of June 30, 2007 included an increase in Other liabilities of approximately $1.2 billion offset by a
similar reduction in deferred income taxes as of July 1, 2007.
Earnings per share
Basic earnings per share for the Class A common stock, par value $0.01 per share (“Class A Common Stock”), and Class B common
stock, par value $0.01 per share (“Class B Common Stock”) is calculated by dividing net income (loss) attributable to News Corporation
stockholders by the weighted average number of shares of Class A Common Stock and Class B Common Stock outstanding. Diluted
earnings per share for Class A Common Stock and Class B Common Stock is calculated similarly, except that the calculation includes the
dilutive effect of the assumed issuance of shares issuable under the Company’s equity-based compensation plans and the dilutive effect of
convertible securities.
50 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comprehensive income
The Company follows ASC 220, “Comprehensive Income,” for the reporting and display of comprehensive income. The components of
accumulated comprehensive income were as follows:
For the years ended June 30,
Accumulated other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities:
Balance, beginning of year
Fiscal year activity
Balance, end of year
Pension plan adjustments:
Balance, beginning of year
Fiscal year activity
Balance, end of year
Foreign currency translation adjustments:
Balance, beginning of year
Fiscal year activity(1)
Balance, end of year
Total accumulated other comprehensive income, net of tax
Balance, beginning of year
Fiscal year activity, net of income tax benefit of $74 million, $70 million and $61 million
Balance, end of year
2010
2009
2008
(in millions)
$ 73
$
49
122
71
2
73
$ 140
(69)
71
(383)
(208)
(291)
(92)
(205)
(86)
(591)
(383)
(291)
315
1,986
1,010
(248)
(1,671)
976
67
315
1,986
5
1,766
(407)
(1,761)
945
821
$(402) $
5
$1,766
(1) Excludes $(2) million, $(38) million and $12 million relating to noncontrolling interests and redeemable noncontrolling interests for the fiscal years ended June 30, 2010, 2009 and 2008,
respectively.
Equity based compensation
The Company accounts for share based payments in accordance with ASC 718, “Compensation–Stock Compensation” (“ASC 718”). ASC
718 requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial
statements. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment arrangements and
requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions
with employees.
Derivatives
ASC 815, “Derivatives and Hedging” (“ASC 815”), requires every derivative instrument (including certain derivative instruments
embedded in other contracts) to be recorded on the balance sheet at fair value as either an asset or a liability (See Note 7–Fair Value). ASC
815 also requires that changes in the fair value of recorded derivatives be recognized currently in earnings unless specific hedge
accounting criteria are met.
The Company uses financial instruments designated as cash flow hedges to hedge its limited exposures to foreign currency exchange
risks associated with the costs for producing or acquiring films and television programming abroad. All cash flow hedges are recorded at
fair value on the consolidated balance sheets. (See Note 7–Fair Value) The effective changes in fair value of derivatives designated as cash
flow hedges are recorded in accumulated other comprehensive income with foreign currency translation adjustments. Amounts are
reclassified from accumulated other comprehensive income when the underlying hedged item is recognized in earnings. If derivatives are
not designated as hedges, changes in fair value are recorded in earnings as Other, net in the consolidated statements of operations. (See
Note 11–Exchangeable Securities)
Recent accounting pronouncements
On July 1, 2009, the Company adopted the provisions of ASC 805 “Business Combinations” (“ASC 805”), which significantly changed the
Company’s accounting for business combinations on a prospective basis in a number of areas, including the treatment of contingent
consideration, preacquisition contingencies, transaction costs and restructuring costs. In addition, under ASC 805, changes in an acquired
entity’s deferred tax assets and uncertain tax positions after the measurement period are included in income tax expense.
On July 1, 2009, the Company adopted the new provisions of ASC 810 “Consolidation” (“ASC 810”), which changed the accounting and
reporting for minority interests. As a result of the adoption of these provisions, minority interests have been recharacterized as
noncontrolling interests and classified as a component of equity, with the exception of redeemable noncontrolling interests. In accordance
with ASC 810, the presentation and disclosure requirements for existing noncontrolling interests were applied retrospectively. All other
requirements of these provisions were applied prospectively.
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 1, 2009, the Company adopted the new provisions of ASC 350, which set forth the factors to be considered in developing
renewal or extension assumptions used to determine the useful life of a recognizable intangible asset and is intended to improve the
consistency between the useful life of a recognizable intangible asset and the period of expected cash flows used to measure the fair value
of that asset. This adoption changed the Company’s determination of useful lives for intangible assets on a prospective basis.
On July 1, 2009, the Company adopted the additional provisions of ASC 820 “Fair Value Measurement and Disclosure” (“ASC 820”),
which apply to non-recurring fair value measurements of non-financial assets and liabilities, such as measurement of potential
impairments of goodwill, other intangible assets, other long-lived assets and non-financial assets held by a pension plan. These additional
provisions also apply to the fair value measurements of non-financial assets acquired and liabilities assumed in business combinations.
The Company’s adoption of the additional provisions of ASC 820 did not have a material effect on the Company’s consolidated financial
statements.
In August 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-05 “Fair
Value Measurements and Disclosures (Topic 820)–Measuring Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 amends Subtopic
820-10 “Fair Value Measurements and Disclosures–Overall” and provides clarification on the methods to be used in circumstances in
which a quoted price in an active market for the identical liability is not available.
In June 2010, the Company adopted the provisions of ASC 715 “Compensation–Retirement Benefits,” which expand the disclosure
requirements of defined benefit plans. The expanded disclosure requirements include: (i) investment policies and strategies; (ii) the major
categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements
using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.
(See Note 17–Pensions and Other Postretirement Benefits)
On July 1, 2010, the Company adopted the new provisions of ASC 810-10-65-2, “Transition Related to FASB Statement No. 167,
Amendments to FASB Interpretation No. 46(R)”. ASC 810-10-65-2 changed the approach to determining the primary beneficiary of a
variable interest entity (“VIE”) and required companies to regularly assess whether the Company is the primary beneficiary of a VIE. The
Company’s adoption of ASC 810-10-65-2 did not have a material effect on the Company’s consolidated financial statements.
NOTE 3 ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Fiscal 2010 Transactions
During fiscal year 2010, the Company completed two transactions related to its financial indexes businesses:
The Company sold its 33% interest in STOXX AG (“STOXX”), a European market index provider, to its partners, Deutsche Börse AG and
SIX Group AG, for approximately $300 million in cash. The Company is entitled to receive additional consideration up to approximately $40
million if STOXX achieves certain revenue targets in calendar year 2010.
The Company and CME Group Inc. (“CME”) formed a joint venture to operate a global financial index service business (the “Venture”),
to which the Company contributed its Dow Jones Indexes business valued at $675 million (which included the Company’s agreement to
provide to the Venture an annual media credit for advertising on the Company’s Dow Jones media properties averaging approximately $3.5
million a year for a ten year term) and CME contributed a business which provides certain market data services valued at $608 million. The
Company and CME own 10% and 90% of the Venture, respectively. The Venture issued approximately $613 million in third-party debt due in
March 2018 that has been guaranteed by CME (the “Venture Financing”). The Venture used the proceeds from the debt issuance to make a
special distribution at the time of the closing of approximately $600 million solely to the Company. The Company agreed to indemnify CME
with respect to any payments of principal, premium and interest that CME makes under its guarantee of the Venture Financing and certain
refinancing of such debt. In the event the Company is required to perform under this indemnity, the Company will be subrogated to and
acquire all rights of CME. The maximum potential amount of undiscounted future payments related to this indemnity was approximately
$828 million at June 30, 2010. The Company has made a determination that there is no recognition of this potential future payment in the
accompanying financial statements.
The Company has the right to cause the Venture to purchase its 10% interest at fair market value in 2016 and the Venture has the right
to call the Company’s 10% interest at fair market value in 2017.
The Company’s interest in the Venture was recorded at fair value of $67.5 million, which was determined using an earnings before
interest, taxes, depreciation and amortization (“EBITDA”) multiple and market-based valuation approach methodologies, and is now
accounted for under the cost method of accounting. The net income, assets, liabilities, and cash flow attributable to the Dow Jones Indexes
business are not material to the Company in any of the periods presented and, accordingly, have not been presented separately.
The Company recorded a combined loss of approximately $23 million on both of these transactions, which was included in Other, net
in the consolidated statements of operations for the fiscal year ended June 30, 2010.
During fiscal 2010, the Company sold the majority of its terrestrial television operations in Eastern Europe led by the sale of its
Bulgarian terrestrial TV business, bTV. The aggregate cash received in connection with these sales was approximately $372 million, net of
expense, and a gain of approximately $195 million on these sales was included in Other, net in the consolidated statements of operations
for the fiscal year ended June 30, 2010. The Company continues to operate a terrestrial TV business, FOX TV, a Turkish national general
interest free-to-air broadcast television station. The net income, assets, liabilities and cash flow attributable to the terrestrial television
operations sold are not material to the Company in any of the periods presented and, accordingly, have not been presented separately.
In June 2010, the Company announced that it had proposed to the board of directors of BSkyB, in which the Company currently has an
approximate 39% interest, to make a cash offer of 700 pence per share for the BSkyB shares that the Company does not already own. The
Company and the independent members of BSkyB’s board of directors were unable to reach a mutually agreeable price at the time of the
public announcement; however, the parties entered into a cooperation agreement pursuant to which the parties agreed to work together to
proceed with the regulatory process in order to facilitate a proposed transaction. There can be no assurance that the Company will make a
52 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
binding offer. The Company will pay BSkyB a breakup fee of approximately $60 million as of June 30, 2010 if the regulatory approvals are
obtained and the Company does not make a binding offer within five months thereafter of at least 700 pence per share. The Company
believes that a potential transaction will result in increased geographic diversification of the Company’s earnings base and reduce its
exposure to cyclical advertising revenues through an increase in direct consumer subscription revenues. If the Company makes a binding
offer and proceeds with the proposed transaction, the Company plans to finance the transaction by using a significant portion of the
available cash on its balance sheet plus borrowed funds.
Fiscal 2009 Transactions
Acquisitions
In October 2008, the Company purchased VeriSign Inc.’s (“VeriSign”) noncontrolling interest of the Jamba joint venture, which has
been included in the Fox Mobile Group (“Fox Mobile”), for approximately $193 million in cash, increasing the Company’s interest to 100%.
During fiscal 2010, the Company recorded an impairment charge relating to Fox Mobile’s fixed assets. During fiscal 2010 and 2009, the
Company recorded impairment charges relating to Fox Mobile’s goodwill and finite-lived intangible assets. (See Note 9–Goodwill and Other
Intangible Assets)
In January 2009, the Company and Asianet TV Holdings Private Limited (“Asianet”) formed a venture (“Star Jupiter”) to provide general
entertainment channels in southern India. The Company paid approximately $235 million in cash and assumed net debt of approximately
$20 million for a controlling interest in four of Asianet’s channels which were combined with one of the Company’s existing channels. The
Company has a controlling interest in this new venture and, accordingly, began consolidating the results in January 2009. In July 2010, the
Company paid approximately $90 million in cash to increase its ownership stake to approximately 75%.
Disposals
In July 2008, the Company completed the sale of eight of its owned-and-operated FOX network affiliated television stations (the
“Stations”) for approximately $1 billion in cash. The Stations included: WJW in Cleveland, OH; KDVR in Denver, CO; KTVI in St. Louis, MO;
WDAF in Kansas City, MO; WITI in Milwaukee, WI; KSTU in Salt Lake City, UT; WBRC in Birmingham, AL; and WGHP in Greensboro, NC. In
connection with the transaction, the Stations entered into new affiliation agreements with the Company to receive network programming
and assumed existing contracts with the Company for syndicated programming. No portion of the sale proceeds were allocated to the new
network affiliation agreements as they were negotiated at fair value and are consistent with similar pre-existing contracts with other third
party-owned FOX affiliated stations. In addition, the Company recorded a gain of approximately $232 million in Other, net in the
consolidated statements of operations for the fiscal year ended June 30, 2009.
In November 2008, the Company sold its ownership stake in a Polish television broadcaster to the remaining shareholders. The
Company recognized a net loss of approximately $100 million on the disposal which was included in Other, net in the consolidated
statements of operations for the fiscal year ended June 30, 2009.
Other transactions
In February 2009, the Company, two newly incorporated subsidiaries of funds advised by Permira Advisers LLP (the “Permira
Newcos”) and the Company’s then majority-owned, publicly-held subsidiary, NDS Group plc (“NDS”), completed a transaction pursuant to
which all issued and outstanding NDS Series A ordinary shares, including those represented by American Depositary Shares traded on The
NASDAQ Stock Market, were acquired for per-share consideration of $63 in cash (the “NDS Transaction”). As part of the transaction,
approximately 67% of the NDS Series B ordinary shares held by the Company were exchanged for $63 per share in a mix of approximately
$1.5 billion in cash, which included $780 million of cash retained upon the deconsolidation of NDS, and a $242 million vendor note.
Immediately prior to the consummation of the NDS Transaction, the Company owned approximately 72% of NDS through its ownership of
all of the outstanding NDS Series B ordinary shares and, accordingly, included the results of NDS in the consolidated financial statements
of the Company. As a result of the transaction, NDS ceased to be a public company and the Permira Newcos and the Company now own
approximately 51% and 49% of NDS, respectively. The Company’s remaining interest in NDS is accounted for under the equity method of
accounting. A gain of $1.2 billion was recognized on the sale of the Company’s interest and is included in Other, net in the consolidated
statements of operations for the fiscal year ended June 30, 2009.
Fiscal 2008 Transactions
Acquisitions
In July 2007, the Company acquired Photobucket, a web-based provider of photo- and video-sharing services, for a total purchase
price of approximately $287 million, of which $237 million was in cash and $50 million was in deferred consideration. The initial $25 million
of deferred consideration was paid during the first quarter of fiscal 2009 and the remaining $25 million was paid during the first quarter of
fiscal 2010. In December 2009, the Company entered into an agreement to transfer the equity and related assets of Photobucket to a
mobile photo uploading platform in exchange for an equity interest in the acquirer and cash. A loss of approximately $32 million on this
transaction was included in Other, net in the consolidated statements of operations for the fiscal year ended June 30, 2010. As a result of
this transaction, the Company’s interest in the acquirer, which is not material, was recorded at fair value and is now accounted for under
the equity method of accounting.
On December 13, 2007, the Company completed the acquisition of Dow Jones & Company, Inc. (“Dow Jones”) pursuant to the
Agreement and Plan of Merger, dated as of July 31, 2007, by and among the Company, Ruby Newco LLC, a wholly-owned subsidiary of the
Company (“Ruby Newco”), Dow Jones and Diamond Merger Sub Corporation, as amended (the “Merger Agreement”). Pursuant to the
terms of the Merger Agreement, each outstanding share of Dow Jones common stock was converted into the right to receive, at the
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
election of the holder, either (x) $60.00 in cash or (y) 2.8681 Class B common units of Ruby Newco. Each Class B common unit of Ruby
Newco is convertible into a share of News Corporation Class A common stock par value $0.01 per share (“Class A Common Stock”). The
consideration for the acquisition was approximately $5,700 million which consisted of: $5,150 million in cash, assumed net debt of
approximately $330 million and approximately $200 million in equity instruments. The results of Dow Jones have been included in the
Company’s consolidated statements of operations from December 13, 2007.
As part of the Dow Jones acquisition, the Company assumed total debt of $378 million which consisted of: 3.875% notes due 2008 in
the amount of $225 million, $131 million in commercial paper and a $22 million variable interest rate note.
In addition, in December 2007, the Company issued approximately 8 million Class B common units of Ruby Newco, approximately
7 million stock options and approximately 500,000 restricted stock units (“RSUs”) over Class A Common Stock. The total fair value of these
instruments was approximately $200 million. As of June 30, 2010, approximately 7.7 million Class B common units of Ruby Newco had
been converted into shares of Class A Common Stock.
The acquisition of Dow Jones was effected in December 2007 to position the Company as a leader in the financial news and information
market and to enhance its ability to adapt to future challenges and opportunities within the Newspapers and Information Services segment
and across the Company’s other related business segments.
Under the purchase method of accounting, the total purchase price is allocated to Dow Jones’ net tangible and intangible assets based
upon Dow Jones’ estimated fair value as of the date of completion of the acquisition. Based upon the purchase price and the valuation
performed, the purchase price allocation is as follows (in millions):
Assets acquired:
Current assets
Property, plant and equipment
Other assets
Intangible assets
Goodwill
Total assets acquired
Liabilities assumed:
Current liabilities
Deferred income taxes
Deferred revenue
Other liabilities
Borrowings
Total liabilities assumed
Noncontrolling interests
Net assets acquired
$ 339
577
52
2,376
4,261
$7,605
$ 589
640
226
458
378
2,291
165
$5,149
The Company allocated approximately $700 million to amortizable intangible assets, primarily consisting of subscriber relationship
intangible assets. The pattern of economic benefits to be derived from certain amortizable intangible assets is estimated to be greater in
the initial period of ownership. Accordingly, amortization expense is recognized on an accelerated basis over the remaining weighted-
average useful life of 25 years. The Company also allocated approximately $1,700 million to trade names, which will not be amortized as
they have an indefinite remaining useful life based primarily on their market position and the Company’s plans for continued indefinite use.
Further, approximately $4,300 million was allocated to goodwill, which represents the excess of the purchase price over the fair value of
the net tangible and intangible assets acquired. The goodwill is not being amortized in accordance with ASC 350, and is not deductible for
tax purposes. Upon the completion of the final valuation in December 2008, all of the goodwill was allocated to the Newspapers and
Information Services segment. During fiscal 2009, the Company recorded an impairment charge relating to the Dow Jones goodwill and
indefinite-lived intangible assets of $2.8 billion which is not reflected in the table above. (See Note 9–Goodwill and Other Intangible Assets)
The aforementioned acquisitions were all accounted for in accordance with ASC 805.
Disposals
In June 2008, the Company sold a parcel of land it owned in the United Kingdom, for total consideration of $163 million. The
consideration at closing was comprised of $91 million in cash and a $72 million note, secured by the land, payable in three equal annual
installments, of which two installments had been paid as of June 30, 2010. The Company recorded a pre-tax gain of $126 million on the
transaction which is included in Other, net in the consolidated statements of operations for the fiscal year ended June 30, 2008.
Share Exchange Agreement
In February 2008, the Company closed the transactions contemplated by the share exchange agreement (the “Share Exchange
Agreement”) with Liberty Media Corporation (“Liberty”). Pursuant to the terms of the Share Exchange Agreement, Liberty exchanged its
entire interest in the Company’s common stock (approximately 325 million shares of Class A Common Stock and 188 million shares of
54 News Corporation
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Class B Common Stock for 100% of the stock of a wholly-owned subsidiary of the Company, whose holdings consisted of the Company’s
approximate 41% interest (approximately 470 million shares) in The DIRECTV Group, Inc. (“DIRECTV”) constituting the Company’s entire
interest in DIRECTV, three of the Company’s Regional Sports Networks (“RSNs”) (FSN Northwest, FSN Pittsburgh and FSN Rocky
Mountain) (the “Three RSNs”) and approximately $625 million in cash (the “Exchange”). The Exchange resulted in the divestiture of the
Company’s entire interest in DIRECTV and the Three RSNs to Liberty. The Company measured the fair market value of the shares received
from Liberty at the February 27, 2008 New York Stock Exchange closing price of the Class A Common Stock (NWS-A) and Class B Common
Stock (NWS) as the value of the shares was more clearly evident than the fair value of the assets surrendered. A tax-free gain of $1.7
billion on the Exchange was recognized in Other, net in the consolidated statements of operations in fiscal 2008. Upon closing of the
Exchange, the Company entered into a non-competition agreement with DIRECTV and non-competition agreements with each of the Three
RSNs, in each case, restricting its right to compete for a period of four years with DIRECTV and the Three RSNs in the respective regions in
which such entities were operating on the closing date of the Exchange.
NOTE 4 RESTRUCTURING PROGRAMS
Fiscal 2010 Programs
During fiscal 2010, the Company recorded restructuring charges of approximately $53 million. The restructuring charges in fiscal 2010
reflect an $18 million charge related to the sales and distribution operations of the STAR channels, $19 million related to termination
benefits recorded at the Newspapers and Information Services segment and a $16 million charge at the Other segment related to the
restructuring program at Fox Mobile and accretion on facility termination obligations.
Fiscal 2009 Programs
In fiscal 2009, certain of the markets in which the Company’s businesses operate experienced a weakening in the economic climate,
which adversely affected advertising revenue and other consumer driven spending. As a result, a number of the Company’s businesses
implemented a series of operational actions to address the Company’s cost structure, including the restructuring of the Company’s digital
media properties to align resources more closely with business priorities. This restructuring program included significant job reductions,
both domestically and internationally, to enable the businesses to operate on a more cost effective basis. In conjunction with this project
the Company also eliminated excess facility requirements. In fiscal 2009, several other businesses of the Company implemented similar
plans including the U.K. and Australian newspapers, HarperCollins, MyNetworkTV and Fox Television Stations. During the fiscal year ended
June 30, 2009, the Company recorded restructuring charges in accordance with ASC 420, “Exit or Disposal Cost Obligations”, of
approximately $312 million. These charges consist of severance costs, facility related costs and other associated costs. The restructuring
charges primarily relate to $20 million recorded at the Television segment, $33 million recorded at the Book Publishing segment, $74
million recorded at the Newspapers and Information Services segment and $182 million recorded at the Other segment during the fiscal
year ended June 30, 2009. The Other segment included charges of approximately $178 million related to the Company’s digital media
properties, $148 million of which was recorded for facility related costs.
Changes in the program liabilities were as follows:
Balance, June 30, 2008
Additions
Payments
Foreign exchange movements
Balance, June 30, 2009
Additions
Payments
Foreign exchange movements
Balance, June 30, 2010
One time
termination
benefits
Facility
related costs
Other
costs
Total
(in millions)
$ —
126
(62)
1
$ —
164
—
—
$ — $ —
22
(14)
—
312
(76)
1
$ 65
$164
$ 8
$237
37
(68)
(2)
14
(24)
—
2
(4)
—
53
(96)
(2)
$ 32
$154
$ 6
$192
The Company expects to record an additional $50 million of restructuring charges, principally related to accretion on facility
termination obligations through 2021. At June 30, 2010, restructuring liabilities of approximately $80 million and $112 million were
included in the consolidated balance sheets in other current liabilities and other liabilities, respectively. Other liabilities primarily relate to
additional accretion on facility termination obligations which are expected to be paid through fiscal 2021.
Dow Jones
As a result of the Dow Jones acquisition in fiscal 2008, the Company established and approved plans to integrate the acquired
operations into the Company’s Newspapers and Information Services segment. The cost to implement these plans consists of separation
payments for certain Dow Jones executives under the change in control plan Dow Jones had established prior to the acquisition,
non-cancelable lease commitments and lease termination charges for leased facilities that have or will be exited and other contract
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
termination costs associated with the restructuring activities. During the fiscal year ended June 30, 2009, the Company recorded additional
amounts relating to separation payments and non-cancelable lease commitments as purchase accounting adjustments.
Changes in the plan liabilities were as follows:
For the years ended June 30,
Beginning of year
Additions
Payments
End of year
The balance of the plan liabilities as of June 30, 2010 primarily includes facility related costs.
NOTE 5 INVENTORIES
As of June 30, 2010, the Company’s inventories were comprised of the following:
As of June 30,
Programming rights
Books, DVDs, paper and other merchandise
Filmed entertainment costs:
Films:
Released (including acquired film libraries)
Completed, not released
In production
In development or preproduction
Television productions:
Released (including acquired libraries)
In production
In development or preproduction
Total filmed entertainment costs, less accumulated amortization(a)
Total inventories, net
Less: current portion of inventory, net(b)
Total noncurrent inventories, net
2010
2009
2008
(in millions)
$126
$180
$ —
—
(58)
40
(94)
210
(30)
$ 68
$126
$180
2010
2009
(in millions)
$ 3,058
$ 3,038
367
361
614
155
508
98
533
137
664
73
1,375
1,407
561
283
2
846
589
256
4
849
2,221
2,256
5,646
5,655
(2,392)
(2,477)
$ 3,254
$ 3,178
(a) Does not include $460 million and $491 million of net intangible film library costs as of June 30, 2010 and 2009, respectively, which are included in intangible assets subject to
amortization in the consolidated balance sheets. (See Note 9–Goodwill and Other Intangible Assets for further details)
(b) Current inventory as of June 30, 2010 and 2009 is comprised of programming rights ($2,057 million and $2,149 million, respectively), books, DVDs, paper, and other merchandise.
As of June 30, 2010, the Company estimated that approximately 71% of unamortized filmed entertainment costs from the completed
films are expected to be amortized during fiscal 2011 and approximately 96% of released filmed entertainment costs will be amortized
within the next three fiscal years. During fiscal 2011, the Company expects to pay $1,200 million in accrued participation liabilities, which
are included in participations, residuals and royalties payable on the consolidated balance sheets. At June 30, 2010, acquired film and
television libraries had remaining unamortized film costs of $86 million, which are generally amortized using the individual film forecast
method over a remaining period of approximately one to 11 years.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 INVESTMENTS
As of June 30, 2010, the Company’s investments were comprised of the following:
As of June 30,
Equity method investments:
Ownership
Percentage
2010
2009
(in millions)
British Sky Broadcasting Group plc(1)
U.K. DBS operator
39% $1,159
$ 877
Sky Network Television Ltd.(1)
Sky Deutschland AG(1)
NDS
Other equity method investments
Fair value of available-for-sale investments
Other investments
New Zealand media company
German pay-TV operator
Digital technology company
44%
45%(2)
49%
various
various
various
343
326
286
893
225
283
305
437
232
707
150
249
$3,515
$2,957
(1) The market value of the Company’s investment in BSkyB, Sky Network Television Ltd., and Sky Deutschland AG (formerly Premiere AG) (“Sky Deutschland”) was $7,205 million, $592
million and $429 million at June 30, 2010, respectively.
(2) During fiscal 2010, the Company acquired additional shares of Sky Deutschland, increasing its ownership from approximately 38% at June 30, 2009 to approximately 45% at June 30,
2010. (See Fiscal Year 2010 Transactions below for further discussion)
The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:
As of June 30,
Cost basis of available-for-sale investments
Accumulated gross unrealized gain
Accumulated gross unrealized loss
Fair value of available-for-sale investments
Deferred tax liability
2010
2009
(in millions)
$ 37
$ 38
189
113
(1)
(1)
$225
$150
$ 66
$ 39
The Company reclassified gains of $3 million, nil and $12 million from accumulated other comprehensive income to the consolidated
statements of operations, based on the specific identification method, during the fiscal years ended June 30, 2010, 2009 and 2008,
respectively.
Equity Earnings (Losses) of Affiliates
The Company’s share of the earnings (losses) of its equity affiliates was as follows:
For the years ended June 30,
DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity earnings (losses) of affiliates(a)
2010
2009
2008
(in millions)
$341
$(374) $138
66
41
59
6
98
91
$448
$(309) $327
(a) The Company’s investment in several of its affiliates exceeded its equity in the underlying net assets by approximately $1.6 billion as of June 30, 2010 and 2009, which represented the
excess cost over the Company’s proportionate share of its investments’ underlying net assets. This has been allocated between intangibles with finite lives, indefinite-lived intangibles
and goodwill. The finite-lived intangibles primarily represent a trade name and subscriber lists with a weighted average useful life of 16 years.
In accordance with ASC 350, the Company amortized $7 million and $10 million in fiscal 2010 and 2009, respectively, related to amounts allocated to finite-lived intangible assets. Such
amortization is reflected in equity earnings (losses) of affiliates.
Fiscal 2010 Transactions
During fiscal 2010, the Company acquired additional shares of Sky Deutschland, increasing its ownership from approximately 38% at
June 30, 2009 to approximately 45% at June 30, 2010. The aggregate cost of the shares acquired was approximately $200 million and the
majority of the shares were newly registered shares issued pursuant to a capital increase.
During fiscal 2010, the Company acquired an approximate 9% interest in Rotana Holding FZ-LLC (“Rotana”), which operates a
diversified film, television, audio, advertising and entertainment business across the Middle East and North Africa, for $70 million. A
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
significant stockholder of the Company, who owns approximately 7% of the Company’s Class B Common stock, owns a controlling interest
in Rotana. The Company has an option to purchase an approximate 9% additional interest for $70 million through November 2011. The
Company also has an option to sell its interest in Rotana in fiscal year 2015 at the higher of the price per share based on a bona fide sale
offer or the original subscription price.
In June 2010, the Company announced that it had proposed to the board of directors of BSkyB, in which the Company currently has an
approximate 39% interest, to make a cash offer of 700 pence per share for the BSkyB shares that the Company does not already own. The
Company and the independent members of BSkyB’s board of directors were unable to reach a mutually agreeable price at the time of the
public announcement; however, the parties entered into a cooperation agreement pursuant to which the parties agreed to work together to
proceed with the regulatory process in order to facilitate a proposed transaction. (See Note 3–Acquisitions, Disposals and Other
Transactions for further discussion)
Fiscal 2009 Transactions
Investment in Sky Deutschland
The Company invested an aggregate of approximately $300 million in shares of Sky Deutschland during fiscal 2009 and, as of June 30,
2009, the Company had an approximate 38% ownership interest in Sky Deutschland.
Impairment of Investments in Sky Deutschland
On October 2, 2008, Sky Deutschland announced guidance on its earnings before interest, taxes and depreciation (“EBITDA”) indicating
results substantially below prior guidance for calendar year 2008. Sky Deutschland also announced that it had adopted a new classification
of subscribers at September 30, 2008. The day after this announcement, Sky Deutschland experienced a significant decline in its market
value. As a result of this decline, the Company’s carrying value in Sky Deutschland exceeded its market value based upon Sky
Deutschland’s closing share price of €4.38 on October 3, 2008. The Company believes that this decline was not temporary based on the
assessment described below and, accordingly, recorded an impairment charge of $422 million representing the difference between the
Company’s carrying value and the market value which was included in Equity earnings (losses) of affiliates in the Company’s consolidated
statements of operations for the fiscal year ended June 30, 2009.
In determining if the decline in Sky Deutschland’s market value was other-than-temporary, the Company considered a number of
factors: (1) the financial condition, operating performance and near term prospects of Sky Deutschland; (2) the reason for the decline in
Sky Deutschland’s fair value; (3) analysts’ ratings and estimates of 12 month share price targets for Sky Deutschland; and (4) the length of
time and the extent to which Sky Deutschland’s market value had been less than the carrying value of the Company’s investment.
Other
In August 2008, the Company entered into an agreement providing for the restructuring of the Company’s content acquisition
agreements with Balaji Telefilms Ltd (“Balaji”). As part of this restructuring agreement, the Company no longer has representation on
Balaji’s board of directors and does not have significant influence in management decisions; therefore, the Company believes that it no
longer has the ability to exercise significant influence over Balaji. Accordingly, the Company accounts for its investment in Balaji under the
cost method of accounting and the carrying value is adjusted to market value each reporting period as required under ASC 320
“Investments–Debt and Equity Securities.”
In February 2009, the Company, the Permira Newcos and NDS completed the NDS Transaction, resulting in the Permira Newcos and
the Company owning approximately 51% and 49% of NDS, respectively. The Company’s remaining interest in NDS is accounted for under
the equity method of accounting. (See Note 3– Acquisitions, Disposals and Other Transactions for further discussion)
Fiscal 2008 Transactions
In March 2008, the Company and its joint venture partner completed a series of transactions and sold its entire interest in the cable
systems in Taiwan, in which the Company maintained a noncontrolling interest ownership, to third parties for aggregate cash consideration
of approximately $360 million. The Company recognized pre-tax gains totaling approximately $133 million on the sales included in Other,
net in the consolidated statements of operations for the fiscal year ended June 30, 2008.
Effective September 30, 2007, NGT, Inc. (“NGT”) gave the Company control over National Geographic Channel US LLC (“NGC US”) in
which the Company had a 67% equity interest. Accordingly, the results of NGC US are included in the Company’s consolidated results of
operations beginning October 1, 2007. During fiscal 2010, the Company offered distributors of an existing Company-owned cable channel
the option to transition subscribers to a new NGC US channel. As a result of the contribution of these subscribers to the new channel, the
Company increased its ownership percentage in NGC US to approximately 71% as of June 30, 2010. A minority stockholder has the option
to call a portion of the Company’s increased ownership interest in NGCUS upon the new channel’s attainment of certain financial
conditions. A minority stockholder has notified the Company of its intention to exercise its call option and will purchase approximately 3%
of NGC US.
During fiscal 2008, the Company effectively acquired an additional 27% stake in NGC Network (UK) Limited (“NGC UK”) in exchange for
a 23% interest in NGC Network International LLC (“NGC International”) and a 14% interest in NGC Network Latin America LLC (“NGC Latin
America”). As a result of this transaction, the Company owns 52% of NGC International, NGC Latin America and NGC UK. In January 2007,
the Company obtained operating control over NGC International and NGC Latin America and has included their results in the Company’s
consolidated results of operations since January 2007. The Company has included the operating results of NGC UK in the Company’s
consolidated results beginning in the fiscal year ended June 30, 2008.
In April 2008, the Company sold its interest in Fox Sports Net Bay Area for approximately $245 million. The Company recorded a gain
of approximately $208 million on the disposal which is included in Other, net in the consolidated statements of operations for the fiscal
year ended June 30, 2008.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 2008, the Company disposed of its entire interest (approximately 41%) in the common stock of Gemstar-TV Guide International,
Inc. (“Gemstar”) in exchange for a cash payment of approximately $637 million and approximately 19 million shares of Macrovision
Solutions Corporation (“Macrovision”) common stock. The Company sold its shares of Macrovision common stock in June 2008. The
Company recorded a net gain of approximately $112 million on the disposals which is included in Other, net in the consolidated statements
of operations for the fiscal year ended June 30, 2008.
Impairments of cost method investments
The Company regularly reviews cost method investments for impairments based on criteria that include the extent to which the
investment’s carrying value exceeds its related market value, the duration of the market decline, the Company’s ability to hold its
investment until recovery and the investment’s financial strength and specific prospects. In the fiscal years ended June 30, 2010, 2009 and
2008, the Company wrote down certain cost method investments by approximately $3 million, $113 million and $125 million, respectively.
The write-down in the fiscal year ended June 30, 2009 included a $58 million impairment related to an investment in a sports and
entertainment company and a $38 million impairment related to a television content production company. The write-down in the fiscal year
ended June 30, 2008 included a $114 million impairment related to an investment in an Asian premium movie channel. The above write-
downs are reflected in Other, net in the consolidated statements of operations and were taken as a result of either the deteriorating
financial position of the investee or due to a permanent impairment resulting from sustained losses and limited prospects for recovery.
Summarized financial information
Summarized financial information for a significant equity affiliate, determined in accordance with Regulation S-X of the Securities and
Exchange Acts of 1934, as amended, accounted for under the equity method is as follows:
For the years ended June 30,
Revenues
Operating income
Net income (loss)
As of June 30,
Current assets
Non-current assets
Current liabilities
Non-current liabilities
NOTE 7 FAIR VALUE
2010
2009
2008
(in millions)
$9,341
$8,548
$9,920
1,732
1,387
1,297
1,450
413
(255)
2010
2009
(in millions)
$2,975
$3,200
5,145
2,545
3,813
5,365
3,624
4,029
In accordance with ASC 820, fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which
distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”);
(ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities
(“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”). Additionally,
in accordance with ASC 815, the Company has included additional disclosures about the Company’s derivatives and hedging activities
(Level 2).
The table below presents information about financial assets and liabilities carried at fair value on a recurring basis as of June 30,
2010:
Description
Assets
Available-for-sale securities(1)
Derivatives(2)
Redeemable Noncontrolling interests(3)
Total
(1) See Note 6–Investments
(2) Represents derivatives associated with the Company’s foreign exchange forward contracts designated as hedges.
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total as of
June 30, 2010
(in millions)
$ 225
33
(325)
$ (67)
$225
—
—
$225
$ —
33
—
$33
$ —
—
(325)
$(325)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) The Company accounts for the redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A “Distinguishing Liabilities from Equity.” (“ASC 480-10-S99-3A”) because their
exercise is outside the control of the Company and, accordingly, as of June 30, 2010, has included the fair value of the redeemable noncontrolling interests in the consolidated balance
sheets. The majority of redeemable noncontrolling interests recorded at fair value are a put arrangement held by the noncontrolling interests in one of the Company’s majority-owned
RSNs, in a majority-owned outdoor marketing subsidiary and in one of the Company’s Asian general entertainment television joint ventures.
The fair value of the redeemable noncontrolling interest in the Company’s RSN was determined by using a discounted earnings before interest, taxes, depreciation and amortization
valuation model, assuming a 9% discount rate.
As the Company is currently exploring the possible disposal of its majority–owned outdoor marketing subsidiary, the Company applied the market approach in valuing its redeemable
noncontrolling interest.
The fair value of the redeemable noncontrolling interest in the Asian general entertainment television joint venture was determined using a discounted cash flow analysis assuming a
multiple of ten times terminal year EBITDA.
The changes in fair value of liabilities classified as Level 3 measurements during the fiscal year ended June 30, 2010 are as follows (in
millions):
Beginning of period
Total gains (losses) included in net income
Total gains (losses) included in other comprehensive income
Other
End of period
Financial Instruments
$(343)
(9)
3
24
$(325)
The carrying value of the Company’s financial instruments, including cash and cash equivalents, receivables, payables and cost
investments, approximates fair value.
The aggregate fair value of the Company’s borrowing at June 30, 2010 was approximately $15.0 billion compared with a carrying value
of approximately $13.3 billion and, at June 30, 2009, was approximately $13.5 billion compared with a carrying value of approximately $14.3
billion. Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an
over-the-counter market.
Foreign Currency Forward Contracts
The Company uses financial instruments designated as cash flow hedges primarily to hedge certain exposures to foreign currency
exchange risks associated with the cost for producing or acquiring films and television programming abroad. The notional amount of
foreign exchange forward contracts with foreign currency risk outstanding at June 30, 2010 and 2009 was $511 million and $395 million,
respectively. As of June 30, 2010 and 2009, the fair values of the foreign exchange forward contracts of approximately $33 million and $3
million, respectively were recorded in the underlying hedged balances. The Company’s foreign currency forward contracts are valued
using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount. The
potential loss in fair value for such financial instruments for a 10% adverse change in quoted foreign currency exchange rates would be
approximately $3 million and $33 million, respectively.
The effective changes in fair value of derivatives designated as cash flow hedges for June 30, 2010 of $30 million were recorded in
accumulated other comprehensive income with foreign currency translation adjustments. The ineffective changes in fair value of
derivatives designated as cash flow hedges were immaterial. Amounts are reclassified from accumulated other comprehensive income
when the underlying hedged item is recognized in earnings. During the fiscal year ended June 30, 2010, the Company reclassified gains
and (losses) of approximately $3 million and $(5) million, respectively, from other comprehensive income to net income. Amounts
reclassified from other comprehensive income to net income during the fiscal years ended June 30, 2009 and 2008 were not material. The
Company expects to reclassify approximately $28 million of the gains included in other comprehensive income at June 30, 2010 during
fiscal 2011. Cash flows from the settlement of foreign exchange forward contracts (which generally occurs within 12 months from the
inception of the contracts) offset cash flows from the underlying hedged item and are included in operating activities in the consolidated
statements of cash flows.
Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with
financial institutions of reputable credit and, therefore, bear minimal credit risk.
The Company’s receivables did not represent significant concentrations of credit risk at June 30, 2010 or June 30, 2009 due to the wide
variety of customers, markets and geographic areas to which the Company’s products and services are sold.
The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. At June 30,
2010, the Company did not anticipate nonperformance by any of the counterparties.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
As of June 30,
Land
Buildings and leaseholds
Machinery and equipment
Less accumulated depreciation and amortization
Construction in progress
Total property, plant and equipment, net
Useful Lives
2010
2009
(in millions)
$
351
$
355
2 to 50 years
2 to 30 years
3,388
7,520
3,360
7,335
11,259
11,050
(5,634)
(5,301)
5,625
355
5,749
496
$ 5,980
$ 6,245
Depreciation and amortization related to property, plant and equipment was $994 million, $942 million and $1,009 million for the fiscal
years ended June 30, 2010, 2009 and 2008, respectively. This includes depreciation of set-top boxes in the DBS segment of $189 million,
$152 million and $142 million for the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
Total operating lease expense was approximately $558 million, $563 million and $497 million for the fiscal years ended June 30, 2010,
2009 and 2008, respectively.
NOTE 9 GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying values of the Company’s intangible assets and related accumulated amortization were as follows:
For the years ended June 30,
Intangible assets not subject to amortization
FCC licenses
Distribution networks
Publishing rights & imprints
Newspaper mastheads
Other
Total intangible assets not subject to amortization
Film library, net(1)
Other intangible assets, net(2)
Total intangibles, net
2010
2009
(in millions)
$2,404
$2,404
751
513
2,001
1,318
748
508
2,176
1,338
6,987
7,174
460
859
491
1,260
$8,306
$8,925
(1) Net of accumulated amortization of $163 million and $132 million as of June 30, 2010 and June 30, 2009, respectively. The average useful life of the film library was 20 years.
(2) Net of accumulated amortization of $541 million and $447 million as of June 30, 2010 and June 30, 2009, respectively. The average useful life of other intangible assets ranges from
three to 25 years.
Intangible assets decreased $619 million during the fiscal year ended June 30, 2010 as compared to fiscal 2009 primarily due to a
reduction of $392 million related to the disposition of the financial indexes businesses at the Newspapers and Information Services
segment, an impairment of $52 million recorded at the Other segment relating to the Fox Mobile business and amortization expense,
which were partially offset by foreign exchange fluctuations.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The changes in the carrying value of goodwill, by segment, are as follows:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total goodwill
Balance as of
June 30, 2009
Disposals
Foreign
Exchange
Movements
(in millions)
Adjustments
Balance as of
June 30, 2010
$ 1,071
$ —
$ —
$ —
$ 1,071
1,906
6,151
616
286
3,238
3
1,111
—
—
—
—
(451)
(2)
(100)
—
(2)
(76)
—
95
—
5
—
18
—
(2)
—
2
(120)
1,906
6,167
540
284
2,882
3
896
$14,382
$(553)
$ 22
$(102)
$13,749
During the fiscal year ended June 30, 2010, goodwill decreased approximately $633 million, primarily due to disposals resulting in a
reduction of $553 million and adjustments of $102 million, which were partially offset by foreign exchange fluctuations of $22 million. The
disposals primarily related to the disposition of the financial indexes businesses at the Newspapers and Information Services segment
resulting in a reduction of $451 million. Adjustments included impairments of $137 million recorded at the Other segment relating to the
News Outdoor and Fox Mobile businesses, partially offset by increases for final purchase price allocations of $25 million and new
acquisitions of $10 million. The final purchase price allocations related to the acquisition of a majority interest in an Asian general
entertainment company as part of the formation of the Star Jupiter venture and the acquisition of the VeriSign minority share of the Jamba
joint venture.
Annual Impairment Review
The Company’s goodwill impairment reviews are determined using a two-step process. The first step of the process is to compare the
fair value of a reporting unit with its carrying amount, including goodwill. In performing the first step, the Company determines the fair
value of a reporting unit by primarily using a discounted cash flow analysis and market-based valuation approach methodologies.
Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual
growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows
employed in the analyses are based on the Company’s estimated outlook and various growth rates have been assumed for years beyond
the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of
the respective reporting units. In assessing the reasonableness of its determined fair values, the Company evaluates its results against
other value indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the goodwill impairment review is required to be performed to estimate the implied
fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. That is, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of
that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the
estimated fair value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is compared
with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company performs impairment reviews consisting of a comparison of the estimated fair value of the Company’s FCC licenses with
their carrying amount on a station-by-station basis using a discounted cash flow valuation method, assuming a hypothetical start-up
scenario for a broadcast station in each of the markets the Company operates in. The significant assumptions used are the discount rate
and terminal growth rates and operating margins, as well as industry data on future advertising revenues in the markets where the
Company owns television stations. These assumptions are based on actual historical performance in each market and estimates of future
performance in each market.
Fiscal 2010
During the fourth quarter of fiscal 2010, the Company completed its annual impairment review of goodwill and indefinite-lived
intangible assets. As part of the annual review process the Company determined that it was more likely than not that its News Outdoor and
Fox Mobile businesses, which are considered reporting units under ASC 350, will be sold or otherwise disposed. In connection with such
disposal, the Company reviewed these businesses for impairment and recognized a non-cash impairment charge of $200 million in the
fiscal year ended June 30, 2010. The impairment charge consisted of a write-down of finite-lived intangible assets of $52 million, a write-
down of $137 million in goodwill and a write-down of fixed assets of $11 million. In accordance with ASC 360, the assets and liabilities of
both News Outdoor and Fox Mobile were carried at their fair value, measured using the market value approach, as of June 30, 2010. The
net income, assets, liabilities and cash flow attributable to the News Outdoor and Fox Mobile operations are not material to the Company in
any of the periods presented and, accordingly, have not been presented separately.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other than the impairment noted above, the Company determined that the goodwill and indefinite-lived intangible assets included in
the consolidated balance sheets were not impaired.
Fiscal 2009
During fiscal 2009, the Company performed an interim impairment review in advance of its annual impairment assessment because
the Company believed events had occurred and circumstances had changed that would more likely than not reduce the fair value of the
Company’s goodwill and indefinite-lived intangible assets below their carrying amounts. These events included: (a) the decline of the price
of the Company’s Class A Common Stock and Class B Common Stock below the carrying value of the Company’s stockholders’ equity;
(b) the reduced growth in advertising revenues; (c) the decline in the operating profit margins in some of the Company’s advertising-based
businesses; and (d) the decline in the valuations of other television stations, newspapers and advertising- based companies as determined
by the current trading values of those companies. In addition, the Company performed an annual impairment assessment of goodwill and
indefinite-lived intangible assets.
As a result of the impairment reviews performed the Company recorded non-cash impairment charges of approximately $8.9 billion
($7.2 billion, net of tax) during the fiscal year ended June 30, 2009. The charges consisted of a write-down of the Company’s indefinite-lived
intangible assets (primarily FCC licenses in the Television segment) of $4.6 billion, a write-down of $4.1 billion of goodwill and a write-
down of the Newspapers and Information Services segment’s fixed assets of $185 million in accordance with ASC 360.
Amortization related to finite-lived intangible assets was $191 million, $196 million and $198 million for the fiscal years ended
June 30, 2010, 2009 and 2008, respectively.
Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the
succeeding five fiscal years is as follows: 2011–$140 million; 2012–$126 million; 2013–$114 million; 2014–$107 million; and 2015–$101
million. These amounts may vary as acquisitions and disposals occur in the future and as purchase price allocations are finalized.
NOTE 10 BORROWINGS
Description
Bank Loans(a)
Public Debt
Senior notes issued under January 1993 indenture(b)
Senior notes issued under March 1993 indenture(c)(e)
Senior notes issued under August 2009 indenture(d)(e)
Liquid Yield Option™ Notes(f)
Exchangeable securities(g)
Total public debt
Total borrowings
Less current portion
Long-term borrowings
Weighted
average
interest rate
at June 30, 2010
Due date at
June 30, 2010
8.60%
6.80%
6.40%
2013 - 2034
2014 - 2096
2020 - 2039
2021
Outstanding
As of June 30,
2010
2009
(in millions)
$
80
$
173
2,220
9,939
1,000
81
—
2,211
10,090
—
78
1,737
13,240
14,116
13,320
14,289
129
2,085
$13,191
$12,204
(a) In August 2006, the Company entered into a loan agreement with Raiffeisen Zentralbank Österreich AG (“RZB”), which was subsequently amended in September 2009. As of June 30,
2010, $78 million was outstanding under this loan agreement, with $46 million classified as current borrowings and the balance to be paid in fiscal 2012. The loan bears interest at
LIBOR for a six month period plus a margin of 3.85% per annum. The loans are secured by certain guarantees, bank accounts and share pledges of the Company’s Russian outdoor
advertising operating subsidiaries.
(b) These notes are issued under the Amended and Restated Indenture dated as of January 28, 1993, as supplemented, by and among News America Incorporated, a 100% owned subsidiary
of the Company as defined in Rule 3-10(h) of Regulation S-X (“NAI”), the Company as Parent Guarantor and U.S. Bank National Association, as Trustee. These notes are direct unsecured
obligations of NAI and rank pari passu with all other unsecured indebtedness of NAI. Redemption may occur, at the option of the holders, at 101% of the principal plus an accrued
interest amount in certain circumstances where a change of control is deemed to have occurred. These notes are subject to certain covenants, which, among other things, restrict
secured indebtedness to 10% of tangible assets and in certain circumstances limit new senior indebtedness.
(c) These notes are issued under the Amended and Restated Indenture dated as of March 24, 1993, as supplemented, by and among NAI, the Company, as Parent Guarantor, and The Bank
of New York Mellon, as Trustee. These notes are direct unsecured obligations of NAI and rank pari passu with all other unsecured indebtedness of NAI. Redemption may occur, at the
option of the holders, at 101% of the principal plus an accrued interest amount in certain circumstances where a change of control is deemed to have occurred. These notes are subject
to certain covenants, which, among other things, restrict secured indebtedness to 10% of tangible assets and in certain circumstances limit new senior indebtedness.
(d) These notes are issued under the Amended and Restated Indenture dated as of August 25, 2009, as supplemented, by and among NAI, the Company, as Parent Guarantor, and The Bank
of New York Mellon, as Trustee (“2009 Indenture”). These notes are direct unsecured obligations of NAI and rank pari passu with all other unsecured indebtedness of NAI. Redemption
may occur, at the option of the holders, at 101% of the principal plus an accrued interest amount in certain circumstances where a change of control is deemed to have occurred. These
notes are subject to certain covenants, which, among other things, limit the Company’s ability and the ability of the Company’s subsidiaries, to create liens and engage in a merger, sale
or consolidation transaction. The 2009 Indenture does not contain any financial maintenance covenants.
(e) In August 2009, NAI issued $400 million of 5.65% Senior Notes due 2020 and $600 million of 6.90% Senior Notes due 2039 for general corporate purposes. The Company received
proceeds of approximately $989 million on the issuance of this debt, net of expense.
The Company’s $250 million of 6.75% Senior Debentures due January 2038 were puttable at the option of the holder to the Company in January 2010. The majority of these debentures
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
were not put to the Company in January 2010 and the outstanding debentures which had been classified as current borrowings as of June 30, 2009 were classified as non-current
borrowings as of June 30, 2010.
In March 2010, the Company retired its $150 million 4.75% Senior Debentures due 2010.
In February 2009, the Company issued $700 million of 6.90% Senior Notes due 2019 and $300 million of 7.85% Senior Notes due 2039 for general corporate purposes. The Company
received proceeds of approximately $993 million on the issuance of this debt, net of expense.
(f) In February 2001, the Company issued Liquid Yield OptionTM Notes (“LYONs”) which pay no interest and had an aggregate principal amount at maturity of $1,515 million representing a
yield of 3.5% per annum on the issue price. The remaining holders may exchange the LYONs at any time into Class A Common Stock or, at the option of the Company, the cash equivalent
thereof at a fixed exchange rate of 24.2966 shares of Class A Common Stock per $1,000 note. The remaining LYONs are redeemable at the option of the holders on February 28, 2011 and
February 28, 2016 at a price of $706.82 and $840.73, respectively. The Company, at its election, may satisfy the redemption amounts in cash, Class A Common Stock or any combination
thereof. The Company can redeem the LYONs in cash at any time at specified redemption amounts.
On February 28, 2006, 92% of the LYONs were redeemed for cash at the specified redemption amount of $594.25 per LYON. Accordingly, the Company paid an aggregate of
approximately $831 million to the holders of the LYONs that had exercised this redemption option.
The remaining LYONs have been classified as current borrowings as of June 30, 2010 due to the holders’ option to redeem the LYONs on February 28, 2011.
The LYONs constitute senior indebtedness of NAI and rank equal in right of payment with all present and future senior indebtedness of NAI. News Corporation has fully and
unconditionally guaranteed the LYONs. The LYONs, which have been recorded at a discount, are being accreted using the effective interest rate method.
(g) See Note 11–Exchangeable Securities
Ratings of Public Debt
The table below summarizes the Company’s credit ratings as of June 30, 2010.
Rating Agency
Moody’s
Standard & Poor’s
Original Currencies of Borrowings
Borrowings are payable in the following currencies:
As of June 30,
United States Dollars
Australian Dollars
Other currencies
Total borrowings
Senior Debt
Outlook
Baa1
BBB+
Stable
Stable
2010
2009
(in millions)
$13,188
$14,155
130
2
121
13
$13,320
$14,289
The impact of foreign currency movements on borrowings during the fiscal year ended June 30, 2010 was approximately $9 million.
In May 2007, NAI entered into a credit agreement (the “Credit Agreement”), among NAI as Borrower, the Company as Parent
Guarantor, the lenders named therein (the “Lenders”), Citibank, N.A. as Administrative Agent and JPMorgan Chase Bank, N.A. as
Syndication Agent. The Credit Agreement provides a $2.25 billion unsecured revolving credit facility with a sub-limit of $600 million
available for the issuance of letters of credit. Borrowings are in U.S. dollars only, while letters of credit are issuable in U.S. dollars or
Euros. The significant terms of the agreement include the requirement that the Company maintain specific leverage ratios and limitations
on secured indebtedness. The Company pays a facility fee of 0.08% regardless of facility usage. The Company pays interest for borrowings
at LIBOR plus 0.27% and pays commission fees on letters of credit at 0.27%. The Company pays an additional fee of 0.05% if borrowings
under the facility exceed 50% of the committed facility. The interest and fees are based on the Company’s current debt rating. The maturity
date is in May 2012, however, NAI may request a $250 million increase in the amount of the credit facility and may also request that the
Lenders’ commitments be extended until May 2013. At June 30, 2010, approximately $71 million in standby letters of credit for the benefit
of third parties were outstanding.
NOTE 11 EXCHANGEABLE SECURITIES
TOPrS
In November 1996, the Company, through a trust (the “Exchange Trust”) wholly-owned by NAI, issued 10 million 5% TOPrS for
aggregate gross proceeds of $1 billion. Such proceeds were invested in (i) preferred securities representing a beneficial interest of NAI’s
5% Subordinated Discount Debentures due November 12, 2016 (the “Subordinated Debentures”) and (ii) 10,000,000 warrants to purchase
from NAI ordinary shares of BSkyB (the “Warrants”). During fiscal 2003, approximately 85% of the Company’s outstanding TOPrS and
related warrants were redeemed and, in fiscal 2010, the balance of the TOPrS was redeemed for $134 million.
The total net proceeds from the issuance of the TOPrS were allocated between the fair value of the obligation and the fair value of the
Warrants on their date of issuance. The fair value of the Warrants was determined at the end of each period using the Black-Scholes
method. The original fair value of the obligation was recorded in non-current borrowings and in accordance with ASC 815, the Warrants
were reported at fair value and in non-current other liabilities. As a result of the Company’s redemption of the outstanding TOPrS and
related warrants during fiscal 2010, there were no TOPrS included in borrowings or non-current liabilities at June 30, 2010. At June 30,
2009, $129 million and $4 million of the TOPrS were included in borrowings and non-current liabilities, respectively, on the consolidated
balance sheets.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BUCS
During fiscal 2003, News Corporation Finance Trust II (the “Trust”) issued an aggregate of $1.65 billion 0.75% BUCS representing
interests in debentures issued by NAI and guaranteed on a senior basis by the Company and certain of its subsidiaries. The net proceeds
from the BUCS issuance were used to purchase approximately 85% of the Company’s outstanding TOPrS. The BUCS were exchangeable at
the holders’ option into BSkyB ordinary shares based on an exchange ratio of 77.09 BSkyB ordinary shares per $1,000 original liquidation
amount of BUCS. The Trust was able to pay the exchange market value of each BUCS by delivering ordinary shares of BSkyB or a
combination of cash and ordinary shares of BSkyB. In fiscal 2010, the Company redeemed all the outstanding BUCS for an aggregate of
approximately $1.65 billion in cash.
The total net proceeds from the issuance of the BUCS were allocated between the fair value of the obligation and the fair value of the
exchange feature. The fair values of the obligation and the exchange feature were determined by pricing the issuance with and without the
exchange feature. The original fair value of the obligation was recorded in non-current borrowings and in accordance with ASC 815, the
call option feature of the exchangeable debentures was reported at fair value and in non-current other liabilities. As a result of the
Company’s redemption of the outstanding BUCS during fiscal 2010, there were no BUCS included in borrowings or non-current liabilities at
June 30, 2010. At June 30, 2009, $1,608 million of the 0.75% BUCS was classified as borrowings on the consolidated balance sheets and no
value was ascribed to the exchange feature.
NOTE 12 FILM PRODUCTION FINANCING
The Company enters into arrangements with third parties to co-produce certain of its theatrical productions. These arrangements,
which are referred to as co-financing arrangements, take various forms. The parties to these arrangements include studio and non-studio
entities. In several of these agreements, other parties control certain distribution rights. The Filmed Entertainment segment records the
amounts received for the sale of an economic interest as a reduction of the cost of the film, as the investor assumes full risk for that
portion of the film asset acquired in these transactions. The substance of these arrangements is that the third-party investors own an
interest in the film and, therefore, receive a participation based on the third-party investor’s contractual interest in the profits or losses
incurred on the film. Consistent with the requirements of ASC 926-605 the estimate of the third-party investor’s interest in profits or losses
incurred on the film is determined by reference to the ratio of actual revenue earned to date in relation to total estimated ultimate
revenues.
NOTE 13 STOCKHOLDERS’ EQUITY
Preferred Stock and Common Stock
Under the News Corporation Restated Certificate of Incorporation, the Company’s Board of Directors (the “Board”) is authorized to
issue shares of preferred stock or common stock at any time, without stockholder approval, and to determine all the terms of those
shares, including the following:
(i) the voting rights, if any, except that the issuance of preferred stock or series common stock which entitles holders thereof to
more than one vote per share requires the affirmative vote of the holders of a majority of the combined voting power of the then
outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors;
(ii) the dividend rate and preferences, if any, which that preferred stock or common stock will have compared to any other class;
and
(iii) the redemption and liquidation rights and preferences, if any, which that preferred stock or common stock will have compared
to any other class.
Any decision by the Board to issue preferred stock or common stock must, however, be taken in accordance with the Board’s fiduciary
duty to act in the best interests of the Company’s stockholders. The Company is authorized to issue 100,000,000 shares of preferred stock,
par value $0.01 per share. As of June 30, 2010, there were no shares of preferred stock issued or outstanding. The Board has the authority,
without any further vote or action by the stockholders, to issue preferred stock in one or more series and to fix the number of shares,
designations, relative rights (including voting rights), preferences, qualifications and limitations of such series to the full extent permitted
by Delaware law.
The Company has two classes of common stock that are authorized and outstanding, non-voting Class A Common Stock and voting
Class B Common Stock.
As of June 30, 2010, there were approximately 47,000 holders of record of shares of Class A Common Stock and 1,300 holders of
record of Class B Common Stock.
In the event of a liquidation or dissolution of the Company, or a portion thereof, holders of Class A Common Stock and Class B
Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its stockholders, ratably
in proportion to the number of shares held by Class A Common Stock holders and Class B Common Stock holders, respectively. In the
event of any merger or consolidation with or into another entity, the holders of Class A Common Stock and the holders of Class B Common
Stock shall be entitled to receive substantially identical per share consideration.
Stock Repurchase Program
The Board had authorized a total stock repurchase program to $6 billion. The remaining authorized amount under the Company’s
stock repurchase program was approximately $1,761 million, excluding commissions at June 30, 2010. The Company did not repurchase
any shares during the fiscal years ended June 30, 2010 and 2009. During the fiscal year ended June 30, 2008, the Company repurchased
approximately 20 million shares.
The program may be suspended or discontinued at any time.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dividends
For the years ended June 30,
Cash dividend paid per share
Class A
Class B
NOTE 14 EQUITY BASED COMPENSATION
News Corporation 2005 Long-Term Incentive Plan
2010
2009
2008
$0.135
$0.120
$0.120
$0.110
The Company has adopted the News Corporation 2005 Long-Term Incentive Plan (the “2005 Plan”) under which equity based
compensation, including stock options, restricted stock, RSUs and other types of awards, may be granted. Such equity grants under the
2005 Plan generally vest over a four-year period and expire ten years from the date of grant. The Company’s employees and directors are
eligible to participate in the 2005 Plan. The Compensation Committee of the Board (the “Compensation Committee”) determines the
recipients, type of award to be granted and amounts of awards to be granted under the 2005 Plan. Stock options awarded under the 2005
Plan will be granted at exercise prices which are equal to or exceed the market price at the date of grant. The 2005 Plan replaced the News
Corporation 2004 Stock Option Plan under which no additional stock options will be granted. The maximum number of shares of Class A
Common Stock that may be issued under the 2005 Plan is 165 million shares. At June 30, 2010, the remaining number of shares available
for issuance under the 2005 Plan was approximately 130 million. The Company will issue new shares of Class A Common Stock for award
upon exercises of stock options or vesting of stock-settled RSUs.
The fair value of equity-based compensation under the 2005 Plan will be calculated according to the type of award issued.
Stock options and stock appreciation rights (“SARs”) issued under the 2005 Plan will be fair valued using a Black-Scholes option
valuation method that uses the following assumptions: expected volatility is based on the historical volatility of the shares underlying the
option; expected term of awards granted is derived from the historical activity of the Company’s awards and represents the period of time
that the awards granted are expected to be outstanding; weighted average risk-free interest rate is an average of the interest rates of U.S.
government bonds with similar lives on the dates of the stock option grants; and dividend yield is calculated as an average of a ten year
history of the Company’s yearly dividend divided by the fiscal year’s closing stock price.
RSU awards are grants that entitle the holder to shares of Class A Common Stock or the value of shares of Class A Common Stock as
the award vests, subject to the 2005 Plan and such other terms and conditions as the Compensation Committee may establish. RSUs
issued under the 2005 Plan are fair valued based upon the fair market value of Class A Common Stock on the grant date. Any person who
holds RSUs shall have no ownership interest in the shares of Class A Common Stock to which such RSUs relate until and unless shares of
Class A Common Stock are delivered to the holder. All shares of Class A Common Stock reserved for cancelled or forfeited equity-based
compensation awards or for awards that are settled in cash become available for future grants. Certain RSU awards are settled in cash
and are subject to terms and conditions of the 2005 Plan and such other terms and conditions as the Compensation Committee may
establish.
During the fiscal years ended June 30, 2010, 2009 and 2008, the Company issued 6.0 million, 12.0 million and 7.5 million RSUs,
respectively, which primarily vest over four years. Outstanding RSUs as of June 30, 2010, 2009 and 2008 are payable in shares of the
Class A Common Stock, upon vesting, except for approximately 2 million RSUs outstanding that will be settled in cash. RSUs granted to
executive directors are settled in cash and certain awards granted to employees in certain foreign locations are settled in cash. During the
fiscal years ended June 30, 2010, 2009 and 2008, approximately 2,352,000, 1,781,000 and 767,000 cash-settled RSUs vested, respectively.
Cash paid for vested cash-settled RSUs was approximately $24 million in both of the fiscal years ended June 30, 2010 and 2009 and $25
million during the fiscal year ended June 30, 2008. At June 30, 2010 and 2009, the liability for cash-settled RSUs was approximately $25
million and $52 million, respectively.
Certain executives, who are not named executive officers of the Company, responsible for various business units within the Company
had the opportunity to earn a grant of RSUs under the 2005 Plan in fiscal 2010, 2009, and 2008. These awards (the “Performance Awards”)
were conditioned upon the attainment of pre-determined operating profit goals for fiscal 2010, 2009 and 2008 by the executive’s particular
business unit. If the actual fiscal 2010, 2009 and 2008 operating profit of the executive’s business unit as compared to its pre-determined
target operating profit for the fiscal year was within a certain performance goal range, the executive was entitled to receive a grant of RSUs
pursuant to a Performance Award. To the extent that it was determined that the business unit’s actual fiscal 2010, 2009 and 2008 operating
profit fell within the performance goal range for that fiscal year, the executive received a percentage of his or her annualized base salary,
ranging from 0% to 100%, in time-vested RSUs representing shares of Class A Common Stock. The RSUs are generally payable in shares
of Class A Common Stock upon vesting and are subject to the participants’ continued employment with the Company.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the activity related to the Company’s RSUs to be settled in stock:
Fiscal 2010
Fiscal 2009
Fiscal 2008
Restricted
stock
units
Weighted
average
grant-
date fair
value
Restricted
stock
units
Weighted
average
grant-
date fair
value
Restricted
stock
units
Weighted
average
grant-
date fair
value
(RSUs in thousands)
Unvested restricted stock units at beginning of the year
13,941
$15.46
11,302
$18.01
10,053
$15.70
Granted
Vested(2)
Cancelled
5,147
(7,711)
(574)
10.03
14.86
13.05
9,971
(6,950)
(382)
13.04
16.03
16.54
6,161(1)
(4,421)
(491)
21.16
17.23
17.28
Unvested restricted stock units at the end of the year
10,803
$13.43
13,941
$15.46
11,302
$18.01
(1) Includes 357,000 stock-settled RSUs issued as a result of the acquisition of Dow Jones. (See Note 3–Acquisitions, Disposals and Other Transactions.)
(2) The fair value of the Company’s RSUs that vested during the fiscal years ended June 30, 2010, 2009 and 2008 was approximately $86 million, $93 million and $88 million, respectively.
In fiscal 2011, approximately 11.3 million RSUs were issued in connection with the fiscal 2010 performance targets, twenty-five
percent of which will vest as of August 15, 2010. The remaining balance will vest in three equal annual installments, subject to the
individual’s continued employment with the Company.
News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan
As a result of the Company’s reorganization in November 2004, all preferred limited voting ordinary shares which the Company issued
stock options over were cancelled and holders received in exchange stock options for shares of Class A Common Stock on a one-for-two
basis with no change in the original terms under the News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan
(collectively, the “2004 Plan”). In addition, all other outstanding stock options to purchase preferred limited voting ordinary shares were
adjusted to be exercisable into shares of Class A Common Stock subject to the one-for-two share exchange. Prior to the Company’s
reorganization in November 2004, stock options were granted to employees with Australian dollar exercise prices.
Under the 2004 Plan, equity grants generally vest over a four-year period and expire ten years from the date of grant. The equity
awards were granted with exercise prices that are equal to or exceed the market price at the date of grant and were valued, in Australian
dollars. The 2004 Plan automatically terminates in 2014.
Other
The Company operates employee share ownership schemes in the United Kingdom and Ireland. These plans enable employees to
enter into fixed-term savings contracts with independent financial institutions linked to an option for Class A Common Stock. The savings
contracts can range from three to seven years with an average expected life of four years. During the fiscal years ended June 30, 2009 and
2008, the Company granted approximately 1,103,000 and 493,000 stock options under this scheme, respectively. The Company did not grant
any stock options under this scheme in fiscal 2010.
The following table summarizes information about the Company’s stock option transactions for all the Company’s stock option plans
(options in thousands):
Fiscal 2010
Fiscal 2009
Fiscal 2008
Options
Weighted average
exercise price
Options
Weighted average
exercise price
Options
Weighted average
exercise price
(in US$)
(in A$)
(in US$)
(in A$)
(in US$)
(in A$)
Outstanding at the beginning of the year
80,536
$16.38
$26.80
85,745
$16.23
$26.74
85,358
$15.52
$26.18
Granted(1)
Exercised
Cancelled
—
(2,082)
(33,333)
—
12.23
20.45
— 1,103
22.35
32.24
(186)
(6,126)
7.48
10.37
12.95
*
7,643
16.35
20.36
(5,719)
(1,537)
19.65
10.35
15.84
*
16.49
26.46
Outstanding at the end of the year(2)
45,121
$13.56
$22.99
80,536
$16.38
$26.80
85,745
$16.23
$26.74
Vested and unvested expected to vest at June 30, 2010
Exercisable at the end of the year
45,121
43,764
78,054
83,715
Weighted average fair value of options granted
**
**
$ 1.44
*
$ 4.28
*
(1) Fiscal 2008 includes stock options issued as a result of the acquisition of Dow Jones. (See Note 3–Acquisitions, Disposals and Other Transactions)
(2) The intrinsic value of options outstanding at June 30, 2010 was not material.
* Granted in U.S. dollars.
** No options were granted in fiscal 2010.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company did not grant any stock options in fiscal 2010. The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used for grants in fiscal years ended June 30, 2009 and 2008:
Weighted average risk free interest rate
Dividend yield
Expected volatility
Maximum expected life of options
2009
2008
1.56%
3.10%
1.2%
0.6%
36.29% 22.16%
7 years
7 years
The fair value of each outstanding stock option award under the 2004 Plan was estimated on the date of grant using the Black-Scholes
option valuation model that uses the following assumptions: expected volatility was based on historical volatility of the Class A Common
Stock; expected term of stock options granted was derived from the historical activity of the Company’s stock options and represented the
period of time that stock options granted were expected to be outstanding; weighted average risk-free interest rate was an average of the
interest rates of U.S. government bonds with similar lives on the dates of the stock option grants; and dividend yield was calculated as an
average of a ten year history of the Company’s yearly dividend divided by the fiscal year’s closing stock price.
The exercise prices for the stock options issued prior to the Company’s reorganization in November 2004 are in Australian dollars. The
U.S. dollar equivalents presented above have been converted at historical exchange rates; therefore, the proceeds from the exercise of
these stock options may differ due to fluctuations in exchange rates in periods subsequent to the date of the grant.
At June 30, 2010, 1,937,000 of the SARs were vested and exercisable. No SARs have been issued since fiscal 2005.
The following table summarizes information about the Company’s stock option transactions (options in thousands):
Tranches
(in US$)
$3.14 to $3.93
$6.83 to $8.94
$10.40 to $15.58
$16.41 to $23.25
$25.54
Options
Outstanding
5
12,909
20,733
11,471
3
45,121
Weighted
Average
Exercise
Price
(in US$)
$ 3.59
8.73
13.17
19.70
25.54
$13.56
Weighted
Average
Remaining
Contractual
Life
2.16
2.20
2.41
0.41
0.01
Exercisable
Options
5
11,985
20,393
11,378
3
43,764
Weighted
Average
Exercise
Price
(in US$)
$ 3.59
8.82
13.15
19.71
25.54
$13.67
The following table summarizes the Company’s equity-based compensation:
For the years ended June 30,
Equity-based compensation
Cash received from exercise of equity-based compensation
Total intrinsic value of stock options exercised
2010
2009
2008
(in millions)
$149
$156
$136
$ 24
$ 2
$ 71
$ 1
$ — $ 38
At June 30, 2010, the Company’s total compensation cost related to non-vested stock options and RSUs not yet recognized for all plans
presented was approximately $180 million, the majority of which is expected to be recognized over the next two fiscal years. Compensation
expense on all equity-based awards is recognized on a straight line basis over the vesting period of the entire award.
The Company recognized a tax (expense) benefit on vested RSUs and stock options exercised of $(10) million, $(7) million and $17
million for the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
NDS Option Schemes
In February 2009, the Company, the Permira Newcos and NDS completed the NDS Transaction, resulting in the Permira Newcos and
the Company owning approximately 51% and 49% of NDS, respectively. As a result of the completion of the NDS Transaction, NDS ceased
to be a public company and the Company’s remaining interest in NDS is accounted for under the equity method of accounting. (See Note 3–
Acquisitions, Disposals and Other Transactions) Prior to the completion of the NDS Transaction, NDS had three executive share option
schemes (“the NDS Plans”). The NDS Plans provided for the grant of options to purchase Series A ordinary shares in NDS and RSU awards
that entitled the holder to NDS Series A ordinary shares as the awards vested. In connection with the NDS Transaction, all nonvested equity
awards vested and the NDS Plans were terminated.
The Company included approximately $44 million and $17 million of equity-based compensation expense related to NDS awards in its
consolidated statements of operations for the fiscal year ended June 30, 2009 and 2008, respectively. The Company also recognized
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $70 million and $9 million in cash received from exercise of equity-based compensation during the fiscal years ended
June 30, 2009 and 2008, respectively. During the fiscal years ended June 30, 2009 and 2008 the fair value of NDS stock options exercised
was $73 million and $16 million, respectively.
NOTE 15 RELATED PARTIES
Director transactions
The Company had engaged, prior to May 2010, Mrs. Wendi Murdoch, the wife of Mr. K.R. Murdoch, the Company’s Chairman and Chief
Executive Officer, to provide strategic advice for the development of the MySpace business in China. The fees paid to Mrs. Murdoch
pursuant to this arrangement were $92,000 in fiscal year ended June 30, 2010 and $100,000 in both the fiscal years ended June 30, 2009
and 2008. Mrs. Murdoch is a Director of MySpace China Holdings Limited (“MySpace China”), a joint venture in which the Company owns a
51.5% interest on a fully diluted basis, which licenses the technology and brand to the local company in China that operates the MySpace
China website. Similar to other Directors of MySpace China, Mrs. Murdoch received options over 2.5% of the fully diluted shares of
MySpace China that will vest over four years under the MySpace China option plan.
Freud Communications, which is controlled by Matthew Freud, Mr. K.R. Murdoch’s son-in-law, provided external support to the press
and publicity activities of the Company during fiscal years 2010, 2009 and 2008. The fees paid by the Company to Freud Communications
were approximately $350,000, $473,000 and $669,000 in fiscal years ended June 30, 2010, 2009 and 2008, respectively. At June 30, 2010,
there were no outstanding amounts due to or from Freud Communications.
The Shine Group (“Shine”), a television production and distribution company, is controlled by Ms. Elisabeth Murdoch, the daughter of
Mr. K.R. Murdoch. Through the normal course of business, certain subsidiaries of the Company have entered into various production and
distribution arrangements with Shine. Pursuant to these arrangements, the Company paid Shine an aggregate of approximately $11.9
million and $453,000 in the fiscal years ended June 30, 2010 and 2008, respectively. No amounts were paid to Shine in fiscal year 2009. At
June 30, 2010, there were no outstanding amounts due to or from Shine.
Mr. Mark Hurd, a Director of the Company, is also the Chairman and Chief Executive Officer of Hewlett-Packard Company
(“HP”). Through the normal course of business, HP sells certain equipment and provides services to the Company and its subsidiaries
pursuant to a worldwide agreement entered into by the Company and HP in August 2007. Pursuant to this agreement, the Company paid
HP approximately $55 million, $47 million and $68 million in the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
Dr. Roderick R. Paige was a Director of the Company until February 2008 and as a result ceased to be a related party. Upon his
resignation from the Board, the Company and Dr. Paige entered into a consultancy arrangement pursuant to which Dr. Paige advised the
Company on certain educational matters. The consultancy arrangement was terminated in March 2009. The fees paid by the Company to
Dr. Paige pursuant to this arrangement were $240,000 per annum and Dr. Paige received $90,668 in the fiscal year ended June 30, 2008
prior to his resignation from the Board.
Mr. Stanley Shuman, Director Emeritus, and Mr. Kenneth Siskind, son of Mr. Arthur M. Siskind, who is a Director and senior advisor to
the Chairman, are Managing Directors of Allen & Company LLC, a U.S. based investment bank, which provided investment advisory
services to the Company. No amounts were paid to Allen & Company LLC in the fiscal year 2010. Total fees paid to Allen & Company LLC
were $17.5 million and $7.5 million in fiscal 2009 and 2008, respectively.
In April 2010, the Company acquired an approximate 23% equity stake in Beyond Oblivion, a digital music start-up company, for
approximately $9.2 million. Mr. Shuman has an approximate 18% interest in Beyond Oblivion and serves as a member of its board of
directors. Mr. Shuman does not receive compensation for his Beyond Oblivion board service.
Other related entities
In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates, to purchase
and/or sell advertising, the sale of programming, administrative services and supplying digital technology and services for digital pay
television platforms. The following table sets forth the net revenue from related parties included in the consolidated statements of
operations:
For the years ended June 30,
Related party revenue, net of expense
2010
2009
2008
(in millions)
$503
$587
$1,344
The following table sets forth the amount of accounts receivable due from and payable to related parties outstanding on the
consolidated balance sheets:
As of June 30,
Accounts receivable from related parties
Accounts payable to related parties
Rotana
2010
2009
(in millions)
$230
$228
240
276
During fiscal 2010, the Company acquired an approximate 9% interest in Rotana, which operates a diversified film, television, audio,
advertising and entertainment business across the Middle East and North Africa, for $70 million. A significant shareholder of the Company,
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
who owns approximately 7% of the Company’s Class B Common stock, owns a controlling interest in Rotana. The Company has an option to
purchase an approximate additional 9% interest for $70 million through November 2011. The Company also has an option to sell its
interests in Rotana in February 2015 at the higher of the price per share based on a bona fide sale offer or the original subscription price.
Liberty Transaction
In February 2008, the Company completed the Exchange with Liberty. Pursuant to the terms of the Share Exchange Agreement,
Liberty exchanged its entire interest in the Company’s common stock for 100% of a wholly-owned subsidiary of the Company, whose
holdings consisted of the Company’s approximate 41% interest in DIRECTV, the Three RSNs and $625 million in cash. As a result of the
closing of the Exchange, Liberty ceased to be a related party in February 2008. (See Note 3–Acquisitions, Disposals and Other Transactions
for further discussion of the Share Exchange Agreement)
NOTE 16 COMMITMENTS AND CONTINGENCIES
The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These
firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following
table summarizes the Company’s material firm commitments as of June 30, 2010.
Payments Due by Period
2-3
years
4-5
years
1 year
After 5
years
Total
As of June 30, 2010
Contracts for capital expenditure
Operating leases(a)
Land and buildings
Plant and machinery
Other commitments
Borrowings
Sports programming rights(b)
Entertainment programming rights
Other commitments and contractual obligations(c)
(in millions)
$
337
$ 284
$
53
$ — $
—
3,180
1,492
349
189
617
354
523
294
1,691
655
13,320
16,027
3,269
3,893
129
2,867
1,530
901
532
5,254
1,120
1,174
880
11,779
3,033
467
687
4,873
152
1,131
Total commitments, borrowings and contractual obligations
$41,518
$6,249
$9,104
$5,884
$20,281
The Company also has certain contractual arrangements in relation to certain investees that would require the Company to make
payments or provide funding if certain circumstances occur (“contingent guarantees”). The Company does not expect that these contingent
guarantees will result in any material amounts being paid by the Company in the foreseeable future. The timing of the amounts presented
in the table below reflect when the maximum contingent guarantees will expire and does not indicate that the Company expects to incur an
obligation to make payments during that time frame.
As of June 30, 2010
Contingent guarantees:
Sports programming rights(d)
Indemnity(e)
Letters of credit and other
Total Amounts
Committed
1 year
Amount of Guarantees
Expiration Per Period
4 - 5
years
2 - 3
years
(in millions)
After 5
years
$ 429
$120
$ 80
$229
$ —
828
149
27
149
54
—
54
—
693
—
$1,406
$296
$134
$283
$693
(a) The Company leases transponders, office facilities, warehouse facilities, equipment and microwave transmitters used to carry broadcast signals. These leases, which are classified as
operating leases, expire at certain dates through fiscal 2090. In addition, the Company leases various printing plants, which have leases that expire at various dates through fiscal 2095.
(b) The Company’s contract with MLB gives the Company rights to broadcast certain regular season and post season games, as well as exclusive rights to broadcast MLB’s World Series
and All-Star Game through the 2013 MLB season.
Under the Company’s contract with NFL, remaining future minimum payments for program rights to broadcast certain football games are payable over the remaining term of the
contract through fiscal 2014.
The Company’s contracts with NASCAR give the Company rights to broadcast certain races and ancillary content through calendar year 2014.
Under the Company’s contract with the Big Ten Conference, remaining future minimum payments for program rights to broadcast certain Big Ten Conference sporting events are
payable over the remaining term of the contract through fiscal 2032.
Under the Company’s contract with Italy’s National League Football, remaining future minimum payments for programming rights to broadcast National League Football matches are
payable over the remaining term of the contract through fiscal 2012.
70 News Corporation
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company has certain other local sports broadcasting rights.
(c) Includes obligations relating to third party printing contracts, television rating services, a distribution agreement and paper purchase obligations.
(d) A joint-venture in which the Company owns a 50% equity interest, entered into an agreement for global programming rights. Under the terms of the agreement, the Company and the
other joint-venture partner have jointly guaranteed the programming rights obligation.
(e) In connection with the transaction related to the Dow Jones financial index businesses, the Company agreed to indemnify CME with respect to any payments of principal, premium and
interest CME makes under its guarantee of the venture financing. (See Note 3–Acquisitions, Disposals and Other Transactions for further discussion of the transaction)
In accordance with ASC 715, the total accrued benefit liability for pension and other postretirement benefit plans recognized as of
June 30, 2010 was approximately $892 million (See Note 17–Pensions and Other Postretirement Benefits). This amount is effected by,
among other items, statutory funding levels, changes in plan demographics and assumptions, and investment returns on plan assets.
Because of the current overall funded status of the Company’s material plans, the accrued liability does not represent expected near-term
liquidity needs and, accordingly, this amount is not included in the contractual obligations table.
Contingencies
Intermix
On August 26, 2005 and August 30, 2005, two purported class action lawsuits captioned, respectively, Ron Sheppard v. Richard
Rosenblatt et. al., and John Friedmann v. Intermix Media, Inc. et al., were filed in the California Superior Court, County of Los Angeles.
Both lawsuits named as defendants all of the then incumbent members of the Board of Directors of Intermix Media, Inc. (“Intermix”),
including Mr. Rosenblatt, Intermix’s former Chief Executive Officer, and certain entities affiliated with VantagePoint Venture Partners
(“VantagePoint”), a former major Intermix stockholder. The complaints alleged that, in pursuing the transaction whereby Intermix was to
be acquired by Fox Interactive Media, a subsidiary of the Company (the “FIM Transaction”) and approving the related merger agreement,
the director defendants breached their fiduciary duties to Intermix stockholders by, among other things, engaging in self-dealing and
failing to obtain the highest price reasonably available for Intermix and its stockholders. The complaints further alleged that the merger
agreement resulted from a flawed process and that the defendants tailored the terms of the merger to advance their own interests. The
FIM Transaction was consummated on September 30, 2005. The Friedmann and Sheppard lawsuits were subsequently consolidated and,
on January 17, 2006, a consolidated amended complaint was filed (the “Intermix Media Shareholder Litigation”). The plaintiffs in the
consolidated action sought various forms of declaratory relief, damages, disgorgement and fees and costs. On March 20, 2006, the court
ordered that substantially identical claims asserted in a separate state action filed by Brad Greenspan, captioned Greenspan v. Intermix
Media, Inc., et al., be severed and related to the Intermix Media Shareholder Litigation. The defendants filed demurrers seeking dismissal
of all claims in the Intermix Media Shareholder Litigation and the severed Greenspan claims. On October 6, 2006, the court sustained the
demurrers without leave to amend. On December 13, 2006, the court dismissed the complaints and entered judgment for the defendants.
Greenspan and plaintiffs in the Intermix Media Shareholder Litigation filed notices of appeal. The Court of Appeal heard arguments on the
fully briefed appeal on October 23, 2008. On November 11, 2008, the Court of Appeal issued an unpublished opinion affirming the lower
court’s dismissal on all counts. On December 19, 2008, stockholder appellants filed a Petition for Review with the California Supreme
Court. The California Supreme Court denied review on February 18, 2009 and the judgment is now final.
In November 2005, plaintiff in a derivative action captioned LeBoyer v. Greenspan et al. pending against various former Intermix
directors and officers in the United States District Court for the Central District of California filed a First Amended Class and Derivative
Complaint (the “Amended Complaint”). The original derivative action was filed in May 2003 and arose out of Intermix’s restatement of
quarterly financial results for its fiscal year ended March 31, 2003. A substantially similar derivative action filed in Los Angeles Superior
Court was dismissed based on the inability of the plaintiffs to plead adequately demand futility. Plaintiff LeBoyer’s November 2005
Amended Complaint added various allegations and purported class claims arising out of the FIM Transaction that are substantially similar
to those asserted in the Intermix Media Shareholder Litigation. The Amended Complaint also added as defendants the individuals and
entities named in the Intermix Media Shareholder Litigation that were not already defendants in the matter. On October 16, 2006, the court
dismissed the fourth through seventh claims for relief, which related to the 2003 restatement, finding that the plaintiff is precluded from
relitigating demand futility. At the same time, the court asked for further briefing regarding plaintiffs’ standing to assert derivative claims
based on the FIM Transaction, including for alleged violation of Section 14(a) of the Exchange Act, the effect of the state judge’s dismissal
of the claims in the Greenspan case and the Intermix Media Shareholder Litigation on the remaining direct class action claims alleging
breaches of fiduciary duty and other common law claims leading up to the FIM Transaction. The parties filed the requested additional
briefing in which the defendants requested that the court stay the direct LeBoyer claims pending the resolution of any appeal in the
Greenspan case and the Intermix Media Shareholder Litigation. By order dated May 22, 2007, the court granted defendants’ motion to
dismiss the derivative claims arising out of the FIM Transaction, and denied the defendants’ request to stay the two remaining direct
claims. As explained in more detail in the next paragraph, the court subsequently consolidated this case with the Brown v. Brewer action
also pending before the court. On July 11, 2007, plaintiffs filed the consolidated first amended complaint under the Brown case title. See
the discussion of the Brown case below for the subsequent developments in the consolidated case.
On June 14, 2006, a purported class action lawsuit, captioned Jim Brown v. Brett C. Brewer, et al., was filed against certain former
Intermix directors and officers in the United States District Court for the Central District of California. The plaintiff asserted claims for
alleged violations of Section 14a of the Exchange Act and SEC Rule 14a-9, as well as control person liability under Section 20a of the
Exchange Act. The plaintiff alleged that certain defendants disseminated false and misleading definitive proxy statements on two
occasions: one on December 30, 2003 in connection with the stockholder vote on January 29, 2004 on the election of directors and
ratification of financing transactions with certain entities of VantagePoint; and another on August 25, 2005 in connection with the
stockholder vote on the FIM Transaction. The complaint named as defendants certain VantagePoint related entities, the former general
counsel and the members of the Intermix Board who were incumbent on the dates of the respective proxy statements. Intermix was not
named as a defendant, but has certain indemnity obligations to the former officer and director defendants in connection with these claims
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and allegations. On August 25, 2006, plaintiff amended his complaint to add certain investment banks (the “Investment Banks”) as
defendants. Intermix has certain indemnity obligations to the Investment Banks as well. Plaintiff amended his complaint again on
September 27, 2006, which defendants moved to dismiss. On February 9, 2007, the case was transferred to Judge George H. King, the
judge assigned to the LeBoyer action, on the grounds that it raises substantially related questions of law and fact as LeBoyer, and would
entail substantial duplication of labor if heard by different judges. On June 11, 2007, Judge King ordered the Brown case be consolidated
with the LeBoyer action, ordered plaintiffs’ counsel to file a consolidated first amended complaint, and further ordered the parties to file a
joint brief on defendants’ contemplated motion to dismiss the consolidated first amended complaint. On July 11, 2007, plaintiffs filed the
consolidated first amended complaint, which defendants moved to dismiss. By order dated January 17, 2008, Judge King granted
defendants’ motion to dismiss the 2003 proxy claims (concerning VantagePoint transactions) and the 2005 proxy claims (concerning the
FIM Transaction), as well as a claim against the VantagePoint entities alleging unjust enrichment. The court found it unnecessary to rule on
dismissal of the remaining claims, which are related to the 2005 FIM Transaction, because the dismissal disposed of those claims. On
February 8, 2008, plaintiffs filed a consolidated second amended complaint, which defendants moved to dismiss on February 28, 2008. By
order dated July 15, 2008, the court granted in part and denied in part defendants’ motion to dismiss. The 2003 claims and the claims
against the Investment Banks were dismissed with prejudice. The Section 14a, Section 20a and the breach of fiduciary duty claims related
to the FIM Transaction remain against the officer and director defendants and the VantagePoint defendants. On November 14, 2008,
plaintiff filed a motion for class certification to which defendants filed their opposition on January 14, 2009. On June 22, 2009, the court
granted plaintiff’s motion for class certification, certifying a class of all holders of Intermix common stock from July 18, 2005 through
consummation of the FIM Transaction, who were allegedly harmed by defendants’ improper conduct as set forth in the complaint. The
parties have completed fact and expert discovery. On June 17, 2010, the court granted in part and denied in part defendants’ summary
judgment motion filed on October 19, 2009. Specifically, the court denied plaintiff’s motion for summary adjudication of a factual issue and
denied defendants’ motion to exclude plaintiff’s damages expert, which was filed on November 30, 2009. In the court’s June 17 order, the
court found that plaintiff could not proceed on any fiduciary duty claim based upon alleged violations of the duty of care, but found material
issues of fact prohibiting summary judgment on alleged violations of fiduciary duty of loyalty. On plaintiff’s Section 14a claim, the court
found material issues of fact that prohibited summary judgment on the entire claim, but granted defendants’ motion as to certain
purported omissions, finding the allegedly omitted information immaterial. Further, the court granted defendants’ motion as to two
damage theories for the Section 14a claim, finding benefit of the bargain damages not viable and lost opportunity damages too speculative,
and permitting plaintiff to proceed only based upon a theory of out-of-pocket damages. No trial date has been set yet.
News America Marketing
On January 18, 2006, Valassis Communication, Inc. (“Valassis”) sued News America Incorporated, News America Marketing FSI, LLC
and News America Marketing Services, In-Store, LLC, each of which are subsidiaries of the Company (collectively “News America”), in the
United States District Court for the Eastern District of Michigan (the “Valassis Federal Action”). Valassis’ operative complaint alleged that
News America possesses monopoly power in a claimed in-store advertising and promotions market (the “in-store market”) and has used
that power to gain an unfair advantage over Valassis in a purported market for coupons distributed by free-standing inserts (“FSIs”).
Valassis alleged that News America is attempting to monopolize the purported FSI market by leveraging its alleged monopoly power in the
purported in-store market, thereby allegedly violating Section 2 of the Sherman Antitrust Act of 1890, as amended (the “Sherman Act”).
Valassis further alleged that News America has unlawfully bundled the sale of in-store marketing products with the sale of FSIs and that
such bundling constitutes unlawful tying in violation of Sections 1 and 3 of the Sherman Act. Additionally, Valassis alleged that News
America is predatorily pricing its FSI products in violation of Section 2 of the Sherman Act. Valassis also asserted that News America
violated various state antitrust statutes and has tortuously interfered with Valassis’ actual or expected business relationships. Valassis’
complaint sought injunctive relief, damages, fees and costs.
On March 9, 2007, Valassis filed a two-count complaint in Michigan state court against News America (the “Valassis Michigan Action”).
That lawsuit, which was based on the same factual allegations as the Valassis Federal Action, alleged that News America tortuously
interfered with Valassis’ business relationships and that News America unfairly competed with Valassis. The complaint sought injunctive
relief, damages, fees and costs.
On March 12, 2007, Valassis filed a three-count complaint in California state court against News America (the “Valassis California
Action”). That lawsuit, which is based on the same factual allegations as the Valassis Federal and Michigan Actions, alleged that News
America violated the Cartwright Act (California’s state antitrust law) by unlawfully tying its FSI products to its in-store products, violated
California’s Unfair Practices Act by predatorily pricing its FSI products, and unfairly competed with Valassis. The Valassis California Action
sought injunctive relief, damages, fees and costs. On May 4, 2007, News America filed a motion to dismiss or, in the alternative stay, that
complaint. On June 28, 2007, the court issued a tentative ruling denying the motion and reassigned the case to the Complex Litigation
Program. On July 19, 2007, the court denied the motion. The Valassis California Action was stayed until March 2010.
Trial in the Valassis Michigan Action commenced on May 27, 2009. On July 23, 2009, a jury returned a verdict in the amount of $300
million for Valassis. News America filed a motion for new trial, which was denied. News America filed an appeal and posted a bond for $25
million, the maximum bond required under Michigan law.
Trial in the Valassis Federal Action was set to commence on February 2, 2010. As a result of pretrial proceedings and negotiations that
occurred in late January 2010 related to the Valassis Federal Action, on January 30, 2010, the Company announced that News America had
reached a settlement agreement with Valassis pursuant to which all claims filed by Valassis in all matters have been dismissed with
prejudice. The United States District Court for the Eastern District of Michigan oversaw the settlement discussions and approved the terms
of the settlement. As part of the settlement, News America paid Valassis $500 million and entered into a ten-year shared mail distribution
agreement with Valassis Direct Mail, a Valassis subsidiary. Additionally, the parties also have agreed to a process by which the United
States District Court for the Eastern District of Michigan may assess certain future business practices of News America and Valassis. In
72 News Corporation
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
connection with the settlement, the Valassis Federal Action has been dismissed with prejudice. In addition, the judgment in the Valassis
Michigan Action from July 2009 has been satisfied with all related appeals dismissed, and the Valassis California Action has been
dismissed with prejudice.
As a result of the settlement, the Company recorded a charge of $500 million in fiscal year ended June 30, 2010. The cost of the new
distribution agreement, which was entered into on a fair value basis, will be accounted for prospectively, consistent with the accounting for
other similar agreements.
Other
Other than previously disclosed in the notes to these consolidated financial statements, the Company is party to several purchase and
sale arrangements which become exercisable over the next ten years by the Company or the counter-party to the agreement. In the next
twelve months, none of these arrangements that become exercisable are material. Purchase arrangements that are exercisable by the
counter-party to the agreement, and that are outside the sole control of the Company are accounted for in accordance with ASC
480-10-S99-3A. Accordingly, the fair values of such purchase arrangements are classified in Redeemable noncontrolling interests.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending
litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the
Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the
expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have
a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
NOTE 17 PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company participates in and/or sponsors pension and savings plans of various types in a variety of jurisdictions covering, in
aggregate, substantially all employees. As of January 1, 2008, the major pension plans and medical plans are closed to new participants
(with the exception of groups covered by collective bargaining agreements). The Company has a legally enforceable obligation to contribute
to some plans and is not required to contribute to others. Non-U.S. plans include both employee contributory and employee
non-contributory defined benefit plans and accumulation plans covering all eligible employees. The plans in the United States include both
defined benefit pension plans and employee non-contributory and employee contributory accumulation plans covering all eligible
employees. The Company makes contributions in accordance with applicable laws or contract terms in each jurisdiction in which the
Company operates. The Company’s benefit obligation is calculated using several assumptions which the Company reviews on a regular
basis.
The funded status of the plans can change from year to year but the assets of the funded plans has been sufficient to pay all benefits
that came due in each of fiscal 2010, 2009 and 2008.
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The following table sets forth the
change in the benefit obligation for the Company’s benefit plans:
Pension benefits
2009
2010
Postretirement
benefits
2010
2009
(in millions)
$2,501
$2,690
$ 276
$ 324
70
169
(154)
448
(55)
7
73
159
(122)
(65)
(218)
(16)
5
18
(16)
47
(1)
(19)
7
21
(17)
(4)
(4)
(51)
2,986
2,501
310
276
2,018
2,348
237
338
(154)
(39)
4
(230)
214
(122)
(196)
4
2,404
2,018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ (582) $ (483) $(310) $(276)
Pension benefits
2009
2010
Postretirement
benefits
2010
2009
(in millions)
$(582) $(483) $(310) $(276)
$(582) $(483) $(310) $(276)
Pension benefits
2009
2010
Postretirement
benefits
2010
2009
(in millions)
$923
$641
$ 36
$(13)
17
22
(66)
(62)
$940
$663
$(30)
$(75)
As of June 30,
Projected benefit obligation, beginning of the year
Service cost
Interest cost
Benefits paid
Actuarial loss (gain)(a)
Foreign exchange rate changes
Amendments, transfers and other
Projected benefit obligation, end of the year
Change in the fair value of plan assets for the Company’s benefit plans:
Fair value of plan assets, beginning of the year
Actual return on plan assets
Employer contributions
Benefits paid
Foreign exchange rate changes
Amendments, transfers and other
Fair value of plan assets, end of the year
Funded status
(a) Actuarial losses and gains primarily related to changes in the discount rate utilized in measuring plan obligations at June 30, 2010 and 2009.
Amounts recognized in the consolidated balance sheets consist of:
As of June 30,
Amounts recorded in the balance sheet:
Accrued pension/postretirement liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive income consist of:
As of June 30,
Actuarial losses (gains)
Prior service cost (benefit)
Net amounts recognized
74 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amounts in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost in fiscal
2011:
As of June 30,
Actuarial losses
Prior service cost (benefit)
Net amounts recognized
Pension benefits
2010
Postretirement
benefits
2010
(in millions)
$58
4
$62
$ —
(18)
$(18)
Accumulated pension benefit obligations at June 30, 2010 and 2009 were $2,706 million and $2,298 million, respectively. Below is
information about funded and unfunded pension plans.
As of June 30,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Funded Plans
Unfunded Plans(1)
2010
2009
2010
2009
(in millions)
$2,713
$2,254
$273
$247
2,442
2,404
2,060
2,018
264
—
238
—
(1) The Company has established an irrevocable grantor trust (the “Trust”), administered by an independent trustee, with the intention of making cash contributions to the Trust to fund
certain future pension benefit obligations of the Company. The assets in the Trust are unsecured funds of the Company and can be used to satisfy the Company’s obligations in the event
of bankruptcy or insolvency. The fair value of the assets in the Trust at June 30, 2010 was approximately $137 million.
Below is information about pension plans in which the accumulated benefit obligation exceeds fair value of the plan assets.
As of June 30,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
The components of net periodic costs were as follows:
For the years ended June 30,
Components of net periodic costs:
Service cost benefits earned during the period
Interest costs on projected benefit obligations
Expected return on plan assets
Amortization of deferred losses
Other
Net periodic costs
Funded Plans
2010
2009
Unfunded Plans
2009
2010
(in millions)
$1,179
$1,177
$273
$247
1,152
1,035
1,125
1,041
264
—
238
—
Pension benefits
2009
2008
2010
Postretirement benefits
2008
2009
2010
(in millions)
$ 70
$ 73
$ 87
$ 5
$ 7
$ 7
169
159
150
(138)
(143)
(166)
41
12
14
11
14
7
18
—
—
21
—
—
16
—
1
(16)
(8)
(6)
$ 154
$ 114
$ 92
$ 7
$20
$18
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended June 30,
Additional information:
Weighted-average assumptions used to determine benefit obligations
Discount rate
Rate of increase in future compensation
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of increase in future compensation
N/A–not applicable
Pension benefits
Postretirement benefits
2010
2009
2008
2010
2009
2008
5.7% 7.0% 6.7% 5.5% 6.7% 6.9%
5.2% 5.1% 5.1% N/A N/A N/A
7.0% 6.7% 6.0% 6.7% 6.9% 6.2%
7.0% 7.0% 7.0% N/A N/A N/A
5.1% 5.1% 5.0% N/A N/A N/A
The following assumed health care cost trend rates at June 30 were also used in accounting for postretirement benefits:
Health care cost trend rate
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Postretirement benefits
Fiscal 2010
Fiscal 2009
8.0%
5.0%
8.0%
5.0%
2019
2015
Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement health care plan.
The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate would have
the following effects on the results for fiscal 2010:
One percentage point increase
One percentage point decrease
Service and interest
costs
Benefit
Obligation
(in millions)
$ 2
$(2)
$ 26
$(22)
The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years
thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation at the
end of the fiscal year and include benefits attributable to estimated future employee service:
Fiscal year:
2011
2012
2013
2014
2015
2016-2019
Expected benefit payments
Postretirement
Pension
benefits
benefits
(in millions)
$123
$ 18
130
134
136
141
838
19
19
20
21
118
The above table shows expected benefits payments for the postretirement benefits after adjusting for U.S. Medicare subsidy receipts.
The annual receipts are expected to range from $1 to $2 million.
Plan Assets
In June 2010, the Company adopted the provisions of ASC 715 which expanded the disclosure requirements of defined benefit
plans. The expanded disclosure requirements include: (i) investment policies and strategies; (ii) the major categories of plan assets;
(iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant
unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.
76 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The table below presents the Company’s plan assets by level within the fair value hierarchy as of June 30, 2010:
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
June 30, 2010
Description
Assets
Short-term investments
Pooled funds:(a)(b)
Money market funds
Domestic equity funds
International equity funds
Domestic fixed income funds
International fixed income funds
Balanced funds
Common stocks(a)
U.S. common stocks
International common stocks
Government and agency obligations(c)
Domestic government obligations
Domestic agency obligations
International government obligations
Corporate obligations(c)
Partnership interests(a)(d)
Other
Total
(in millions)
$
14
$ —
$
14
$ —
338
127
312
277
300
452
188
98
31
102
61
44
26
34
—
127
258
277
89
182
185
98
—
—
—
—
1
3
338
—
54
—
211
270
3
—
31
102
61
44
—
22
—
—
—
—
—
—
—
—
—
—
—
—
25
9
$2,404
$1,220
$1,150
$34
(a) Common stock, pooled funds and partnerships that are publicly traded are valued at the closing price reported on active markets for which the individual securities are traded.
(b) Pooled funds that are not publicly traded and short term investment funds are valued at the net asset value of the units provided by the fund issuer.
(c) The fair value of corporate, government and agency obligations that are not publicly traded are valued based on a compilation of primary observable market information or a broker
quote in a non-active market.
(d) The fair value of partnerships that are not publicly traded are based on fair value obtained from the general partner
The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 assets at June 30, 2010:
Beginning of period
Actual return on plan assets:
Relating to assets still held at June 30, 2010
Relating to assets sold during the period
Purchases, sales, settlements and issuances
Transfers in and out of Level 3
End of period
Partnership
interests
Other
Total
(in millions)
$21
$10
$31
(4)
4
4
—
—
—
—
(4)
4
4
(1)
(1)
$25
$ 9
$34
The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an
acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The
Company’s practice is to conduct a periodic strategic review of its asset allocation. The Company’s current broad strategic targets are to
have a pension asset portfolio comprising of 52% equity securities, 37% fixed income securities, 1% in real estate and 10% in cash and
other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s past average
rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash
to provide for expected benefits to be paid in short term. The Company’s equity portfolios are managed in such a way as to achieve optimal
diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally.
2010 Annual Report 77
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:
As of June 30,
Asset Category:
Equity securities
Debt securities
Real estate
Cash and other
Total
Pension benefits
2010
2009
36%
40%
1%
23%
41%
39%
1%
19%
100%
100%
The Company contributes to multi-employer plans that provide pension and health and welfare benefits to certain employees under
collective bargaining agreements. The contributions to these plans were $110 million, $120 million and $116 million for the fiscal years
ended June 30, 2010, 2009 and 2008, respectively. In addition, the Company has defined contribution plans for the benefit of substantially
all employees meeting certain eligibility requirements. Employer contributions to such plans were $194 million, $199 million and $186
million for the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
The Company expects to continue making discretionary contributions to the plans during fiscal 2011 and in aggregate the pension
contributions are expected to be approximately $50 million.
NOTE 18 INCOME TAXES
Income (loss) before income tax expense was attributable to the following jurisdictions:
2010
2009
2008
(in millions)
$2,889
$(5,501) $6,332
434
(38)
989
$3,323
$(5,539) $7,321
2010
2009
2008
(in millions)
$248
$ 675
$ 918
114
189
551
128
127
303
102
480
1,105
1,500
(3,334)
303
$679
$(2,229) $1,803
For the years ended June 30,
United States (including exports)
Foreign
Income (loss) before income tax expense
Significant components of the Company’s provision (benefit) for income taxes were as follows:
For the years ended June 30,
Current:
United States
Federal
State & local
Foreign
Total current
Deferred
Total provision (benefit) for income taxes
78 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of income tax attributable to continuing operations computed at the statutory rate to income tax expense was:
For the years ended June 30,
U.S. federal income tax rate/(benefit)
Tax free Exchange (a)
Prior year tax credit recognition
Sale of interest in subsidiaries
State and local taxes
Effect of foreign taxes
Resolution of tax matters
Non-deductible goodwill on asset impairment (b)
Recognition of tax assets
Permanent differences and Other
Effective tax rate
(a) See Note 3–Acquisitions, Disposals and Other Transactions.
(b) See Note 9–Goodwill and Other Intangible Assets.
2010
2009
2008
35% (35)% 35%
—
— (11)
(9) —
—
4
1
(1)
(1)
2
(8)
(3)
(7) —
1
1
1
1
(19) —
26
(3)
—
(1)
(4) —
20% (40)% 25%
During the fiscal year ended June 30, 2010, the Company made an election to credit certain prior year’s taxes instead of claiming
deductions. As a result, a benefit of $312 million was recognized in fiscal 2010.
The following is a summary of the components of the deferred tax accounts:
As of June 30,
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
Tax credit carryforwards
Accrued liabilities
Total deferred tax assets
Deferred tax liabilities:
Basis difference and amortization
Revenue recognition
Sports rights contracts
Other
Total deferred tax liabilities
Net deferred tax liabilities before valuation allowance
Less: valuation allowance
Net deferred tax liabilities
2010
2009
(in millions)
$ 394
$ 459
1,237
1,094
739
624
—
483
2,994
2,036
(3,727)
(3,191)
(271)
(185)
(65)
(289)
(235)
(81)
(4,248)
(3,796)
(1,254)
(1,760)
(2,089)
(1,370)
$(3,343) $(3,130)
The Company had net current deferred tax assets of $2 million and $3 million at June 30, 2010 and 2009, respectively, and non-current
deferred tax assets of $141 million and $143 million at June 30, 2010 and 2009, respectively. The Company also had non-current deferred
tax liabilities of $3,486 million and $3,276 million at June 30, 2010 and 2009, respectively.
At June 30, 2010, the Company had approximately $1.1 billion of net operating loss carryforwards available to offset future taxable
income. The majority of these net operating loss carryforwards have an unlimited carryforward period; except for approximately $125
million of operating loss carryforwards related to foreign operations expiring in fiscal year 2011. In accordance with the Company’s
accounting policy, valuation allowances of $143 million and $247 million have been established to reflect the expected realization of these
net operating losses as of June 30, 2010 and 2009, respectively.
At June 30, 2010, the Company had approximately $4.2 billion of capital loss carryforwards available to offset future taxable income. Of
the total capital loss carryforwards, approximately $300 million expire in three years, with the remaining having no expiration. In
accordance with the Company’s accounting policy, valuation allowances of $1.2 billion and $1.1 billion have been established to reflect the
expected realization of these capital loss carryforwards as of June 30, 2010 and 2009, respectively.
2010 Annual Report 79
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At June 30, 2010, the Company has approximately $739 million of tax credit carryovers available to offset future income tax expense.
This amount resulted from the election to credit certain prior year’s taxes instead of claiming deductions. If these credits are not utilized to
offset future income tax expense, the credits will expire starting in fiscal year 2013 through fiscal 2019. In accordance with the Company’s
accounting policy, valuation allowances of $739 million have been established to reflect the expected realization of these tax credit
carryovers as of June 30, 2010.
The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties:
For the year ended June 30,
Balance, beginning of period
Additions for prior year tax positions
Reduction for prior year tax positions
Balance, end of period
2010
2009
(in millions)
$ 458
$ 1,783
15
7
(230)
(1,332)
$ 243
$ 458
During the fiscal year ended June 30, 2010, the Company has reduced its accrual for uncertain tax positions by $230 million primarily
to reflect the Company’s election to credit certain prior year’s taxes instead of claiming deductions. During the fiscal year ended June 30,
2009, the Company reduced its accrual for uncertain tax positions, net of an increase in current liabilities, by approximately $1.1 billion
(including interest) and recognized a non-cash tax benefit of approximately $1.1 billion for the fiscal year ended June 30, 2009 due to the
resolution of certain tax matters. The Company recognizes interest and penalty charges related to unrecognized tax benefits as income tax
expense, which is consistent with the recognition in prior reporting periods. The Company had recorded liabilities for accrued interest of
$49 million and $111 million as of June 30, 2010 and 2009, respectively.
The Company is subject to tax in various domestic and international jurisdictions and, as a matter of ordinary course, the Company is
regularly audited by Federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected
outcome of all other pending tax matters and does not currently anticipate that the ultimate resolution of other pending tax matters will
have a material adverse effect on its consolidated financial condition, future results of operations or liquidity. The U.S. Internal Revenue
Service is currently examining the Company’s returns for fiscal years 2005, 2006 and 2007. Additionally, the Company’s income tax returns
for the years 2000 through 2008 are subject to examination in various foreign jurisdictions. Consequently, it is reasonably possible that
uncertain income tax positions may decrease in the next twelve months. However, actual developments in this area could differ from those
currently expected. Of the total unrecognized tax benefits at June 30, 2010 of $243 million, approximately $138 million would affect the
Company’s effective income tax rate, if and when recognized in future fiscal years.
The Company has not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not
practicable. Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to approximately $6.8 billion
at June 30, 2010.
NOTE 19 SEGMENT INFORMATION
The Company is a diversified global media company, which manages and reports its businesses in eight segments. During fiscal 2010,
the Company reclassified STAR Group Limited (“STAR”), which develops, produces and distributes television programming in Asia, from
the Television segment to the Cable Network Programming segment. This reclassification was the result of a restructuring to combine the
sales and distribution operations of the STAR channels with those of the Company’s other international cable businesses. In addition, the
Magazines and Inserts segment was renamed the Integrated Marketing Services segment. The Company has revised its segment
information for prior fiscal years to conform to the fiscal 2010 presentation. The Company’s eight segments are:
• Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for
distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television
programming worldwide.
• Television, which principally consists of the broadcasting of network programming in the United States and the operation of 27 full
power broadcast television stations, including nine duopolies, in the United States (of these stations, 17 are affiliated with the FOX
network and ten are affiliated with MyNetworkTV).
• Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable
television systems and direct broadcast satellite operators primarily in the United States, Latin America, Europe and Asia.
• Direct Broadcast Satellite Television, which consists of the distribution of basic and premium programming services via satellite
and broadband directly to subscribers in Italy.
• Integrated Marketing Services, which principally consists of the publication of free-standing inserts, which are promotional
booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the
provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States
and Canada.
• Newspapers and Information Services, which principally consists of the publication of four national newspapers in the United
Kingdom, the publication of approximately 146 newspapers in Australia, the publication of a metropolitan newspaper and a national
newspaper (with international editions) in the United States and the provision of information services.
80 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
• Book Publishing, which principally consists of the publication of English language books throughout the world.
• Other, which principally consists of the Company’s digital media properties and News Outdoor, an advertising business which offers
display advertising in outdoor locations primarily throughout Russia and Eastern Europe.
The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which
is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial
measures are segment operating income (loss) and segment operating income (loss) before depreciation and amortization.
Segment operating income (loss) does not include: Impairment and restructuring charges, equity earnings (losses) of affiliates,
interest expense, net, interest income, other, net, income tax expense and net income attributable to noncontrolling interests. The
Company believes that information about segment operating income (loss) assists all users of the Company’s consolidated financial
statements by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from
non-operational factors that affect net income, thus providing insight into both operations and the other factors that affect reported
results.
Segment operating income (loss) before depreciation and amortization is defined as segment operating income (loss) plus
depreciation and amortization and the amortization of cable distribution investments and eliminates the variable effect across all business
segments of depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment,
as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against
revenues over the term of a carriage arrangement and, as such, it is excluded from segment operating income (loss) before depreciation
and amortization.
Total segment operating income and segment operating income (loss) before depreciation and amortization are non-GAAP measures
and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance
reported in accordance with GAAP. In addition, these measures do not reflect cash available to fund requirements. These measures
exclude items, such as impairment and restructuring charges, which are significant components in assessing the Company’s financial
performance. Segment operating income (loss) before depreciation and amortization also excludes depreciation and amortization which
are also significant components in assessing the Company’s financial performance.
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2010 Annual Report 81
2010 Annual Report 81
News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management believes that total segment operating income and segment operating income (loss) before depreciation and amortization
are appropriate measures for evaluating the operating performance of the Company’s business because they are the primary measures
used by the Company’s chief operating decision maker to evaluate the performance and allocate resources within the Company’s
businesses. Total segment operating income and segment operating income (loss) before depreciation and amortization provide
management, investors and equity analysts measures to analyze operating performance of the Company’s business and its enterprise
value against historical data and competitors’ data, although historical results, including total segment operating income and segment
operating income (loss) before depreciation and amortization, may not be indicative of future results (as operating performance is highly
contingent on many factors, including customer tastes and preferences).
2010
2009
2008
(in millions)
$ 7,631
$ 5,936
$ 6,699
4,228
7,038
3,802
1,192
6,087
1,269
1,531
4,051
6,131
3,760
1,168
5,858
1,141
2,378
5,190
5,610
3,749
1,124
6,248
1,388
2,988
$32,778
$30,423
$32,996
$ 1,349
$
220
2,268
230
(151)
530
88
848
191
1,653
$ 1,246
1,039
1,356
393
353
466
17
(309)
(927)
91
419
352
786
160
(84)
(19)
327
(926)
246
(575)
(363)
3,959
3,558
5,274
(253)
(9,208)
1,256
2,419
3,323
(5,539)
7,321
(679)
2,229
(1,803)
2,644
(3,310)
5,518
(105)
(68)
(131)
$ 2,539
$ (3,378) $ 5,387
448
(991)
91
69
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total revenues
Segment operating income (loss):
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total segment operating income
Impairment and restructuring charges
Equity earnings (losses) of affiliates
Interest expense, net
Interest income
Other, net
Income (loss) before income tax expense
Income tax (expense) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to News Corporation stockholders
82 News Corporation
82 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intersegment revenues, generated primarily by the Filmed Entertainment segment, of approximately $894 million, $910 million and
$842 million for the fiscal years ended June 30, 2010, 2009 and 2008, respectively, have been eliminated within the Filmed Entertainment
segment. Intersegment operating (loss) profit generated primarily by the Filmed Entertainment segment of approximately $(18) million,
$(4) million and $23 million for the fiscal years ended June 30, 2010, 2009 and 2008, respectively, have been eliminated within the Filmed
Entertainment segment.
For the year ended June 30, 2010
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total
For the year ended June 30, 2009
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total
For the year ended June 30, 2008
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total
Segment
operating
income (loss)
Depreciation
and
amortization
Amortization of
cable
distribution
investments
Segment operating
income (loss)
before depreciation
and amortization
(in millions)
$1,349
$
220
2,268
230
(151)
530
88
(575)
93
85
153
278
11
358
16
191
$ —
—
84
—
—
—
—
—
$1,442
305
2,505
508
(140)
888
104
(384)
$3,959
$1,185
$84
$5,228
Segment
operating
income (loss)
Depreciation
and
amortization
Amortization of
cable
distribution
investments
Segment operating
income (loss)
before depreciation
and amortization
(in millions)
$ 848
$
191
1,653
393
353
466
17
(363)
92
89
137
227
10
319
9
255
$ —
—
88
—
—
—
—
—
$ 940
280
1,878
620
363
785
26
(108)
$3,558
$1,138
$88
$4,784
Segment
operating
income (loss)
Depreciation
and
amortization
Amortization of
cable
distribution
investments
Segment operating
income before
depreciation and
amortization
(in millions)
$1,246
$
1,039
1,356
419
352
786
160
(84)
88
88
102
228
8
433
9
251
$ —
—
80
—
—
—
—
—
$1,334
1,127
1,538
647
360
1,219
169
167
$5,274
$1,207
$80
$6,561
2010 Annual Report 83
2010 Annual Report 83
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended June 30,
Depreciation and amortization
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total depreciation and amortization
Capital expenditures:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total capital expenditures
As of June 30,
Total assets:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Investments
Total assets
Goodwill and Intangible assets, net:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Integrated Marketing Services
Newspapers and Information Services
Book Publishing
Other
Total goodwill and intangibles assets, net
84 News Corporation
84 News Corporation
2010
2009
2008
(in millions)
$
93
85
153
278
11
358
16
191
$
92
89
137
227
10
319
9
255
$
88
88
102
228
8
433
9
251
$1,185
$1,138
$1,207
$
38
84
70
278
8
286
18
132
$
65
$
103
151
173
16
381
19
193
94
89
249
239
7
449
23
293
$ 914
$1,101
$1,443
2010
2009
(in millions)
$ 7,122
$ 7,042
6,479
6,378
12,032
11,688
2,703
1,381
2,647
1,346
10,201
10,741
1,489
9,462
3,515
1,582
8,740
2,957
$54,384
$53,121
$ 1,886
$ 1,917
4,310
6,860
540
1,037
5,311
516
1,595
4,310
6,912
617
1,034
6,050
511
1,956
$22,055
$23,307
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic Segments
For the years ended June 30,
Revenues:
United States and Canada(1)
Europe(2)
Australasia and Other(3)
Total revenues
2010
2009
2008
(in millions)
$17,812
$16,686
$16,987
9,628
5,338
9,331
4,406
10,757
5,252
$32,778
$30,423
$32,996
(1) Revenues include approximately $17.3 billion, $16.2 billion and $16.4 billion from customers in the United States in fiscal 2010, 2009 and 2008, respectively.
(2) Revenues include approximately $2.7 billion, $2.9 billion and $3.7 billion from customers in the United Kingdom in fiscal 2010, 2009 and 2008, respectively, as well as approximately $4.0
billion for both fiscal 2010 and 2009 and $4.1 billion for fiscal 2008 from customers in Italy.
(3) Revenues include approximately $2.9 billion, $2.5 billion and $3.2 billion from customers in Australia in fiscal 2010, 2009 and 2008, respectively.
As of June 30,
Long-Lived Assets:
United States and Canada
Europe
Australasia and Other
Total long-lived assets
2010
2009
(in millions)
$24,646
$25,319
5,289
6,425
6,035
5,931
$36,360
$37,285
There is no material reliance on any single customer. Revenues are attributed to countries based on location of customers.
Australasia comprises Australia, Asia, Fiji, Papua New Guinea and New Zealand.
NOTE 20 EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share under ASC 260, “Earnings per Share”
(“ASC 260”):
For the year ended June 30,
Net income (loss) available to News Corporation stockholders–basic
Other
Net income (loss) available to News Corporation stockholders–diluted
Weighted average shares–basic
Shares issuable under equity-based compensation plans(1)
Weighted average shares–diluted
Income (loss) per share attributable to News Corporation stockholders–basic:
Income (loss) per share attributable to News Corporation stockholders–diluted:
2010
2009
2008
(in millions, except per share amounts)
$2,539
$(3,378)
$5,387
—
—
(1)
$2,539
$(3,378)
$5,386
2,619
2,613
2,955
9
—
16
2,628
2,613
2,971
$ 0.97
$ (1.29)
$ 1.82
$ 0.97
$ (1.29)
$ 1.81
(1) Weighted average common shares outstanding includes the incremental shares that would be issued upon the assumed exercise of stock options and vesting of restricted stock units if
the effect is dilutive. Because the Company had a loss from continuing operations in fiscal 2009, no potentially dilutive securities were included in the denominator for computing dilutive
earnings per share, since their impact on earnings per share from continuing operations would be anti-dilutive. In accordance with ASC 260, the same shares are used to compute all
earnings per share amounts. For the fiscal year ended June 30, 2009, approximately 2 million shares that could potentially dilute basic earnings per share in the future were excluded
from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 QUARTERLY DATA (UNAUDITED)
For the three months ended
Fiscal 2010(a)
Revenues
Net income attributable to News Corporation stockholders
September 30,
December 31, March 31,
June 30,
(in millions, except per share amounts)
$7,199
$ 8,684
$8,785
$8,110
571
254
839
875
Income per share attributable to News Corporation stockholders–basic and diluted
$ 0.22
$ 0.10
$ 0.32
$ 0.33
Stock prices(b)
Class A–High
Class A–Low
Class B–High
Class B–Low
Fiscal 2009(c)
Revenues
Net income (loss) attributable to News Corporation stockholders
$12.31
$ 8.15
$14.44
$ 9.47
$ 13.69
$ 11.27
$ 15.93
$ 13.24
$14.46
$16.24
$12.41
$12.39
$17.09
$18.60
$14.55
$14.46
$7,509
$ 7,871
$7,373
$7,670
515
(6,417)
2,727
(203)
Income (loss) per share attributable to News Corporation stockholders–basic and diluted
$ 0.20
$ (2.45)
$ 1.04
$ (0.08)
Stock prices(b)
Class A–High
Class A–Low
Class B–High
Class B–Low
$14.84
$11.77
$15.25
$12.07
$ 11.92
$ 5.47
$ 12.08
$ 5.91
$ 9.85
$10.61
$ 4.99
$ 6.48
$10.50
$12.07
$ 5.65
$ 7.52
(a) In the quarter ended June 30, 2010, the Company recorded an impairment charge of $200 million (See Note 9–Goodwill and Other Intangible Assets), a gain on the sale of its Eastern
European television stations of $235 million (See Note 3–Acquisitions, Disposals and Other Transactions) and an income tax benefit of $312 million (See Note 18–Income Taxes).
(b) The stock prices reflect the reported high and low closing sales prices for the Class A Common Stock and Class B Common Stock. Since December 29, 2008, the Class A Common Stock
and Class B Common Stock have been listed and traded on The NASDAQ Global Select Market, its principal market, under the symbols “NWSA” and “NWS”, respectively. Prior to
December 29, 2008, the Class A Common Stock and Class B Common Stock were listed and traded on the New York Stock Exchange under the symbols “NWS.A” and “NWS”,
respectively.
(c) In the quarter ended June 30, 2009, the Company recorded an impairment charge of $452 million (See Note 9–Goodwill and Other Intangible Assets) and a restructuring charge of $228
million (See Note 4–Restructuring Programs).
NOTE 22 VALUATION AND QUALIFYING ACCOUNTS
Balance at
beginning
of year
Additions
Acquisitions
and
disposals
Utilization
Foreign
exchange
Balance at
end of
year
(in millions)
Fiscal 2010
Allowances for returns and doubtful accounts
$(1,158) $(1,288)
$ 1
$1,241
$ 34
$(1,170)
Deferred tax valuation allowance
Fiscal 2009
Allowances for returns and doubtful accounts
Deferred tax valuation allowance
Fiscal 2008
Allowances for returns and doubtful accounts
Deferred tax valuation allowance
(1,370)
(1,244)
(1,089)
(1,498)
(1,406)
(128)
—
—
—
(1,102)
(1,365)
(1,562)
(344)
(13)
—
525
1,377
164
1,446
500
—
52
—
(2,089)
(1,158)
(1,370)
(55)
—
(1,089)
(1,406)
86 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 ADDITIONAL FINANCIAL INFORMATION
Supplemental Cash Flow Information
For the years ended June 30,
Supplemental cash flow information:
Cash paid for income taxes
Cash paid for interest
Sale of other investments
Purchase of other investments
Supplemental information on businesses acquired:
Fair value of assets acquired
Cash acquired
Less: Liabilities assumed
Noncontrolling interests (increase) decrease
Cash paid
Fair value of equity instruments issued to third parties
Issuance of subsidiary common units
Fair value of equity instruments consideration
2010
2009
2008
(in millions)
$(767) $(1,192) $(1,867)
(968)
(871)
(873)
16
(101)
14
(90)
12
(137)
138
650
8,401
6
6
(1)
3
97
62
94
(2,443)
(202)
(149)
(812)
(5,654)
—
—
—
—
196
165
$ — $ — $
31
The following table sets forth the components of Other, net included in the accompanying consolidated statements of operations:
For the years ended June 30,
Gain (loss) on the sale of eastern European television stations(a)
Loss on the financial indexes business transaction(a)
Loss on Photobucket transaction(a)
Gain on sale of NDS shares(a)
Gain on the sale of the Stations(a)
Gain on the Exchange(a)
Gain on sale of UK land(a)
Gain on sale of Fox Sports Net Bay Area(b)
Gain on sale of China Network Systems(b)
Gain on sale of Gemstar(b)
Impairment of cost based investments(b)
Change in fair value of Exchangeable securities(c)
Other
Total Other, net
(a) See Note 3–Acquisitions, Disposals and Other Transactions
(b) See Note 6–Investments
2010
2009
2008
(in millions)
$195
$ (100) $ —
(23)
(32)
—
—
—
—
—
4
—
(3)
3
(75)
—
—
1,249
232
—
—
—
6
—
(113)
77
(95)
—
—
—
—
1,676
126
208
133
112
(125)
307
(18)
$ 69
$1,256
$2,419
(c) The Company had certain exchangeable debt securities which contained embedded derivatives. Pursuant to ASC 815, these embedded derivatives are not designated as hedges and, as
such, changes in their fair value were recognized in Other, net in the consolidated statements of operations. The Company redeemed the exchangeable debt securities in fiscal year
2010. (See Note 11–Exchangeable Securities)
NOTE 24 SUBSEQUENT EVENTS
On August 2, 2010, the Company agreed to backstop €340 million (approximately $448 million) of financing measures that are being
initiated by Sky Deutschland. The financing measures are structured such that the Company’s shareholding in Sky Deutschland will not
exceed 49.9% unless the Company elects to do so. The rights offering of up to 269.6 million newly issued registered shares may be
combined with a bond issued to the Company, that is convertible for up to 53.9 million underlying Sky Deutschland shares, and/or a loan
provided by the Company. The Company will have the right to convert the bond into equity at any time following a 40-day holding period,
subject to certain black-out periods. If not converted, the Company will have the option to redeem the bond for cash upon its maturity in
four years. The financing measures are expected to be completed by no later than January 31, 2011.
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 25 SUPPLEMENTAL GUARANTOR INFORMATION
In May 2007, NAI, a 100% owned subsidiary of the Company as defined in Rule 3-10(h) of Regulation S-X, entered into the Credit
Agreement. The Credit Agreement provides a $2.25 billion unsecured revolving credit facility with a sub-limit of $600 million available for
the issuance of letters of credit. Borrowings are in U.S. dollars only, while letters of credit are issuable in U.S. dollars or Euros. The
significant terms of the agreement include the requirement that the Company maintain specific leverage ratios and limitations on secured
indebtedness. The Company pays a facility fee of 0.08% regardless of facility usage. The Company pays interest for borrowings at LIBOR
plus 0.27% and pays commission fees on letters of credit at 0.27%. The Company pays an additional fee of 0.05% if borrowings under the
facility exceed 50% of the committed facility. The interest and fees are based on the Company’s current debt rating. The maturity date is in
May 2012; however, NAI may request a $250 million increase in the amount of the credit facility and may also request that the Lenders’
commitments be extended until May 2013.
The Parent Guarantor presently guarantees the senior public indebtedness of NAI and the guarantee is full and unconditional. The
supplemental condensed consolidating financial information of the Parent Guarantor should be read in conjunction with these consolidated
financial statements.
In accordance with rules and regulations of the SEC, the Company uses the equity method to account for the results of all of the
non-guarantor subsidiaries, representing substantially all of the Company’s consolidated results of operations, excluding certain
intercompany eliminations.
The following condensed consolidating financial statements present the results of operations, financial position and cash flows of NAI,
the Company and the subsidiaries of the Company and the eliminations and reclassifications necessary to arrive at the information for the
Company on a consolidated basis.
88 News Corporation
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2010
Revenues
Expenses
Equity earnings of affiliates
Interest expense, net
Interest income
Earnings (losses) from subsidiary entities
Other, net
Income (loss) before income tax expense
Income tax (expense) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interests
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
$
1
$ —
$ 32,777
$ —
$ 32,778
(323)
2
(4,256)
6
1,744
644
(2,182)
446
(1,736)
—
—
—
(743)
—
3,283
(1)
2,539
—
2,539
—
(28,749)
446
(10)
4,103
—
(169)
8,398
(1,716)
6,682
(105)
—
—
4,018
(4,018)
(5,027)
(405)
(5,432)
591
(4,841)
—
(29,072)
448
(991)
91
—
69
3,323
(679)
2,644
(105)
Net income (loss) attributable to News Corporation stockholders
$(1,736)
$2,539
$ 6,577
$(4,841)
$ 2,539
See notes to supplemental guarantor information
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2009
Revenues
Expenses
Equity (losses) earnings of affiliates
Interest expense, net
Interest income
Earnings (losses) from subsidiary entities
Other, net
(Loss) income before income tax expense
Income tax benefit
Net (loss) income
Less: Net income attributable to noncontrolling interests
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
$
6
$ —
$ 30,417
$ —
$ 30,423
(297)
5
—
—
(2,728)
(1,090)
206
1,434
83
—
(2,274)
(14)
(1,291)
(3,378)
519
(772)
—
—
(3,378)
—
(35,776)
(314)
(115)
2,891
—
1,187
(1,710)
688
(1,022)
(68)
—
—
3,006
(3,006)
840
—
840
1,022
1,862
—
(36,073)
(309)
(927)
91
—
1,256
(5,539)
2,229
(3,310)
(68)
Net (loss) income attributable to News Corporation stockholders
$ (772)
$(3,378)
$ (1,090)
$ 1,862
$ (3,378)
See notes to supplemental guarantor information
90 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2008
Revenues
Expenses
Equity earnings of affiliates
Interest expense, net
Interest income
Earnings (losses) from subsidiary entities
Other, net
Income (loss) before income tax expense
Income tax (expense) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interests
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
$
7
$ —
$ 32,989
$ —
$ 32,996
(343)
5
(2,287)
841
2,213
561
997
(245)
752
—
—
—
(660)
27
4,367
1,653
5,387
—
5,387
—
(27,398)
322
(622)
2,021
—
205
7,517
(1,851)
5,666
(131)
—
—
2,643
(2,643)
(6,580)
—
(6,580)
293
(6,287)
—
(27,741)
327
(926)
246
—
2,419
7,321
(1,803)
5,518
(131)
Net income (loss) attributable to News Corporation stockholders
$ 752
$5,387
$ 5,535
$(6,287)
$ 5,387
See notes to supplemental guarantor information
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Balance Sheet
At June 30, 2010
ASSETS:
Current Assets:
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Cash and cash equivalents
$ 5,331
$
$ 3,378
$
17
—
44
5,392
—
—
96
—
—
269
121
—
—
—
—
—
—
—
—
—
—
—
39
6,414
2,392
448
12,632
346
3,254
5,884
8,306
13,749
941
3,355
—
3,355
—
—
—
—
—
—
—
—
—
—
—
—
$ 8,709
6,431
2,392
492
18,024
346
3,254
5,980
8,306
13,749
1,210
3,515
—
3,515
48,663
40,483
48,784
40,522
(89,146)
(89,146)
$54,541
$40,522
$ 48,467
$(89,146)
$54,384
$
80
20
100
13,159
200
$
—
—
—
—
—
$
49
$
8,713
8,762
32
6,265
30,561
15,409
(45,970)
—
—
10,521
25,113
325
79,053
—
—
—
—
—
—
—
$
129
8,733
8,862
13,191
6,465
—
325
(89,146)
25,541
$54,541
$40,522
$ 48,467
$(89,146)
$54,384
Receivables, net
Inventories, net
Other
Total current assets
Non-current assets:
Receivables
Inventories, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Investments
Investments in associated companies and other investments
Intragroup investments
Total investments
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Borrowings
Other current liabilities
Total current Liabilities
Non-current Liabilities:
Borrowings
Other non-current liabilities
Intercompany
Redeemable noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
See notes to supplemental guarantor information
92 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Balance Sheet
At June 30, 2009
ASSETS:
Current assets:
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Cash and cash equivalents
$ 4,479
$
$ 2,061
$
Receivables, net
Inventories, net
Other
Total current assets
Non-current assets:
Receivables
Inventories, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Investments
Investments in associated companies and other investments
Intragroup investments
Total investments
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Borrowings
Other current liabilities
Total current liabilities
Non-current liabilities:
Borrowings
Other non-current liabilities
Intercompany
Redeemable noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
See notes to supplemental guarantor information
15
—
40
4,534
—
—
75
—
—
241
95
—
—
—
—
—
—
—
—
—
—
—
41
6,272
2,477
492
11,302
282
3,178
6,170
8,925
14,382
1,075
2,821
—
2,821
—
—
—
—
—
—
—
—
—
—
—
—
$ 6,540
6,287
2,477
532
15,836
282
3,178
6,245
8,925
14,382
1,316
2,957
—
2,957
46,019
37,577
46,114
37,618
(83,596)
(83,596)
$50,964
$37,618
$ 48,135
$(83,596)
$53,121
$ 2,008
$
22
2,030
12,108
235
—
—
—
—
—
$
77
$
8,532
8,609
96
6,068
21,182
14,394
(35,576)
—
—
15,409
23,224
343
68,595
—
—
—
—
—
—
—
$ 2,085
8,554
10,639
12,204
6,303
—
343
(83,596)
23,632
$50,964
$37,618
$ 48,135
$(83,596)
$53,121
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2010
Operating activities:
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Net cash provided by operating activities
$ 1,912
$ 331
$1,611
$—
$ 3,854
Investing activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Repurchase of shares
Dividends paid
Purchase of subsidiary shares from noncontrolling interest
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange movement on opening cash balance
(44)
(65)
—
(109)
989
(1,940)
—
—
—
—
(951)
852
4,479
—
—
—
—
—
—
—
24
—
(355)
—
(331)
—
—
—
(870)
(591)
1,257
(204)
38
(140)
—
—
(63)
2
(163)
1,244
2,061
73
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(914)
(656)
1,257
(313)
1,027
(2,080)
24
—
(418)
2
(1,445)
2,096
6,540
73
Cash and cash equivalents, end of year
$ 5,331
$ —
$3,378
$—
$ 8,709
See notes to supplemental guarantor information
94 News Corporation
94 News Corporation
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News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2009
Operating activities:
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Net cash provided by operating activities
$1,464
$ 343
$ 441
$—
$ 2,248
Investing activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Dividends paid
Purchase of subsidiary shares from noncontrolling interest
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange movement on opening cash balance
(24)
(9)
—
(33)
973
(200)
—
—
—
—
773
2,204
2,275
—
—
(28)
—
(28)
—
—
3
(318)
—
—
(315)
—
—
—
(1,077)
(1,251)
1,762
(566)
67
(143)
1
(48)
(38)
18
(143)
(268)
2,387
(58)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,101)
(1,288)
1,762
(627)
1,040
(343)
4
(366)
(38)
18
315
1,936
4,662
(58)
Cash and cash equivalents, end of year
$4,479
$ —
$ 2,061
$—
$ 6,540
See notes to supplemental guarantor information
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2010 Annual Report 95
News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2008
Operating activities:
News America
Incorporated
News
Corporation
Non-Guarantor
(in millions)
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Net cash provided by (used in) operating activities
$(3,967)
$ 1,344
$ 6,548
$—
$ 3,925
Investing and other activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Repurchase of shares
Dividends paid
Purchase of subsidiary shares from noncontrolling interest
Other, net
(10)
(85)
—
(95)
1,237
(350)
—
—
—
—
—
—
(148)
—
(148)
—
—
81
(939)
(338)
—
—
(1,433)
(6,251)
1,580
(6,104)
55
(378)
9
—
(35)
(7)
22
Net cash (used in) provided by financing activities
887
(1,196)
(334)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange movement on opening cash balance
(3,175)
5,450
—
—
—
—
110
2,204
73
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,443)
(6,484)
1,580
(6,347)
1,292
(728)
90
(939)
(373)
(7)
22
(643)
(3,065)
7,654
73
Cash and cash equivalents, end of year
$ 2,275
$ —
$ 2,387
$—
$ 4,662
See notes to supplemental guarantor information
96 News Corporation
96 News Corporation
news corp ar financial style FINAL.indd 96
8/15/10 9:04 PM
News Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes to Supplemental Guarantor Information
(1) Investments in the Company’s subsidiaries, for purposes of the supplemental consolidating presentation, are accounted for by
their parent companies under the equity method of accounting whereby earnings of subsidiaries are reflected in the parent company’s
investment account and earnings.
(2) The guarantees of NAI’s senior public indebtedness constitute senior indebtedness of the Company, and rank pari passu with
all present and future senior indebtedness of the Company. Because the factual basis underlying the obligations created pursuant to
the various facilities and other obligations constituting senior indebtedness of the Company differ, it is not possible to predict how a
court in bankruptcy would accord priorities among the obligations of the Company.
news corp ar financial style FINAL.indd 97
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2010 Annual Report 97
2010 Annual Report 97
News Corporation
ASX CORPORATE GOVERNANCE RECOMMENDATIONS (“RECOMMENDATIONS”)
Details of News Corporation’s corporate governance procedures are described in News Corporation’s Proxy Statement for its 2010 Annual
Meeting of Stockholders, including under the heading “Corporate Governance Matters.” News Corporation has followed the Recommendations
during the reporting period, except that Mr. K. Rupert Murdoch serves as the Chairman and Chief Executive Officer of News Corporation. The
Board of Directors (the “Board”) has taken the view that it is in the best interests of News Corporation and its stockholders that Mr. K. Rupert
Murdoch serve in such capacities. This view departs from Recommendations 2.2 and 2.3. In addition, three of News Corporation’s directors,
Messrs. Kenneth Cowley, Roderick Eddington and Andrew Knight, previously served as executives of subsidiaries of News Corporation.
Although it has been several years since these directors were employed by News Corporation, there was not a period of at least three years
between the time they ceased their employment and their appointment to the Board. In determining these directors’ independence from News
Corporation, the Board has considered these directors’ prior employment with News Corporation, as well as their experience since ceasing to
be executives of News Corporation, and has determined that they are independent in accordance with the NASDAQ Stock Market Rules. This
information is provided as required by Recommendation 2.6.
INFORMATION ON NEWS CORPORATION’S COMMON STOCK
For a list of the beneficial ownership of both News Corporation’s Class A Common Stock and Class B Common Stock as of August 16, 2010
for: (i) each person who is known by News Corporation to own beneficially more than 5% of the outstanding shares of Class B common stock;
(ii) each member of the Board of Directors; (iii) each Named Executive Officer (as defined in Item 402(a)(3) of Regulation S-K) of News
Corporation; and (iv) all Directors and executive officers of News Corporation as a group, please refer to News Corporation’s Proxy Statement
for its 2010 Annual Meeting of Stockholders under the heading “Security Ownership of News Corporation.”
As of August 16, 2010, there were approximately 1,331 holders of record of Class B Common Stock and 47,062 holders of record of Class A
Common Stock.
Each share of Class B Common Stock entitles the holder to one vote per share on all matters on which stockholders have the right to vote.
Each share of Class A Common Stock does not have voting rights. However, holders of shares of Class A Common Stock do have the right to
vote, together with holders of shares of Class B Common Stock in limited circumstances which are described in News Corporation’s Restated
Certificate of Incorporation.
Distribution of stockholding (includes CDIs)
The following information is provided as of August 16, 2010:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – above
Class B
Common
Stock
33,286
8,863
908
578
100
Class A
Common
Stock
52,882
2,865
353
256
47
Based on the market price on August 16, 2010, there were approximately 2,422 holders holding less than a marketable parcel of Class B
Common Stock and approximately 37,978 holders holding less than a marketable parcel of Class A Common Stock.
98 News Corporation
98 News Corporation
News Corporation
Top twenty stockholders as at August 16, 2010
The following information regarding the top twenty stockholders of record is based on information provided by News Corporation’s transfer
agent as of August 16, 2010.
Class B Common Stock
Cede & Co
Chess Depositary Nominees PTY Limited
Fayez Sarofim
Charles Wilson
Audrey Christine Cohen
Ann T. P. Allen-Stevens
Henry R. Marten
Forbar Custodians Limited
Julian R. Stow
Kenneth B. Ullman
Salpean Nominees Limited
Timothy Allen Alexander
David Hill
William A. Oneill, Alene J. Oneill TR UA 04/01/03 Oneill Family Trust
Ernestina, Eric and Douglas Lipman Trust U.W. Mitchell Lipman
Jennifer Ann Thorpe
Shirley Coral Ruda
Beverley Cowdrey
Pao Lung Su
Margaret Mary Urquhart
Class A Common Stock
Cede & Co
Chess Depositary Nominees PTY Limited
Ogier Employee Benefit Trustee Limited
Fayez Sarofim
Howard Arvey Trust 11/26/79
Barbara Grace Phillips
Brian C. Kelly
Cruden Financial Services LLC
Shirley R. Popper & Royal T. Popper Trustees U/D/T DTD 05/20/96
David Hill
Amerimark Bank
Morgan L. Miller
Nancy Bogyo Trust 01/22/94
Laurey J. Barnett
Mary Kathleen Bromley
Dolores A. Sturm
Charles Wilson
Exchange Account for Delisted Preferred Shares
Diane J. Frankel Living Trust 04/13/93
Apache Chief Theatre Co LLP
496,386,932
300,110,341
1,085,440
59,240
26,160
25,384
16,552
15,200
14,896
14,589
12,500
10,000
10,000
10,000
9,920
8,407
8,149
7,583
7,500
6,760
797,845,553
1,673,077,891
146,759,066
1,718,344
542,720
235,328
228,050
131,542
57,000
48,356
43,000
42,580
36,612
35,880
63,878
32,686
32,058
29,620
28,036
27,127
27,000
1,823,196,774
2010 Annual Report 99
2010 Annual Report 99
100 News Corporation
NEWS CORPORATION’S
GREATEST STRENGTH HAS
ALWAYS BEEN OUR ABILITY
TO PROVIDE THE HIGHEST
QUALITY AND BROADEST
ARRAY OF CONTENT TO
THE GREATEST NUMBER
OF PEOPLE, WHENEVER,
WHEREVER AND HOWEVER
THEY WANT IT
405449_4pg.CS4.indd 2
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NEWS CORPORATION As of June 30, 2010
News Corporation is a diversifi ed global media company, which principally consists of the following:
FILMED ENTERTAINMENT
UNITED STATES
Fox Filmed Entertainment
Twentieth Century Fox Film
Corporation
Fox 2000 Pictures
Fox Searchlight Pictures
Fox Music
Twentieth Century Fox Home
Entertainment
Twentieth Century Fox Licensing
and Merchandising
Blue Sky Studios
Twentieth Century Fox Television
Fox Television Studios
Twentieth Television
AUSTRALIA AND NEW ZEALAND
Premium Movie Partnership 20%
TELEVISION
UNITED STATES
FOX Broadcasting Company
MyNetworkTV
FOXSports.com
Fox Television Stations
WNYW
WWOR
KTTV
KCOP
WFLD
WPWR
WTXF
KDFW
KDFI
WFXT
WAGA
WTTG
WDCA
WJBK
KRIV
New York, NY
New York, NY
Los Angeles, CA
Los Angeles, CA
Chicago, IL
Chicago, IL
Philadelphia, PA
Dallas, TX
Dallas, TX
Boston, MA
Atlanta, GA
Washington, DC
Washington, DC
Detroit, MI
Houston, TX
KTXH
KSAZ
KUTP
WTVT
KMSP
WFTC
WRBW
WOFL
WUTB
WHBQ
KTBC
WOGX
Houston, TX
Phoenix, AZ
Phoenix, AZ
Tampa Bay, FL
Minneapolis, MN
Minneapolis, MN
Orlando, FL
Orlando, FL
Baltimore, MD
Memphis, TN
Austin, TX
Gainesville, FL
CABLE NETWORK
PROGRAMMING
UNITED STATES
FOX News Channel
FOX Business Network
Fox Cable Networks
FX
Fox Movie Channel
Fox Regional Sports Networks
Fox Soccer Channel
SPEED
FUEL TV
FSN
Fox College Sports
Big Ten Network 49%
Fox Pan American Sports 33%
National Geographic Channel 71%
Nat Geo WILD 71%
STATS 50%
INTERNATIONAL
FOX International Channels
FOX Europe, Africa, Asia and
Latin America
FOX LIFE Europe, Asia and
Latin America
FX Europe, Africa, Asia and
Latin America
FOX CRIME Europe and Asia
FOX RETRO Europe and Africa
FOX NEXT Europe
FOX SPORTS Europe, Africa and
Latin America
FOX MOVIES Asia and Middle East
STAR MOVIES Asia
STAR World Asia
CHANNEL [V] Asia
CULT Europe
VOYAGE Europe
BABY TV Europe, Asia and
Latin America
UTILISIMA Latin America
SPEED Latin America
TVN Asia
AQUAVISION PRODUCTIONS
Africa 51%
NHNZ PRODUCTIONS Asia
National Geographic International
Channels 52%
National Geographic Channel Europe,
Africa, Asia and Latin America
Nat Geo Wild Europe, Africa, Asia and
Latin America
Nat Geo Adventure Europe and Asia
Nat Geo Music Europe, Africa and Asia
.FOX Europe, Asia and Latin America
LATIN AMERICA
LAPTV 55%
Movie City Pack
Cinecanal
The Film Zone
Telecine 13%
FOX Telecolombia 51%
AUSTRALIA
Premier Media Group 50%
ASIA
Hathway Cable and Datacom 17%
STAR PLUS
STAR ONE
STAR CHINESE CHANNEL
STAR WORLD
STAR UTSAV
VIJAY 81%
Asianet 75%
STAR DEN 50%
XING KONG
405449_4pg.CS4.indd 1
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STAR CHINESE MOVIES
STAR MOVIES
STAR GOLD
Star News 26%
CHANNEL [V]
ESPN STAR SPORTS 50%
PHOENIX SATELLITE TELEVISION 18%
MIDDLE EAST & AFRICA
Rotana 9%
DIRECT BROADCAST
SATELLITE TELEVISION
EUROPE
Sky Italia
Sky Sport
Sky Calcio
Sky Cinema
Sky TG24
Sky Uno
British Sky Broadcasting 39%
Sky Arts
Sky News
Sky Sports
Sky Travel
Sky 1
Sky Movies
Sky Deutschland 45%
ASIA
TATA SKY 20%
AUSTRALIA AND NEW ZEALAND
FOXTEL 25%
Sky Network Television Limited 44%
NEWSPAPERS AND
INFORMATION SERVICES
INTEGRATED MARKETING
SERVICES
UNITED STATES AND CANADA
News America Marketing Group
In-Store
FSI (SmartSource Magazine)
SmartSource iGroup
News Marketing Canada
BOOK PUBLISHING
UNITED STATES, CANADA,
EUROPE, NEW ZEALAND AND
AUSTRALIA
HarperCollins Publishers
ASIA
HarperCollins India 40%
OTHER
UNITED STATES
News Corp Digital Media Group
MySpace
IGN Entertainment
Fox Audience Network
AskMen
Fox Mobile Group
Hulu 32%
EUROPE
NDS 49%
BrandAlley UK 49%
News Outdoor Group 79%
News Corporation Stations Europe
Milkround.com
AUSTRALIA AND NEW ZEALAND
National Rugby League 50%
News Digital Media
Realestate.com.au 58%
UNITED STATES
The Wall Street Journal
Dow Jones Newswires
Factiva
Barron’s
MarketWatch
Dow Jones Client Solutions
Dow Jones Local Media Group
SmartMoney
New York Post
Community Newspaper Group
EUROPE
The Times
The Sunday Times
The Sun
News of the World
The Wall Street Journal Europe
eFinancialNews
The Times Literary Supplement
AUSTRALIA
Almost 150 national, metropolitan,
suburban, regional and Sunday titles,
including the following:
The Australian
The Weekend Australian
The Daily Telegraph
The Sunday Telegraph
Herald Sun
Sunday Herald Sun
The Courier-Mail
Sunday Mail (Brisbane)
The Advertiser
Sunday Mail (Adelaide)
The Mercury
mX
Sunday Tasmanian
The Sunday Times
Northern Territory News
Sunday Territorian
ASIA
The Wall Street Journal Asia
PAPUA NEW GUINEA
Post Courier 63%
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GLOBAL ENERGY INITIATIVE
News Corporation is committed to becoming carbon neutral by the end of 2010. In 2009, News Corporation’s carbon footprint was
641,821 metric tons of carbon dioxide (or carbon dioxide equivalents). This analysis was conducted with Clear Carbon Consulting and
was independently audited and verifi ed by Cventure LLC. We will continue to measure our carbon footprint annually as we track our
progress in reducing our greenhouse gas emissions and energy use.
For more information on News Corporation’s energy work, carbon footprint methodology and efforts to engage audiences, business
partners and employees on the issue of climate change, please visit http://www.newscorp.com/energy and http://gei.newscorp.com.
GHG EMISSSIONS BY SOURCE
GHG EMISSIONS BY GEOGRAPHY
Onsite Fuel 5%
Refrigerants <1%
Business
Air Travel 7%
Transport
Fuel 8%
Hong Kong 1%
Italy 5%
India 1%
Other 4%
Russia 5%
United
Kingdom
14%
Purchased
Energy 80%
United
States 48%
Australia 22%
DIVERSITY
News Corporation values diversity and recognizes it as an important component to sustaining and enhancing the Company’s success.
Our readers and viewers around the world are our top priority, and over the past decade, we have expanded our commitment not just to
serving, but to understanding, the needs of today’s diverse audiences.
Our audiences, just like our workforce, are multinational, multiracial and multilingual. As a result, we have a long-standing
commitment to outreach and equality of opportunity for qualifi ed people of all backgrounds. Through our Corporate Diversity Councils,
signature education programs and strategic community partnerships, we strive to attract the best employees, partners and suppliers
to work with and for us, as we encourage the development of the next generation of business leaders.
We are committed to expanding our efforts to draw on the talents of great people from around the world. The scope of these
important initiatives will continue to grow to meet the larger needs of News Corporation’s businesses.
STOCK PERFORMANCE
The following graph compares the cumulative total return to
stockholders of a $100 investment in News Corporation’s Class A
Common Stock and Class B Common Stock for the fi ve-year
period from June 30, 2005 through June 30, 2010, with a similar
investment in the Standard & Poor’s 500 Stock Index and the
market value weighted returns of a Peer Group Index and
assumes reinvestment of dividends. Since December 29, 2008,
News Corporation’s Class A Common Stock and Class B
Common Stock have been listed and traded on The NASDAQ
Global Select Market, its principal market, under the symbols
“NWSA” and “NWS”, respectively. Prior to December 29, 2008,
Class A Common Stock and Class B Common Stock were listed
and traded on the New York Stock Exchange (“NYSE”) under the
symbols “NWS.A” and “NWS”, respectively. The Peer Group
Index, which consists of media and entertainment companies
that represent News Corporation’s competitors in the industry,
includes The Walt Disney Company, Time Warner Inc. (as
adjusted for the spin-offs of Time Warner Cable Inc. and AOL
Inc.), CBS Corporation Class B Common Stock and Viacom Inc.
NWSA
NWS
S&P 500
Peer Group
Class B Common Stock (created on December 31, 2005 by the
separation of the company formerly known as Viacom Inc. into
two publicly held companies, CBS Corporation and Viacom Inc.).
The removal of Time Warner Cable Inc. and AOL Inc. from Time
Warner Inc. for all periods did not have a material impact on the
Peer Group Index performance for the periods presented.
CUMULATIVE STOCKHOLDER RETURN FOR FIVE-YEAR PERIOD
Ended June 30, 2010
$175
$125
$75
$25
(cid:81) NWSA (cid:81) NWS (cid:81) S&P 500 (cid:81) Peer Group
6/30/05
$ 100
$ 100
$ 100
$100
6/30/06
$ 120
$ 121
$ 109
$ 108
6/30/07
$ 133
$ 138
$ 131
$ 130
6/30/08
$ 95
$ 93
$ 114
$ 102
6/30/09
$ 58
$ 65
$ 84
$ 75
6/30/10
$ 77
$ 85
$ 96
$ 102
405449_4pg.CS4.indd 2
8/17/10 9:21 AM
BOARD OF DIRECTORS
as of June 30, 2010
Rupert Murdoch
Chairman and Chief Executive Offi cer
News Corporation
Mark Hurd
Chairman, Chief Executive Offi cer and
President Hewlett-Packard Company
José María Aznar
President
Foundation for Social Studies and Analysis
Former President of Spain
Natalie Bancroft
Director, News Corporation
Peter L. Barnes
Chairman
Ansell Limited
Chase Carey
Deputy Chairman, President
and Chief Operating Offi cer
News Corporation
Kenneth E. Cowley
Chairman
R.M. Williams Holdings Pty Limited
David F. DeVoe
Chief Financial Offi cer, News Corporation
Viet Dinh
Professor of Law
Georgetown University Law Center
Sir Roderick I. Eddington
Non-Executive Chairman
Australia and New Zealand J.P. Morgan
SUPPLEMENTAL INFORMATION
Corporate Secretary
Laura A. Cleveland
Head Offi ce
1211 Avenue of the Americas,
New York, NY 10036
Telephone 1 (212) 852 7000
Registered Offi ce – U.S.
1209 Orange Street
Wilmington, DE 19801
Registered Offi ce – Australia
2 Holt Street, Sydney, N.S.W.
Australia 2010
News Corporation is incorporated in Delaware,
and is not subject to Chapters 6, 6A, 6B and
6C of the Corporations Act of Australia dealing
with the acquisition of shares. The acquisition
of shares in News Corporation is subject to
Delaware law and applicable United States
securities laws.
Auditors
Ernst & Young LLP
EXECUTIVE OFFICERS
as of June 30, 2010
Rupert Murdoch
Chairman and Chief Executive Offi cer
Chase Carey
Deputy Chairman, President and
Chief Operating Offi cer
James R. Murdoch
Chairman and Chief Executive
Europe and Asia
David F. DeVoe
Chief Financial Offi cer
Roger Ailes
Chairman and Chief Executive Offi cer
FOX News Channel and FOX Business Network
Chairman
Fox Television Stations and
Twentieth Television
Lawrence A. Jacobs
Group General Counsel
Andrew S.B. Knight
Chairman
J. Rothschild Capital Management Limited
James R. Murdoch
Chairman and Chief Executive
Europe and Asia, News Corporation
Lachlan K. Murdoch
Executive Chairman, Illyria Pty Ltd
Thomas J. Perkins
Partner
Kleiner Perkins Caufi eld & Byers
Arthur M. Siskind
Senior Advisor to the Chairman
News Corporation
John L. Thornton
Professor and Director of Global Leadership
Tsinghua University School of Economics
and Management
Stanley S. Shuman (Director Emeritus)
Managing Director
Allen & Company LLC
Share Listings
Class A Common Stock and Class B
Common Stock
The NASDAQ Global Select Market
Australian Stock Exchange Limited
The London Stock Exchange
Share Registers
Computershare Investor Services
Shareholder Communications Department
250 Royall Street, Canton, MA 02021
Telephone 1 (877) 277 9781 (Toll free)
Telephone 1 (312) 360 5343 (Outside the U.S.)
web.queries@computershare.com or
www.computershare.com
Computershare Investor Services Pty Ltd
Level 5, 115 Grenfell Street, Adelaide,
S.A., Australia 5000
Telephone 1 300 556 239 (Within Australia)
Telephone 61 (3) 9415 4167 (Outside Australia)
Computershare Investor Services plc
The Pavilions, Bridgwater Road, Bristol,
BS13 8AE,
United Kingdom
Telephone 44 (870) 702 0002
Annual Report and Form 10-K Requests
United States:
1211 Avenue of Americas, New York, NY 10036
Telephone 1 (212) 852 7059
Australia:
2 Holt Street, Surry Hills, NSW, Australia 2010
Telephone 61 (2) 9288 3216
United Kingdom:
1 Virginia Street, London, E98 1XY
United Kingdom
Telephone 44 (20) 7782 6000
Fax 44 (20) 7895 9020
For Further Information
www.newscorp.com/investor/information_
request.html
News Corporation Notice of Meeting
A separate Notice of Meeting and Proxy
Statement for News Corporation’s 2010
Annual Meeting of Stockholders accompany
this Annual Report.
The interactive version of the News
Corporation 2010 Annual Report can be found
at: www.newscorp.com
405449_Cover.indd 2
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8/18/10 6:28 AM
1211 Avenue of the Americas
New York, NY 10036
www.newscorp.com
405449_Cover.indd 1
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