UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-9141
THE NEWS CORPORATION LIMITED
(Exact name of Registrant as specified in its charter)
Australia
(Jurisdiction of incorporation or organization)
2 Holt Street, Sydney, New South Wales, Australia 2010
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered | |
Ordinary Shares | New York Stock Exchange (1) | |
Preferred Limited Voting Ordinary Shares | New York Stock Exchange (1) | |
American Depositary Shares, each of which represents four Ordinary Shares of The News Corporation Limited | New York Stock Exchange | |
American Depositary Shares, each of which represents four Preferred Limited Voting Ordinary Shares of The News Corporation Limited | New York Stock Exchange | |
Guarantee of the 8 5/8% Cumulative Guaranteed Preference Shares, Series A, of Newscorp Overseas Limited | New York Stock Exchange (2) | |
Guarantee of the Adjustable Rate Cumulative Preference Shares, Series B, of Newscorp Overseas Limited | New York Stock Exchange (2) |
(1) | The listing of Registrants Ordinary Shares and Preferred Limited Voting Ordinary Shares on the New York Stock Exchange is for technical purposes only and without trading privileges. |
(2) | This Guarantee does not trade separately from the Preference Shares of Newscorp Overseas Limited. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Guarantees by The News Corporation Limited of the following securities issued by News America Incorporated: (i) 8 1/2% Senior Notes due 2005; (ii) 6.625% Senior Debentures due 2008; (iii) 7 3/8% Senior Debentures due 2008; (iv) 4.750% Senior Notes due 2010; (v) 9 1/4% Senior Debentures due 2013; (vi) 8 5/8% Senior Debentures due 2014; (vii) 7.6% Senior Debentures due 2015; (viii) 8% Senior Debentures due 2016; (ix) 7 1/4% Senior Debentures due 2018; (x) 8 1/4% Senior Debentures due 2018; (xi) Liquid Yield Option Notes due 2021; (xii) 8 7/8% Senior Debentures due 2023; (xiii) 7 3/4% Senior Debentures due 2024; (xiv) 7 3/4% Senior Debentures due 2024; (xv) 9 1/2% Senior Debentures due 2024; (xvi) 8 1/2% Senior Debentures due 2025; (xvii) 7.7% Senior Debentures due 2025; (xviii) 7.43% Senior Debentures due 2026; (xix) 7 1/8% Senior Debentures due 2028; (xx) 7.3% Senior Debentures due 2028; (xxi) 7.28% Senior Debentures due 2028; (xxii) 7.625% Senior Debentures due 2028; (xxiii) 6.703% Mandatory Par Put Remarketed Securities due 2034; (xxiv) 8.45% Senior Debentures due 2034; (xxv) 8.15% Senior Debentures due 2036; (xxvi) 6 3/4% Senior Debentures due 2038; (xxvii) 7.75% Senior Debentures due 2045; (xxviii) 7.9% Senior Debentures due 2095; and (xxix) 8 1/4% Senior Debentures due 2096.
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares |
2,097,411,050 | |
Preferred Limited Voting Ordinary Shares |
3,230,365,260 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 x
Page |
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PART 1 |
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ITEM 1. Identity of Directors, Senior Management and Advisers |
2 | * | |
2 | * | ||
ITEM 3. Key Information |
2 | ||
ITEM 4. Information on the Company |
5 | ||
31 | |||
56 | |||
69 | |||
ITEM 8. Financial Information |
72 | ||
ITEM 9. The Offer and Listing |
72 | ||
ITEM 10. Additional Information |
74 | ||
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk |
83 | ||
ITEM 12. Description of Securities Other Than Equity Securities |
84 | * | |
PART II |
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84 | |||
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |
84 | ||
ITEM 15. Controls and Procedures |
84 | ||
ITEM 16. Reserved |
84 | ||
ITEM 16A. Audit Committee Financial Expert |
84 | * | |
ITEM 16B. Code of Ethics |
85 | ||
ITEM 16C. Principal Accountant Fees and Services |
85 | * | |
ITEM 16D. Exemptions from the Listing Standards for Audit Committees |
85 | * | |
PART III |
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ITEM 17: Financial Statements |
86 | ||
ITEM 18: Financial Statements |
86 | ||
ITEM 19: Exhibits |
88 |
* | Not applicable |
1
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
Selected Financial Data
The selected financial data below are set forth in Australian dollars (except as otherwise indicated), and are derived from the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries appearing elsewhere herein and from certain financial data in previously filed annual reports on Form 20-F, as applicable. Certain reclassifications, however, have been made to financial data for fiscal years prior to fiscal 2003 in order to conform to the fiscal 2003 presentation.
The Consolidated Financial Statements of The News Corporation Limited and Subsidiaries have been prepared in accordance with accounting principles generally accepted in Australia (A-GAAP). A-GAAP differs significantly in certain respects from accounting principles generally accepted in the United States (US-GAAP). A discussion of these significant differences for each of the fiscal years 2001 through 2003 is contained in Note 34 to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries set forth elsewhere herein and Item 5. Operating and Financial Review and ProspectsUS-GAAP Reconciliation.
The selected financial data should be read in conjunction with, and are qualified in their entirety by reference to, the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries (including the notes thereto) set forth elsewhere herein.
Fiscal Year Ended June 30, 1 |
||||||||||||||||||||
1999 |
2000 |
2001 |
2002 |
2003 |
||||||||||||||||
(A$ in millions) | ||||||||||||||||||||
Amounts in Accordance with A-GAAP |
||||||||||||||||||||
Statement of Financial Performance data: |
||||||||||||||||||||
Sales Revenue |
$ | 21,774 | $ | 22,433 | $ | 25,578 | $ | 29,014 | $ | 29,913 | ||||||||||
Depreciation and amortization |
510 | 562 | 706 | 749 | 776 | |||||||||||||||
Operating income |
2,752 | 2,742 | 3,093 | 3,542 | 4,352 | |||||||||||||||
Net loss from associated entities |
(545 | ) | (298 | ) | (249 | ) | (1,434 | ) | (89 | ) | ||||||||||
Net borrowing costs |
773 | 814 | 935 | 1,000 | 791 | |||||||||||||||
Dividends on exchangeable securities |
80 | 79 | 90 | 93 | 94 | |||||||||||||||
Net profit (loss) attributable to members of the parent entity |
1,088 | 1,921 | (746 | ) | (11,962 | ) | 1,808 | |||||||||||||
Basic/Diluted earnings per share on net profit (loss) attributable to members of the parent entity: |
||||||||||||||||||||
Ordinary shares |
0.25 | 0.42 | (0.17 | ) | (2.17 | ) | 0.31 | |||||||||||||
Preferred limited voting ordinary shares |
0.30 | 0.51 | (0.21 | ) | (2.60 | ) | 0.37 | |||||||||||||
Dividends per ordinary share |
0.030 | 0.030 | 0.030 | 0.015 | 2 | 0.030 | ||||||||||||||
Dividends per preferred ordinary share |
0.075 | 0.075 | 0.075 | 0.0375 | 0.075 | |||||||||||||||
Dividends per ordinary share in U.S. dollars |
US$ | 0.019 | US$ | 0.018 | US$ | 0.016 | US$ | 0.008 | US$ | 0.018 | ||||||||||
Dividends per preferred ordinary share in U.S. dollars |
US$ | 0.047 | US$ | 0.047 | US$ | 0.041 | US$ | 0.020 | US$ | 0.044 | ||||||||||
Statement of Financial Position data at period end: |
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Cash |
$ | 7,483 | $ | 4,638 | $ | 5,615 | $ | 6,337 | $ | 6,746 | ||||||||||
Total assets |
53,972 | 65,585 | 84,961 | 71,441 | 67,747 | |||||||||||||||
Total interest bearing liabilities |
13,167 | 15,431 | 18,805 | 15,441 | 12,429 | |||||||||||||||
Total shareholders equity |
27,109 | 32,660 | 47,595 | 39,468 | 38,721 | |||||||||||||||
Amounts in Accordance with US-GAAP |
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Income statement data: |
||||||||||||||||||||
Revenues |
$ | 21,704 | $ | 22,337 | $ | 25,387 | $ | 28,776 | $ | 29,752 | ||||||||||
Depreciation and amortization |
1,033 | 1,108 | 1,321 | 1,373 | 717 | |||||||||||||||
Operating income |
2,012 | 1,509 | 1,823 | 256 | 3,886 | |||||||||||||||
Equity in losses of associated companies |
(509 | ) | (936 | ) | (1,711 | ) | (14,840 | ) | (584 | ) | ||||||||||
Interest, net |
783 | 829 | 935 | 1,000 | 793 | |||||||||||||||
Other income (expense) |
1,317 | 1,924 | 635 | 1,965 | 171 | |||||||||||||||
Income (loss) before cumulative effect of accounting change and extraordinary item |
963 | (329 | ) | 740 | (14,552 | ) | 1,421 | |||||||||||||
Net income (loss) |
963 | (329 | ) | (218 | ) | (14,670 | ) | 1,421 | ||||||||||||
Basic and diluted income (loss) before cumulative effect of accounting change per share: |
||||||||||||||||||||
Ordinary shares |
0.24 | (0.09 | ) | 0.15 | (2.64 | ) | 0.24 | |||||||||||||
Preferred limited voting ordinary shares |
0.29 | (0.10 | ) | 0.18 | (3.16 | ) | 0.29 | |||||||||||||
Basic and Diluted Net income (loss) per share: |
||||||||||||||||||||
Ordinary shares |
0.29 | (0.09 | ) | (0.06 | ) | (2.66 | ) | 0.24 | ||||||||||||
Preferred limited voting ordinary shares |
0.29 | (0.10 | ) | (0.07 | ) | (3.19 | ) | 0.29 |
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Fiscal Year Ended June 30, 1 | |||||||||||||||
1999 |
2000 |
2001 |
2002 |
2003 | |||||||||||
(A$ in millions) | |||||||||||||||
Balance sheet data at period end: |
|||||||||||||||
Cash |
$ | 7,483 | $ | 4,638 | $ | 5,615 | $ | 6,337 | $ | 6,746 | |||||
Total assets |
47,094 | 57,986 | 81,466 | 65,837 | 62,634 | ||||||||||
Total interest bearing liabilities |
13,167 | 15,431 | 18,805 | 15,441 | 12,429 | ||||||||||
Total shareholders equity |
14,195 | 18,554 | 36,427 | 24,953 | 22,729 |
1 | See Note 32 to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries for information with respect to significant acquisitions and dispositions during fiscal 2001, 2002 and 2003. In fiscal 1999, News Corporation acquired substantially all of Liberty Media Corporations interest in Fox Sports Networks LLC for aggregate consideration of approximately US$1.3 billion. Also, in fiscal 1999 News Corporation sold News America Publications and certain related assets to TV Guide, Inc. in exchange for common stock representing a 43.6% equity interest in TV Guide, Inc. and net cash of US$671 million. |
2 | See Note 1 to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries for information with respect to a change in dividend policy in fiscal 2002. |
Exchange Rates
The following table sets forth, for the periods indicated, information concerning the Noon Buying Rates in New York City for Australian dollars, expressed as US$ per A$1.00.
Month |
High |
Low | ||
April 2003 |
0.6212 | 0.5970 | ||
May 2003 |
0.6585 | 0.6192 | ||
June 2003 |
0.6729 | 0.6564 | ||
July 2003 |
0.6823 | 0.6454 | ||
August 2003 |
0.6653 | 0.6390 | ||
September 2003 |
0.6810 | 0.6395 |
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Fiscal Year Ended June 30, |
Average* | |
1999 |
0.6246 | |
2000 |
0.6256 | |
2001 |
0.5320 | |
2002 |
0.5237 | |
2003 |
0.5240 | |
2004 (through October 24, 2003) |
0.6619 |
* | The average rate is calculated by using the average of the Noon Buying Rates on the last day of each month during the relevant period. |
On October 24, 2003, the Noon Buying Rate was $0.7009 per A$1.00.
Special Note Regarding Forward Looking Statements
This document contains statements that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, 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 News Corporation Limited (News Corporation), its directors or its officers with respect to, among other things, trends affecting News Corporations financial condition or results of operations. These forward-looking statements are subject to risks, uncertainties and assumptions about News Corporation and its businesses and are not guarantees of performance. These risks and uncertainties are described below and elsewhere in this document. News Corporation does not ordinarily make projections of its future operating results and undertakes no 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 the other documents filed by News Corporation and its subsidiaries with the Securities and Exchange Commission.
Risk Factors
News Corporations business, financial condition or results of operations could be materially adversely affected by any or all of the following risk factors.
A decline in advertising expenditures could cause News Corporations revenues and operating results to decline significantly in any given period or in specific markets.
News Corporation derives substantial revenues from the sale of advertising on its television stations, broadcast and cable networks and direct-to-home (DTH) television services and in its newspapers and inserts. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers spending priorities. This could cause News Corporations revenues and operating results to decline significantly in any given period or in specific markets.
Acceptance of our film and television programming by the public is difficult to predict, which could lead to fluctuations in revenues.
Feature film and television production and distribution are speculative businesses since the revenues derived from the production and distribution of a feature film or television series depend primarily upon its acceptance by the public, which is difficult to predict. The commercial success of a feature film or television series also depends upon the quality and acceptance of other competing films and television series released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Further, the theatrical success of a feature film and the audience ratings for a television series are generally key factors in generating revenues from other distribution channels, such as home video and premium pay television with respect to feature films and syndication with respect to television series.
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Changes in U.S. or foreign communications laws and other regulations may have an adverse effect on News Corporations business.
In general, the television broadcasting and cable industries in the U.S. are highly regulated by federal laws and regulations issued and administered by various federal agencies, including the Federal Communications Commission (the FCC). The FCC generally regulates, among other things, the ownership of media, including ownership by non-U.S. citizens, broadcast programming and technical operations. Further, the U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters, including technological changes, which could, directly or indirectly, affect the operations and ownership of News Corporations U.S. broadcast properties. Similarly, changes in regulations imposed by governments in other jurisdictions in which News Corporation, or entities in which News Corporation has an interest, operate could adversely affect News Corporations business and results of operations.
News Corporation is controlled by one principal shareholder.
Approximately 30% of the Ordinary Shares of News Corporation are owned by (i) K. Rupert Murdoch, (ii) Cruden Investments Pty. Limited, a private Australian investment company owned by Mr. Murdoch, members of his family and various corporations and trusts, the beneficiaries of which include Mr. Murdoch, members of his family and certain charities, and (iii) corporations, which are controlled by trustees of settlements and trusts set up for the benefit of the Murdoch family, certain charities and other persons. By virtue of the shares of News Corporation owned by such persons and entities, and Mr. Murdochs positions as Chairman and Chief Executive of News Corporation, Mr. Murdoch may be deemed to control the operations of News Corporation.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
Introduction
The News Corporation Limited is a diversified international media and entertainment company with operations in eight industry segments, including filmed entertainment, television, cable network programming, direct broadcast satellite television, magazines and inserts, newspapers, book publishing and other. The activities of News Corporation are conducted principally in the United States (U.S.), the United Kingdom (U.K.), Italy and Asia, Australia and the Pacific Basin (Australasia).
News Corporation is a holding company which conducts all of its activities through subsidiaries and affiliates. It traces its origin to 1922, when News Limited was incorporated, and in 1923 began to publish a daily newspaper in the city of Adelaide, Australia. In 1979, News Corporation, as presently organized, was incorporated under the Companies Act 1961 of South Australia, Australia. The Australian Company Number of News Corporation is 007 910 330. Unless otherwise indicated, references herein to News Corporation or the Group include its subsidiaries, its affiliates and their subsidiaries, and their respective predecessors.
News Corporations subsidiaries, Fox Entertainment Group, Inc. and NDS Group plc (NDS), and certain of the companies in which News Corporation owns equity interests, including British Sky Broadcasting Group plc (BSkyB) and Gemstar-TV Guide International, Inc. (Gemstar-TV Guide), are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports and other information with the Securities and Exchange Commission (SEC).
The descriptions of News Corporations businesses which appear in this Item 4 are provided as of September 30, 2003, unless otherwise indicated. Additional information about the general development of News Corporations businesses, including information concerning principal capital expenditures and divestitures, is set forth in Item 5. Operating and Financial Review and Prospects and in Notes to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries. Also, see Note 2 to the
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Consolidated Financial Statements of The News Corporation Limited and Subsidiaries for financial information in Australian dollars by industry segment and by geographical area for each of the last three fiscal years with respect to News Corporation and its subsidiaries which are consolidated for financial statement purposes.
News Corporation maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30 in each year. As set forth herein, references to fiscal years are to the fiscal years of News Corporation ending in June or July, as appropriate, in each such year. References herein to Ordinary Shares and Preferred Shares are, respectively, to News Corporations ordinary shares and preferred limited voting ordinary shares. References to years (e.g., 2003) are to calendar years, unless otherwise indicated. References herein to $ or US$, A$, £ and are, respectively, to U.S. dollars, Australian dollars, U.K. pounds sterling and Euros, the currency of the European Union. For information with respect to exchange rates, see Item 3. Key Information Selected Financial Data.
News Corporations principal executive offices are located at 2 Holt Street, Sydney, New South Wales 2010, Australia. The telephone number is 61 2 9288 3000. News Corporations U.S. headquarters are located at 1211 Avenue of the Americas, New York, New York 10036. The telephone number is 212 852-7000.
BUSINESS OVERVIEW
United States Operations
News America Incorporated (News America), the principal U.S. subsidiary of News Corporation, is an operating company and holding company which, together with its subsidiaries and affiliates, conducts substantially all U.S. activities of News Corporation.
News Americas subsidiary, Fox Entertainment Group, Inc. (together with its subsidiaries, FEG), is principally engaged in the development, production and worldwide distribution of feature films and television programs, television broadcasting and cable network programming. As of September 30, 2003, News Corporation owned approximately 80.6% of the equity and 97.0% of the voting power of FEG. FEGs Class A Common Stock is listed on the New York Stock Exchange under the symbol FOX.
Filmed Entertainment
FEG engages in feature film and television production and distribution principally through the following businesses: Fox Filmed Entertainment (FFE), a producer and distributor of feature films; Twentieth Century Fox Television (TCFTV), a producer of network television programming; Twentieth Television, a producer and distributor of television programming; and Fox Television Studios (FtvS), a producer of broadcast and cable programming.
Feature Film Production and Distribution
One of the worlds largest producers and distributors of motion pictures, FFE produces, acquires and distributes motion pictures throughout the world under a variety of arrangements. During fiscal 2001, 2002 and 2003, FFE placed 20, 22 and 23 motion pictures, respectively, in general release in the U.S. Those motion pictures were produced or acquired by the following units of FFE: Twentieth Century Fox and Fox 2000, which produce motion pictures for mainstream audiences; Fox Searchlight Pictures, which produces and acquires specialized motion pictures; and Twentieth Century Fox Animation, which produces feature length animated motion pictures. Successful motion pictures produced and/or distributed by FFE in the U.S. and international territories since the beginning of fiscal 2001 include X-Men, Cast Away (together with DreamWorks SKG), Moulin Rouge, Dr. Dolittle 2, Ice Age, Planet of the Apes, Star Wars Episode II: Attack of the Clones, Minority Report (together with DreamWorks SKG), Road to Perdition (together with DreamWorks SKG), X-2: X-Men United, Daredevil, 28 Days Later and Bend it Like Beckham. FEG currently plans to release approximately 25 motion pictures in the U.S. in fiscal 2004, including Master and Commander (together with Universal Studios and Miramax Film Corp.), Stuck on You, Cheaper by the Dozen, The Day After Tomorrow and Garfield.
Motion picture companies, such as FFE, typically seek to generate revenues from various distribution channels. FFE derives its worldwide motion picture revenues primarily from four basic sources (set forth in general chronology of exploitation): (i) distribution of motion pictures for theatrical exhibition in the U.S. and Canada and markets outside of the U.S. and Canada (International markets); (ii) distribution of motion pictures in various home media formats; (iii) distribution of motion pictures for exhibition on pay-per-view,
6
video-on-demand and premium pay television programming services; and (iv) distribution of motion pictures for exhibition on free television networks, other broadcast program services, independent television stations and basic cable programming services, including certain services which are affiliates of FEG and News Corporation. FEG does not always have rights in all media of exhibition to all motion pictures which it releases, and does not necessarily distribute a given motion picture in all of the foregoing media in all markets.
FEG distributes and markets its films worldwide principally through its own distribution and marketing companies. FEG believes that the pre-release marketing of a feature film is an integral part of its motion picture distribution strategy and generally begins marketing efforts three to six months in advance of a films release date in any given territory.
Through Twentieth Century Fox Home Entertainment, Inc., FEG distributes motion pictures and other programming produced by units of FFE, its affiliates and other producers in the U.S., Canada and International markets in all home media formats, including the sale and rental of videocassettes and DVDs. In fiscal 2003, the domestic home entertainment division released or re-released over 450 produced and acquired titles, including 23 new FFE releases, approximately 390 catalog titles and approximately 60 television and non-theatrical titles. In International markets, FEG distributed produced and acquired titles both directly and through foreign distribution channels, with approximately 500 releases in fiscal 2003, including 45 new FFE releases, nearly 300 catalog titles and approximately 200 television and non-theatrical releases. In addition, FEG has an agreement with Metro-Goldwyn-Mayer (MGM) to distribute its video product in most International markets in return for certain fees. FEG released over 300 MGM Home Entertainment theatrical, catalog and television programs Internationally in fiscal 2003.
Units of FFE license motion pictures and other programs in the U.S., Canada and International markets to various third parties and certain affiliated subscription pay television, pay-per-view and video-on-demand services. The license agreements reflecting the subscription pay television arrangements generally provide for a specified number of exhibitions of the program during a fixed term in exchange for a license fee which is based on a variety of factors, including the box office performance of each program and the number of subscribers to the service or system. The license agreements reflecting the pay-per-view and video-on-demand services arrangements generally provide for a license fee based on a percentage of the licensees gross receipts from the exhibition of the program, and in some cases, a guaranteed minimum fee. In addition, these agreements generally provide for a minimum number of scheduled pay-per-view exhibitions and a minimum video-on-demand exhibition period during a fixed term. Among third-party license agreements that units of FFE have in place in the U.S. for television exhibition of its motion pictures are exclusive subscription pay television license agreements with Home Box Office (HBO), providing for the licensing of films initially released for theatrical exhibition through the year 2009, as well as arrangements with Starz Encore Group and an exclusive basic cable television license agreement with American Movie Classics. Units of FFE also license motion pictures in the U.S. to direct-to-home (DTH) pay-per-view services operated by DIRECTV, Inc. and EchoStar Communications Corporation, as well as to pay-per-view and video-on-demand services operated by iN DEMAND L.L.C. In addition, in International markets, units of FFE license motion pictures to leading third-party pay television services and pay-per-view services as well as to emerging video-on-demand services and programming services operated by various affiliated entities.
In addition, pursuant to an agreement with Monarchy Enterprises Holdings B.V. (MEH), the parent company of Regency Entertainment (USA), Inc. (New Regency) in which FEG has a 20% interest, FFE distributes certain New Regency films and all films co-financed by FEG and New Regency in all media worldwide, excluding certain international territories with respect to theatrical and home video rights and most international territories with respect to television rights. Among its 2004 releases, FEG currently expects to release four New Regency films, one of which is co-financed by FEG and New Regency.
Due to increased competition and costs associated with film production, film studios and FEG constantly evaluate the risks and rewards of production. Various strategies are used to balance risk with capital needs, including co-production, contingent profit participations, acquisition of distribution rights only and insurance. In March 2001, FEG entered into a new series of film rights agreements whereby a controlled consolidated subsidiary of FEG, Cornwall Venture LLC (NM2), that holds certain library film rights, funds the production or acquisition costs of all eligible films, as defined in the agreements, to be produced or acquired by Twentieth Century Fox Film Corporation (TCF), a subsidiary of FEG, between 2001 and 2005 (these film rights agreements are collectively referred to as the New Millennium II Agreement). NM2 is a separate legal entity from FEG and TCF and has separate assets and liabilities. NM2 issued a preferred limited liability membership interest (Preferred Interest) to a third party to fund the film financing, which is presented on the consolidated balance sheets as Minority interest in subsidiaries. The Preferred Interest has no fixed redemption rights but is entitled to an allocation of the gross receipts to be derived by NM2 from the
7
distribution of each eligible film. Such allocation, to the extent available based on the gross receipts from the distribution of the eligible films, consists of (i) a return on the Preferred Interest (the Preferred Payments), based on certain reference rates (generally based on commercial paper rates or LIBOR) prevailing on the respective dates of determination, and (ii) a redemption of the Preferred Interest, based on a contractually determined amortization schedule. The Preferred Interest has a preference in the event of a liquidation of NM2 equal to the unredeemed portion of the investment plus any accrued and unpaid Preferred Payments. As of June 30, 2003, there was approximately A$1,148 million (US$762 million) of Preferred Interests outstanding, which is included in the consolidated balance sheets as Minority interest in subsidiaries. On September 19, 2003, News Corporation purchased substantially all of the outstanding equity of Tintagel Investors L.L.C. (Tintagel), the entity that held the Preferred Interest in NM2, for A$38.3 million (US$25.5 million) plus accrued and unpaid Preferred Payments in the amount of approximately A$159,109 (US$106,000). As a result of the acquisition of this equity interest, News Corporation will consolidate the assets and liabilities of Tintagel for accounting purposes. The June 30, 2003 outstanding NM2 Preferred Interest of A$1,148 million (US$762 million), included in Minority interest in subsidiaries prior to the acquisition, will be eliminated upon consolidation, and Tintagels June 30, 2003 outstanding indebtedness of A$1,109 million (US$736 million) will now be included in Interest bearing liabilities on the consolidated balance sheet of News Corporation. After the acquisition, Tintagel will continue to be a separate legal entity from News Corporation with separate assets and liabilities. For more detail regarding this agreement, see Item 5. Operating and Financial Review and Prospects Liquidity and Capital Resources.
Motion picture production and distribution are highly competitive businesses. FEG competes with other film studios, independent production companies and others for the acquisition of artistic properties, the services of creative and technical personnel, exhibition outlets and the publics interest in its products. The number of motion pictures released by FEGs competitors, particularly the other major film studios, in any given period may create an oversupply of product in the market, may reduce FEGs shares of gross box office admissions and may make it more difficult for FEGs motion pictures to succeed. The commercial success of the motion pictures produced and/or distributed by FEG is substantially affected by the publics often unpredictable response to them.
Competitive risks affecting FEGs home entertainment business include competition among home video formats, such as DVDs, and with other methods of distribution, such as video-on-demand services, as well as risks associated with controlling copying and unauthorized distribution of FEGs programs.
Television Programming, Production and Distribution
Twentieth Century Fox Television. During the past three fiscal years, TCFTV produced television programs for the FOX, ABC, CBS, NBC, UPN and WB broadcast television networks. TCFTV currently produces or has orders to produce episodes of the following television series: The Big House, Married to the Kellys and The Practice for ABC; Judging Amy, Still Standing, and Yes Dear (each co-produced with CBS Worldwide Inc.) for CBS; 24, Arrested Development, The Bernie Mac Show (a co-production with FtvS), Boston Public, Cracking Up, King of the Hill, The Simple Life, The Simpsons, Still Life, Tru Calling and Wonderfalls for FOX; The Lyons Den and Miss Match for NBC; and Angel and Reba for the WB. Generally, a network will license a specified number of episodes for exhibition on the network during the license period. All other distribution rights, including International and off-network syndication rights, are typically retained by TCFTV.
Generally, television programs are produced under contracts that provide for license fees which may cover only a portion of the anticipated production costs. As these costs have increased in recent years, the resulting deficit between production costs and license fees for domestic first-run programming has also increased. Therefore, additional licensing is often critical to the financial success of a series since the license fee paid by a network generally does not fully recover production costs. Successful U.S. network television series are licensed for (i) first-run exhibition in Canadian and International markets, (ii) off-network exhibition in the U.S. (including in syndication or to cable programmers) and (iii) syndication in International markets. Generally, a series must be broadcast for at least three to four television seasons for there to be a sufficient number of episodes to offer the series in syndication in the U.S. or to cable and direct broadcast satellite (DBS) programmers in the U.S. The decision of a television network to continue a series through an entire television season or to renew a series for another television season depends largely on the series audience ratings.
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Twentieth Television. Twentieth Television licenses off-network television programming produced by FEG develops and produces original reality and first-run television programming for sales to the Fox Television Stations, national syndication, the Fox Broadcasting Company (FOX), FEGs cable network business and basic cable networks; and sells national advertising units retained by Twentieth Television in off-network and first-run syndicated television programming. Twentieth Television derives revenue from off-network and syndication licensing in the form of cash license fees paid by both broadcast and cable licensees and the sale of national advertising units retained by Twentieth Television in the programs.
Fox Television Studios. FtvS is a program supplier to the major U.S. broadcast and cable networks as well as a growing number of emerging and international networks. FtvS produces or has orders to produce several U.S. broadcast and cable series including Malcom in the Middle (through Regency Television, a co-venture with New Regency Enterprises) and The Bernie Mac Show (co-production with TCFTV) for FOX; The Shield (produced in association with Columbia TriStar Domestic Television) and Son of the Beach for FX Networks and American Family for PBS. It also has or will produce a variety of made for television movies and miniseries. Its non-fictional shows include A&Es Biography, and its international productions include 12 separate versions of Temptation Island. FtvS also produces a variety of game shows and talk series, specials and other forms of programming for top U.S. and international telecasters.
Similar to motion picture production and distribution, production and distribution of television programming is extremely competitive. FEG competes with other film studios, independent production companies and others for the acquisition of artistic properties, the services of creative and technical personnel, exhibition outlets and the publics interest in its products. In addition, television networks are now producing more programs internally, which may reduce such networks demand for programming from other parties.
Motion Picture and Television Libraries
FEGs motion picture and television library (the Fox Library) consists of varying rights to over 3,260 previously released motion pictures, of which over 400 have been released since 1980, and many well-known television series. The motion pictures in the Fox Library include many successful and well-known titles, such as The Sound of Music and Miracle on 34th Street, and eight of the top 18 domestic box office grossing films of all time, which are Titanic (together with Paramount Pictures Corporation), Star Wars Episode I: The Phantom Menace, Independence Day, Star Wars, Return of the Jedi, The Empire Strikes Back, Star Wars Episode II: Attack of the Clones and Home Alone. FEG earns significant revenues through the licensing of titles in the Fox Library in many media, including television and home entertainment formats, and through licensing and merchandising of films and characters in films.
In addition, the Fox Library contains varying rights to certain television series and made-for-television motion pictures. The television library contains such classic series as Batman, The Mary Tyler Moore Show, M*A*S*H, Hill Street Blues, Doogie Howser, M.D., L.A. Law, The Wonder Years, Picket Fences, Room 222, Trapper John, M.D., Daniel Boone, The X-Files and Buffy the Vampire Slayer, as well as such current hits as The Simpsons, NYPD Blue, The Practice, King of the Hill, Judging Amy (together with CBS Worldwide, Inc.), Malcom in the Middle, The Bernie Mac Show, 24, The Shield and Boston Public.
Television
News Corporation is engaged in the distribution of network and cable television programming and the operation of broadcast television stations.
Fox Television Stations
Fox Television Stations currently owns and operates 35 full power stations, of which 25 are affiliates of FOX, including stations located in nine of the top ten largest designated market areas (DMAs), and 9 are affiliates of the United Paramount Network (UPN), including stations located in four of the top ten DMAs. Fox Television Stations owns and operates two stations in nine DMAs, including New York, Los Angeles, and Chicago, the first, second, and third largest DMAs, respectively.
The affiliation agreements with UPN generally extend through at least the 2003-2004 season and may be extended at the option of the stations through the 2005-2006 season. UPN provides approximately 13 hours of programming a week, including two-hour prime-time programming blocks five nights a week, to its affiliates. For a description of the programming offered to FOX affiliates, see Television Broadcast Network.
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The following table lists certain information about each Fox Television Station. Unless otherwise noted, all stations are FOX affiliates.
DMA/RANK |
STATION |
CHANNEL/TYPE |
PERCENTAGE OF U.S. TELEVISION HOUSEHOLDS REACHED (1) | |||||||
New York, NY |
1 | WNYW |
5 | VHF | 6.8% | |||||
WWOR (2) |
9 | VHF | ||||||||
Los Angeles, CA |
2 | KTTV |
11 | VHF | 5.0% | |||||
KCOP (2) |
13 | VHF | ||||||||
Chicago, IL |
3 | WFLD |
32 | UHF | 3.1% | |||||
WPWR (2) |
50 | UHF | ||||||||
Philadelphia, PA |
4 | WTXF |
29 | UHF | 2.7% | |||||
Boston, MA |
6 | WFXT |
25 | UHF | 2.3% | |||||
Dallas, TX |
7 | KDFW |
4 | VHF | 2.0% | |||||
KDFI (3) |
27 | UHF | ||||||||
Washington, DC |
8 | WTTG |
5 | VHF | 2.0% | |||||
WDCA (2) |
20 | UHF | ||||||||
Atlanta, GA |
9 | WAGA |
5 | VHF | 1.8% | |||||
Detroit, MI |
10 | WJBK |
2 | VHF | 1.8% | |||||
Houston, TX |
11 | KRIV |
26 | UHF | 1.7% | |||||
KTXH (2) |
20 | UHF | ||||||||
Tampa, FL |
13 | WTVT |
13 | VHF | 1.5% | |||||
Minneapolis, MN |
14 | KMSP |
9 | VHF | 1.5% | |||||
WFTC (2) |
29 | UHF | ||||||||
Cleveland, OH |
15 | WJW |
8 | VHF | 1.4% | |||||
Phoenix, AZ |
16 | KSAZ |
10 | VHF | 1.4% | |||||
KUTP (2) |
45 | UHF | ||||||||
Denver, CO (4) |
18 | KDVR |
31 | UHF | 1.3% | |||||
Orlando, FL |
20 | WOFL |
35 | UHF | 1.1% | |||||
WRBW (2) |
65 | UHF | ||||||||
St. Louis, MO |
22 | KTVI |
2 | VHF | 1.1% | |||||
Baltimore, MD |
24 | WUTB (2) |
24 | VHF | 1.0% | |||||
Milwaukee, WI |
31 | WITI |
6 | VHF | 0.8% | |||||
Kansas City, MO |
33 | WDAF |
4 | VHF | 0.8% | |||||
Salt Lake City, UT |
36 | KSTU |
13 | VHF | 0.7% | |||||
Birmingham, AL |
40 | WBRC |
6 | VHF | 0.6% | |||||
Memphis, TN |
43 | WHBQ |
13 | VHF | 0.6% | |||||
Greensboro, NC |
46 | WGHP |
8 | VHF | 0.6% | |||||
Austin, TX |
54 | KTBC |
7 | VHF | 0.5% | |||||
Gainesville, FL |
162 | WOGX |
51 | UHF | 0.1% | |||||
Total: |
44.2% |
Source: Nielsen Media Research, January 2003
(1) | VHF stations transmit on Channels 2 through 13 and UHF stations on Channels 14 through 69. UHF television stations in many cases have a weaker signal and therefore do not achieve the same coverage as VHF stations. To address this disparity, the FCC ownership rule applies a UHF discount (the UHF Discount) which attributes only 50% of the television households in a local television market to the audience reach of a UHF television station for purposes of calculating whether that stations owner complies with the 35% national station ownership cap imposed by FCC regulations. In addition, the coverage of two commonly owned stations in the same market is only counted once. Under these rules, Fox Television Stations reaches 37.9% of U.S. households. The percentages listed are rounded and do not take into account the UHF Discount. |
(2) | UPN affiliate. |
(3) | Independent station and secondary FOX affiliate, carrying childrens programming provided by FOX. |
(4) | FEG also owns and operates KFCT, Channel 22, Fort Collins, CO, as a satellite station of KDVR, Channel 31, Denver, CO. |
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Regulatory approval of FEGs acquisition of television stations from Chris-Craft Industries, Inc. and its subsidiaries in July 2001 required FEG to divest sufficient stations to come into compliance with the FCCs national station ownership cap. For more detail regarding the FCCs national ownership cap, see Government RegulationUnited StatesTelevision.
The Fox Television Stations derive substantially all of their revenues from national spot and local advertising. Advertising rates are determined by each Fox Television Station based on market conditions in the area which it serves. In addition to cash sales, the Fox Television Stations enter into customary agreements with syndicators, pursuant to which the Fox Television Stations acquire programming and the rights to sell a specified amount of advertising time for use in national spot and local advertising markets in exchange for allowing the syndicator to retain a specified amount of advertising time for sale in the national advertising market in lieu of cash consideration.
Fox Broadcasting Company
FOX has 183 affiliated stations (FOX Affiliates), including 25 full power television stations that are owned by subsidiaries of FEG, which reach, along with Fox Net, an FEG-owned cable service that reaches areas not served by an over-the-air-FOX Affiliate, approximately 98% of all U.S. television households. In general, each week FOX regularly delivers to its affiliates 15 hours of prime-time programming and one hour of late-night programming on Saturday. FOXs prime-time programming features such series as The Simpsons, King of the Hill, That 70s Show, Malcolm in the Middle, Boston Public, 24, and The Bernie Mac Show; unscripted series such as American Idol; and various movies and specials. In addition, a significant component of FOXs programming consists of sports programming, with FOX providing to its affiliates live coverage (including post-season) of the National Football Conference of the National Football League (NFL) and Major League Baseball (MLB) as well as live coverage of the premiere racing series (the Winston/Nextel Cup and the Busch series) of the National Association of Stock Car Auto Racing (NASCAR). Fox also provides a four-hour block of childrens programming on Saturday mornings, programmed by 4Kids Entertainment (4Kids), a childrens entertainment company. FOXs agreement with 4Kids extends until the 2005-2006 broadcast season.
FOX derives its revenues from sales of commercial advertising time in the national advertising marketplace. FOXs programming line-up is intended to appeal primarily to target audiences of 18 to 49-year old adults, the demographic group that advertisers seek to reach most often. During the 2002-2003 broadcast season, FOX ranked second in prime-time programming based on viewership of adults aged 18 - 49 (NBC had a 4.5 rating and a 12 share, FOX had a 4.3 rating and a 12 share, CBS had a 3.8 rating and a 10 share and ABC had a 3.8 rating and a 10 share). The median age of the FOX viewer is 35 years, as compared to 44 years for NBC, 46 years for ABC and 52 years for CBS.
FEG obtains programming for FOX from major television studios and independent television production companies pursuant to license agreements. The terms of such agreements generally provide FEG with the right to broadcast a television series for a minimum of four seasons. FOX licenses its film programming from major film studios and independent film production companies. National sports programming, such as NFL, MLB and NASCAR programming, is obtained under license agreements with professional sports leagues or organizations. FEGs current licenses with the NFL, MLB, and NASCAR extend until the 2005-2006 NFL season, the 2006 MLB season, and the 2008 NASCAR season, respectively, assuming no early terminations.
FOX provides programming to the FOX Affiliates in accordance with affiliation agreements of varying durations, which grant to each affiliate the right to broadcast network television programming on the affiliated station. Such agreements typically run three or more years and have staggered expiration dates. These affiliation agreements generally require FOX Affiliates to carry FOX programming in all time periods in which FOX programming is offered to such affiliates, subject to certain exceptions stated in the affiliation agreements. In 2002, FOX renewed arrangements with the primary FOX Affiliates relating to both the amount of commercial advertising time in FOX prime-time programming that FOX provides to each affiliate for the affiliate to sell to advertisers (local commercial advertising time) and the compensation each affiliate pays to FOX for such time. FOX is currently completing the renewals of arrangements with the FOX Affiliates relating to the amount of commercial advertising time FOX provides them in NFL, MLB and NASCAR programming and the affiliates contributions toward the cost of FOXs sports rights.
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The network television broadcasting business is highly competitive. FOX directly competes for programming and for viewers with the ABC, NBC, CBS, and the WB and UPN networks. ABC, NBC and CBS each broadcasts a significantly greater number of hours of programming than FOX and, accordingly, may be able to designate or change time periods in which programming is to be broadcast with greater flexibility than FOX. FOX also competes with other non-network sources of television service, including cable television and DBS services. Other sources of competition may include home video exhibition, the Internet and home computer usage. In addition, future technological developments may affect competition within the television marketplace.
FOX competes for advertising revenues with other broadcast networks. Each of ABC, NBC and CBS has a greater number of affiliates with VHF signals, which are generally considered to have greater reach in their markets and, therefore, are more appealing to advertisers.
In addition, each of the Fox Television Stations competes for advertising revenues with radio and television stations and cable systems in its market area and with other advertising media such as newspapers, magazines, outdoor advertising, direct mail and Internet websites. All of the Fox Television Stations are located in highly competitive markets. Additional elements which are material to the competitive position of each of the television stations include management experience, authorized power and assigned frequency of such station. Competition for sales of broadcast advertising time is based primarily on the anticipated and actually delivered size and demographic characteristics of audiences as determined by various rating services, price, the time of day when the advertising is to be broadcast, competition from the other broadcast networks, cable television systems, DBS services and other media and general economic conditions. Competition for audiences is based primarily on the selection of programming, the acceptance of which is dependent on the reaction of the viewing public which is often difficult to predict.
Cable Network Programming
FEG holds interests in cable network programming businesses in the areas of news, sports, general entertainment and movies. The Fox Cable Networks Group includes all of FEGs cable network programming businesses other than the Fox News Channel.
Cable network programming is another highly competitive business. Cable programming services compete for distribution and, when distribution is obtained, compete for viewers and advertisers with over-the-air broadcast television, radio, print media, motion picture theaters, videocassettes, DVDs and other sources of information and entertainment. Important competitive factors include the prices charged for programming, the quantity, quality and variety of programming offered and the effectiveness of marketing efforts. More generally, FEGs cable networks compete with various other leisure-time activities such as home videos, movie theatres, personal computers and other alternative sources of entertainment and information.
Fox News Channel
Fox News Channel (Fox News) is a 24-hour all news cable channel which is currently available to approximately 83 million U.S. cable and DBS households. Fox News also produces a weekend political commentary show, Fox News Sunday, for broadcast on FOX. Fox News, through its Fox News Edge service, licenses news feeds to Fox affiliates and other subscribers to use as part of local news broadcasts.
Fox News Channels primary competition comes from the cable networks CNN, MSNBC, CNBC and Headline News. Fox News also competes for viewers and advertisers within a broad spectrum of television networks, including other cable networks and over-the-air broadcast television.
Fox Sports Networks
Fox Sports Networks operates two principal business units: (i) sports programming operations and (ii) FX Networks LLC (FX), a general entertainment network.
Sports programming operations. Fox Sports Networks, Inc. (FSN) is the largest regional sports network (RSN) programmer in the U.S., focusing on live professional and major collegiate home team sports events. FSNs sports programming business consists primarily of ownership interests in 19 RSNs (the Fox Sports RSNs) and National Sports Partners, a partnership between FSN and Rainbow Media Sports Holdings, Inc. (Rainbow), an indirect subsidiary of Cablevision Systems Corporation (Cablevision), which operates Fox Sports Net, a national sports programming service. Fox Sports Net provides its affiliated RSNs with 24-hour national sports programming featuring original and licensed sports-related programming and live and replay sporting events.
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FSN owns an equity interest in, or through Fox Sports Net is affiliated with, 21 RSNs. These RSNs reach approximately 75.7 million U.S. cable and DBS households and have rights to telecast live games of 70 professional sports teams in the MLB, National Basketball Association (NBA) and the National Hockey League (NHL) (out of a total of 80 such teams in the U.S. and numerous collegiate conferences and sports teams. On September 30, 2003, Fox Sports Net received notice that each of the Chicago Cubs, Bulls, Blackhawks and White Sox have exercised their option to terminate their rights agreement with SportsChannel Chicago Associates, effective September 30, 2004.
FSN owns a 40% interest in Regional Programming Partners (RPP), a partnership with Rainbow which owns various interests in RSNs, the New York Knickerbockers NBA franchise, the New York Rangers NHL franchise, the Madison Square Garden entertainment complex, and Radio City Music Hall, both in New York, New York. For a discussion of purchase and sale rights related to the investment in RPP, see Item 5. Operating and Financial Review and ProspectsLiquidity and Capital Resources.
In January 2002, News Corporation acquired an additional 23.3% voting interest in Sunshine Networks (Sunshine) for approximately A$41.3 million. This resulted in the acquisition of a controlling financial interest in Sunshine and increased News Corporations ownership percentage in Sunshine to approximately 93%. In February 2002, News Corporation acquired an additional approximate 0.4% interest in Sunshine. Since News Corporation obtained a controlling financial interest upon the acquisition in January 2002, Sunshine has been consolidated into the Cable Network Programming segment of News Corporation as it is now under the control of News Corporation.
In January 2003, FSN exercised its right to put its 50% direct ownership interests in SportsChannel Chicago and SportsChannel Pacific Associates (collectively, the SportsChannels) to RPP. In March 2003, RPP and FSN agreed on a US$150 million (A$252 million) purchase price for the interest in the SportsChannels, payable in the form of three-year promissory notes of the subsidiaries of RPP which own only the interests in the Sport Channels, the terms of which are under negotiation. The transaction is expected to close in the first half of fiscal 2004. Following the closing of this sale, the SportsChannels will be held 100% by RPP and indirectly 40% by Fox Sports Net and 60% by Rainbow, and each will remain a Fox Sports Net affiliate.
A number of basic and pay television programming services (such as ESPN) as well as free over-the-air stations and broadcast networks provide programming that targets the Fox Sports RSNs audience. Fox Sports Net is currently the only programming service distributing a full range of sports programming on both a national and regional level. On a national level, Fox Sports Nets primary competitor is ESPN and, to a lesser extent, ESPN2. In regional markets, the Fox Sports RSNs compete with other regional sports networks, including those operated by team owners and other sports programming providers and distributors.
In addition, the Fox Sports RSNs and Fox Sports Net compete, to varying degrees, for sports programming rights. The Fox Sports RSNs compete for local and regional rights with local broadcast television stations, other local and regional sports networks and the owners of distribution outlets such as cable television systems. Fox Sports Net competes for national rights principally with the national broadcast television networks, a number of national cable services that specialize in or carry sports programming, television superstations, which distribute sports and other programming to cable television systems by satellite, and with independent syndicators that acquire and resell such rights nationally, regionally and locally. The owners of distribution outlets such as cable television systems may also contract directly with the sports teams in their service area for the right to distribute a number of such teams games on their systems.
The owners of teams may also launch their own RSN and contract with cable television systems for carriage. In certain markets, the owners of distribution outlets, such as cable television systems, also own one or more of the professional teams in the region, increasing their ability to launch competing networks and thereby limiting the professional sports rights available for acquisition by Fox Sports RSNs.
FX Networks. Launched in 1994, FX Networks LLC (FX) currently reaches approximately 80.3 million U.S. cable and DBS households. FX is a general entertainment network that provides a growing roster of original series and films as well as acquired television series and motion pictures. In addition, FX carries sports programming with live coverage of certain NASCAR events. FXs line-up for the Fall 2003 season
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includes the following syndicated shows: Ally McBeal, The Practice, Married with Children, Beverly Hills 90210 and COPS; and the following original programming: the Emmy® and Golden Globe® award shows, the award winning drama series, The Shield and the new drama series, Nip/Tuck. Also, slated for December is FXs original movie, Redemption: The Stan Tooke Williams Story starring Jamie Foxx.
A number of basic and pay television programming services (such as the USA Network and Turner Network Television) as well as free over-the-air broadcast networks provide programming that targets the same viewing audience as FX. FX also faces competition from these programming services in the acquisition of distribution rights to programming.
SPEED Channel
SPEED Channel, currently reaching approximately 57.5 million U.S. cable and DBS households, focuses on the world of racing, including NASCAR races, events and original programming as well as other racing series, such as Formula One, the Champ Car World Series, World Rally, and Grand American Road Racing events.
FUEL
FUEL, launched on July 1, 2003 and currently reaching approximately 4.7 million U.S. cable and DBS households, is a 24-hour programming service dedicated to the world of extreme sports. FUEL covers both competitive and performance action in the arenas of skateboarding, surfing, BMX, freestyle motocross, snowboarding and wakeboarding. Programming includes international extreme sports events and competitions, and original and co-produced series.
Fox Sports Digital Nets
Fox Sports Digital Nets, currently reaching approximately 2.8 million digital cable households in the U.S., provides out-of-market sports programming from Fox Sports Net affiliated RSNs to digital cable subscribers in the U.S.
Fox Cable Network Ventures
Fox Cable Network Ventures owns a 40% interest in an entity that owns and operates the Staples Center, a sports and entertainment complex in downtown Los Angeles, California. The Staples Center is the home of the Los Angeles Kings NHL franchise and the Los Angeles Lakers and the Los Angeles Clippers NBA franchises.
Fox Sports International
Fox Sports International owns Fox Sports World, a U.S. programming service in the English-language devoted to international sports such as soccer, rugby and cricket, which service is available to approximately 18.1 million cable and DBS subscribers, and Fox Sports World-Middle East, an English-language sports network which airs in the Middle East.
Fox Sports International owns an approximate 38% interest in Fox Pan American Sports LLC (FPAS), with Liberty Media Corporation (Liberty) and Hicks, Muse, Tate & Furst Incorporated owning the remainder. FPAS owns and operates Spanish-language sports businesses, including the Fox Sports Latin America network (a Spanish-language sports network distributed to subscribers in certain Central and South American nations outside of Brazil) and Fox Sports en Espanol (a Spanish-language sports network serving 5.3 million U.S. cable and DBS households).
National Geographic Channels
FEG holds a non-controlling 66.67% interest in NGC Network US, LLC, the producer of The National Geographic Channel in the U.S., with National Geographic Television (NGT) holding the remaining interest. The National Geographic Channel airs documentary programming on such topics as natural history, adventure, science, exploration and culture. The National Geographic Channel currently reaches approximately 44.2 million U.S. cable and DBS households.
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FEG, NBC and NGT own approximately 50%, 25% and 25% interests, respectively, in NGC Network International, LLC (NGCI), which produces The National Geographic Channel for distribution in various international markets, including certain countries in Europe, Asia and Latin America. The National Geographic Channel is currently shown in approximately 133 countries internationally. National Geographic programming is provided in Australia and certain countries in Europe and Scandinavia by a partnership in which BSkyB, NBC and NGT are currently partners.
Fox Movie Channel
Fox Movie Channel (FMC), which is wholly owned by FEG, currently reaches approximately 19.4 million U.S. cable and DBS households. It is Hollywoods first and only studio-based movie network. FMC showcases commercial-free, unedited contemporary hits and classics from the Fox Library, as well as documentaries and series exploring the movie-making process.
Los Angeles Dodgers
FEG owns substantially all of the Los Angeles Dodgers MLB franchise (the Dodgers) and Dodger Stadium. The Dodgers are currently in their 113th year in the National League and in each of the last seven seasons have achieved attendance of over three million fans at Dodger Stadium. On October 10, 2003, News Corporation announced that it had reached an agreement in principle to sell the Los Angeles Dodgers, together with Dodger Stadium and the teams training facilities in Vero Beach, Florida and the Dominican Republic, to an investment group headed by Mr. Frank McCourt. This agreement is subject to MLB approval and customary conditions.
Hughes
In April 2003, News Corporation, General Motors Corporation (GM) and Hughes Electronics Corporation (Hughes) reached an agreement in which News Corporation would acquire 34% of Hughes (the Hughes Transaction). News Corporation will acquire GMs approximate 19.9% interest in Hughes for US$3.8 billion (A$5.7 billion) (subject to upward adjustment), of which US$768 million (A$1,157 million) (subject to upward adjustment) may be paid in News Corporation American Depositary Receipts (ADRs). News Corporation will acquire through a merger an additional 14.1% of Hughes for approximately US$2.7 billion (A$4.1 billion) that is payable, at News Corporations option, in cash, News Corporation ADRs or a combination thereof. Simultaneously with the closing of this transaction, News Corporation will transfer its 34% ownership interest in Hughes to FEG in exchange for promissory notes representing US$4.5 billion (A$6.8 billion) and approximately 74.2 million shares of FEGs Class A Common Stock, thereby increasing News Corporations ownership interest in FEG from 80.6% to approximately 82%. News Corporations voting percentage will remain at 97%. The closing of this transaction is subject to a number of conditions, including regulatory approvals.
Hughes is a provider of digital television entertainment, broadband satellite networks and services, and global video and data broadcasting. Hughes businesses include: DIRECTV, an all-digital multi-channel entertainment service in the United States, and DIRECTV Latin America, a digital multi-channel service provider in Latin America; Hughes Network Systems, a provider of broadband satellite networks and services to both consumers and enterprises; and PanAmSat Corporation, a publicly held company of which Hughes owns approximately 81%, which is a provider of commercial satellite-based video and data and broadcast services.
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Magazines and Inserts
Inserts/Marketing Services
News Corporations U.S. marketing operations are organized under News America Marketing Group (NAMG).
NAMG consists primarily of the free-standing insert division (FSI), and the in-store division, a provider of in-store promotional services (In-Store).
FSI is one of the two largest publishers of promotional free-standing inserts in the U.S. Free-standing inserts are multiple-page promotional booklets containing coupons, sweepstakes, rebates and other consumer offers which are distributed to consumers through insertion into local Sunday newspapers. Advertisers, primarily packaged goods companies, pay FSI to produce free-standing inserts, and FSI contracts with and pays newspapers to include the free-standing inserts into their Sunday editions. FSI produces over 64 million free-standing inserts 46 times a year, which are inserted in more than 700 Sunday newspapers throughout the U.S. FSI, through an affiliate, also produces over 5 million free-standing inserts 15 times annually in Canada, which are inserted into more than 140 Canadian newspapers.
NAMG is a leading provider of in-store marketing products and services, primarily to consumer packaged goods manufacturers, with products in more than 36,000 supermarkets, drug stores and mass merchandisers worldwide.
SmartSource®, the first branded endeavor in the couponing industry, is the brand name which is linked with NAMGs vast assortment of promotional and marketing products, including free-standing inserts and In-Stores instant coupon machines. The SmartSource® brand currently reaches more than 120 million consumers weekly.
The SmartSource iGroup manages NAMGs portfolio of database marketing and on-line marketing products and services. The database marketing business, branded SmartSource Direct, provides database marketing and technology solutions for both retailers and manufacturers. The SmartSource Savings Network, which includes SmartSource.com, is an Internet-based network of more than 50 newspaper, retailer and lifestyle sites connected through a common platform that currently delivers printable coupons, samples and other consumer promotions to an audience of more than 30 million consumers.
NAMG competes against other producers of promotional, advertising inserts and direct mailers of promotional and advertising materials, as well as trade and in-store advertisements and promotions. Competition is based on advertising rates, availability of markets and rate of coupon redemption.
Magazines
News Corporation publishes The Weekly Standard, a weekly magazine offering political commentary.
The Weekly Standard, Inside Out and Donna Hay (see Australasia Magazines and Inserts) compete for readership and advertising with other magazines of similar character and/or with other forms of print and non-print media. Competition for circulation is based upon the editorial and informational content of each publication and its price. Competition for advertising is based on circulation levels, reader demographics, advertising rates and advertiser results.
Newspapers
News Corporation owns the New York Post (the Post), a mass circulation, metropolitan morning newspaper that is published seven days a week in New York City. For the month ended June 30, 2003, the newspaper had average daily circulation of approximately 646,623. Additionally, News Corporation operates NYPOST.COM (www.nypost.com), an Internet website that provides content of a nature similar to that contained in the print version of the Post. News Corporation prints the Post in a printing facility in Bronx, New York.
Book Publishing
Through HarperCollins Publishers (HarperCollins), News Corporation is engaged in English language book publishing on a worldwide basis. HarperCollins is one of the worlds largest English language book publishers. Its most significant components are HarperCollins Publishers Inc., headquartered in New York, HarperCollins Publishers Limited, headquartered in London, and The Zondervan Corporation (Zondervan), headquartered in Grand Rapids, Michigan. HarperCollins primarily publishes fiction and non-fiction, including religious books, for the general consumer. In the U.K., HarperCollins publishes some titles for the educational market as well.
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During fiscal 2003, approximately 73% of HarperCollins revenues were derived from operations in North America and approximately 24% of its revenues were derived from operations in the U.K.. HarperCollins also maintains operations in Canada, Australia, New Zealand and India. These operations, primarily focused on the distribution of books published by HarperCollins in the U.S. and the U.K., also engage in local publishing.
During fiscal 2003, HarperCollins U.S. had 111 adult and childrens titles on The New York Times bestseller list, with 13 titles that reached the #1 spot including Prey by Michael Crichton, Stupid White Men by Michael Moore, The Perricone Prescription by Nicholas Perricone, The Purpose Driven Life by Rick Warren, Dr. Atkins New Diet Revolution by Dr. Robert Atkins, The Divine Secrets of the Ya Ya Sisterhood by Rebecca Wells, The Bad Beginning and The Carnivorous Carnival by Lemony Snicket, Im Gonna Like Me by Jamie Lee Curtis and Laura Cornell, Princess in Waiting and All-American Girl by Meg Cabot, Dancing In My Nuddy-Pants by Louise Rennison, and If You Take a Mouse To School by Laura Numeroff and Felicia Bond. On April 13th, 2003, ten out of ten titles on the The New York Times Childrens Chapter Books bestseller list were HarperCollins childrens titles.
Zondervan, HarperCollins Evangelical Christian Publishing division, published the bestseller The Purpose Driven Life in October 2002. The Purpose Driven Life was #1 on the The New York Times bestseller list and has remained on the list for more than 30 weeks.
HarperCollins competes with other book publishers in all consumer markets.
Other Interests
News Corporation owns approximately 43% of Gemstar-TV Guide. In July 2000, TV Guide, Inc. merged with a subsidiary of Gemstar International Group Limited. As a result of the merger, News Corporation acquired approximately 21% of Gemstar-TV Guide. In May 2001, News Corporation acquired from Liberty an additional approximate 17% interest in Gemstar-TV Guide in exchange for approximately 121.5 million News Corporation ADRs representing approximately 486 million News Corporation Preferred Shares. In December 2001, News Corporation acquired Libertys remaining 4% interest in Gemstar-TV Guide in exchange for approximately 28.8 million News Corporation ADRs representing approximately 115.2 million News Corporation Preferred Shares. Gemstar-TV Guides common stock is quoted on the Nasdaq National Market under the symbol GMST.
Gemstar-TV Guide is a media and technology company that develops, licenses, markets, and distributes technologies, products and services targeted at the television guidance and home entertainment needs of consumers worldwide. Its businesses include technology and intellectual property development and licensing, interactive program guide products and services, and television media and publishing properties.
European Operations
Newspapers
News International Limited (News International), a subsidiary of News Corporation, publishes The Times, The Sunday Times, The Sun and the News of the World in the U.K. Sales of these four newspapers account for approximately one-third of all national newspapers sold in the U.K. Both The Times, a daily published Monday through Saturday, and The Sunday Times are leading broadsheet newspapers. The Sun, published each morning Monday through Saturday, and the News of the World, published on Sunday, are both popular, mass market newspapers. The average paid circulation for each of these four national newspapers during the six months ended June 30, 2003 was: The Times 650,509; The Sunday Times 1,385,882; The Sun 3,526,187; and News of the World 3,876,018.
The printing of all four of News Corporations U.K. newspapers (except Saturday and Sunday supplements) takes place principally in four printing facilities owned by News Corporation which are situated in London, Knowsley (near Liverpool), Glasgow, and Ireland.
The newspapers published by News Corporation compete for readership and advertising with local and national newspapers and compete with television, radio and other communications media in their respective locales. Competition for newspaper circulation is based on the news and editorial content of the newspaper, cover price and, from time to time, various promotions. The success of the newspapers published by News Corporation in competing with other newspapers and media for advertising depends upon advertisers
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judgments as to the most effective use of their advertising budgets. Competition for advertising among newspapers is based upon circulation levels, reader demographics, advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of alternative media, circulation and quality of readership demographics.
Most of News Corporations newspapers are sold primarily by single copies and, to a lesser degree, by subscription. Single copies are sold by retail news agents and a wide variety of alternative retail outlets such as garages and supermarkets which are supplied by employees of News Corporation or independent wholesalers. Newspapers sold on a subscription basis are delivered to consumers homes primarily by independent delivery persons. News Corporations free-circulation newspapers are delivered exclusively by independent delivery persons to consumers homes in areas designated by News Corporation. News Corporation also engages in storage and transport of newsprint.
News Internationals subsidiary, TSL Education Ltd. (TSL), publishes four periodicals for education professionals. The Times Literary Supplement, The Times Educational Supplement, The Times Higher Education Supplement and Nursery World are published weekly.
Television
News Corporation holds an approximate 35% interest in BSkyB. BSkyB is the leading pay television broadcaster in the U.K. and Ireland, and is one of the leading suppliers of content, including movies, news, sports and general entertainment programming, to pay television operators in the U.K. As of June 30, 2003, BSkyB had approximately 10.7 million subscribers in the U.K. and Ireland. Of these subscribers, approximately 6.8 million were DTH subscribers, the remainder being wholesale customers on other platforms.
BSkyBs ordinary shares are listed on the London Stock Exchange and its American Depositary Shares, each representing four BSkyB ordinary shares, are listed on the New York Stock Exchange, in each case under the symbol BSY.
DTH subscribers contract directly with BSkyB for the package of basic and premium channels they wish to receive. Cable subscribers, in contrast, contract with their local cable operators, which in turn acquire the rights to distribute certain of the Sky Channels from BSkyB. BSkyB generates revenues directly from its DTH subscribers and from fees paid by cable operators. Programming offered by BSkyB comprises general entertainment, news, sports and movies. Prior to the closure of ITV Digital, a digital terrestrial television (DTT) service, in April 2002, BSkyB supplied content to ITV Digital. The multiplex licenses previously held by ITV Digital have since been awarded to the British Broadcasting Corporation (BBC) and Crown Castle UK Limited (Crown Castle). As part of an agreement with the BBC and Crown Castle, BSkyB has transmitted since October 2002 three of its channels unencrypted free-to-air via the DTT platform, marketed under the brand Freeview.
Following the launch of Sky digital in October 1998, BSkyB launched an initiative in 1999 to accelerate the take up of digital satellite by providing purchasers with a free digital satellite system, with the purchaser agreeing to pay an installation charge and to keep the system connected to an operational telephone line for 12 months. BSkyB, following its purchase of all of the shares of British Interactive Broadcasting, or BiB, (which previously subsidized the cost of the equipment) currently subsidizes the cost of providing these free digital satellite systems.
BSkyBs digital DTH customers can also access interactive services provided by Sky Interactive Limited (a subsidiary of BiB) and others. Sky Interactive provides an interactive TV platform for the development and delivery of interactive services, such as games, home shopping, betting, banking, travel, holiday and e-mail services. Sky Active, the principal interactive services portal operated by Sky Interactive, is currently available free of charge to all digital satellite viewers. It derives revenues principally from premium rate telephone charges, revenue sharing in e-commerce transactions, advertising and tenancy and technology fees.
BSkyBs main competitors for the acquisition of programming are the major terrestrial broadcasters, digital terrestrial television operators, cable companies and a wide range of pay television channel providers. BSkyB competes for advertising and sponsorship revenue with other broadcasters.
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Direct Broadcast Satellite Television
In April 2003, News Corporation and Telecom Italia acquired Telepiu, S.p.A. (Telepiu), Vivendi Universals satellite pay-television platform in Italy, for approximately 788 million (A$1,313 million), consisting of the assumption of 350 million (A$602 million) in outstanding indebtedness and a cash payment of 438 million (A$711 million). In the acquisition, Telepiu was merged with Stream S.p.A., and the combined platform was renamed SKY Italia, which is owned 80.1% by News Corporation and 19.9% by Telecom Italia.
SKY Italia currently distributes over 100 channels of basic and premium programming services via satellite directly to subscribers. This programming includes exclusive rights to popular sporting events, newly-released movies and SKY Italias original programming such as SKY News, Italys first 24-hour news channel. As of October 15, 2003, SKY Italia had approximately 2.3 million subscribers.
Other Activities and Interests
Technology
News Corporation owns approximately 77.80% of the equity and 97.23% of the voting power of NDS. NDS ADRs are quoted on both the Nasdaq National Market and on Nasdaq Europe under the symbol NNDS.
NDS is a leading supplier of open end-to-end digital pay-TV solutions for the secure delivery of entertainment to television set-top boxes and personal computers. NDS customers are both broadcast platform operators and channels. NDS conditional access systems enable its customers to manage and control the secure distribution of entertainment over a variety of media and to protect this content from unauthorized viewing. These systems also enable NDS customers to provide enhanced television and interactive services such as electronic program guides, games, betting applications, interactive advertising and television commerce. The technology can be used for satellite direct-to-home digital television, digital terrestrial television, cable television networks and broadband IP networks. NDS provides interactive-television applications as well as data broadcasting systems. NDS software systems assist platform operators and channels both in their basic operations and in the development and implementation of enhanced-television and interactive-television services from which broadcasters can derive additional revenues. NDS has developed personal digital video recorder technology.
At June 30, 2003, approximately 34.4 million set top boxes containing NDS technology were in use worldwide, up from approximately 29.6 million set top boxes at June 30, 2002. NDS customers include leading broadcasters such as DIRECTV in the U.S., and BSkyB in the U.K., as well as a number of broadcasters in Latin America, Europe, Israel and the Asia-Pacific region. During the year ended June 30, 2002, DIRECTV gave notice that it intended to take its conditional access systems in-house in accordance with the terms of the contract between NDS and DIRECTV. NDS continues to supply services to DIRECTV after August 2003 under a transition phase of the contract. DIRECTV accounted for approximately 41% of NDS revenues in the year ended June 30, 2003.
In September 2002, NDS Group plc and two of its subsidiaries were named defendants in a lawsuit filed by DIRECTV, Inc. (DIRECTV) and certain of its affiliates in the United States District Court for the Central District of California. At DIRECTVs request, the action was filed under seal. On October 21, 2002, NDS filed counterclaims against DIRECTV and a chip manufacturer. In late April 2003, the parties agreed to stay proceedings pending efforts to resolve the disputes through mediation. In August 2003, the parties agreed to stay the litigation between them until the closing of the Groups acquisition of a 34% interest in Hughes Electronics Corporation (Hughes), the parent company of DIRECTV. Upon the closing of the acquisition of the Hughes interest, the litigation and all claims and counterclaims alleged therein will be dismissed with prejudice.
On October 2, 2002, NDS Americas, Inc. was served with subpoenas by the U.S. Attorneys Office in San Diego, California, seeking documents apparently in connection with an investigation related to claims made in early 2002 by Canal+ Technologies (these claims have been dismissed) and EchoStars claims. NDS is cooperating with the investigation. NDS was advised by the U.S. Attorneys Office in San Diego that it is not currently considered either a target or a subject in the investigation. Lead responsibility for the investigation has been transferred to the U.S. Attorneys Office for the Central District of California.
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On June 6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies Corporation and Nagrastar L.L.C. (together, Echostar) filed an action against NDS Group plc and NDS Americas Inc. (together, NDS) in the United States District Court for the Central District of California. Echostar filed an amended complaint on October 8, 2003. The amended complaint purports to allege claims for violation of the Digital Millennium Copyright Act, the Communications Act of 1934, the Electronic Communications Privacy Act, The Computer Fraud and Abuse Act, Californias Unfair Competition statute and the federal RICO statute. The complaint also purports to allege claims for civil conspiracy, misappropriation of trade secrets and interference with prospective business advantage. The complaint seeks injunctive relief, compensatory and exemplary damages and restitution. NDS response to the amended complaint is not yet due. NDS believes the claims to be baseless and intends to vigorously defend the action. On July 25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L., Spanish satellite broadcasters and customers of Canal+ Technologies (together, Sogecable), filed an action against NDS in the United States District Court for the Central District of California. Sogecable field an amended complaint on October 9, 2003. The amended complaint purports to allege claims for violation of the Digital Millennium Copyright Act and the federal RICO Statute. The complaint also purports to allege claims for interference with contract and prospective business advantage. The complaint seeks injunctive relief, compensatory and exemplary damages and restitution. NDS response to the amended complaint is not yet due. NDS believes the claims to be baseless and intends to vigorously defend the action.
NDS competes with a number of companies, although no single company competes with it in all of its product lines. Competition in its core area, conditional access systems, is intense and is based on price and other commercial terms, the number of set-top box manufacturers that have integrated conditional access systems and technologies in their products, the availability of adding applications such as electronic program guides and interactive applications, the ability of NDS to integrate its systems with broadcasting equipment of its customers, the degree of compliance with international, regional and national standards and the security of the overall system, among other factors.
Other
News Corporation owns an interest in two Dutch FM and cable radio stations, Sky Radio and Radio 103, as well as Classic FM, a Dutch cable radio station. Furthermore News Corporation owns Sky Radio A/S, a Danish FM and cable radio station and Sky Radio Hessen Verwaltung GmbH, a German FM and cable radio station. News Corporation, through its Balkan News Corporation subsidiary, operates bTV, the first national private free over-the-air television station in Bulgaria. bTV provides original and acquired general entertainment programming and news programs. In addition, News Corporation owns a 40% interest in The Wireless Group, which owns and operates a national AM radio franchise and several independent local radio franchises in the U.K.
Through its News Outdoor subsidiary, News Corporation owns 75% of News Out of Home BV, a joint venture with an affiliate of Capital International, Inc. News Out of Home BV owns and operates Town & City II S.A., Exclusive Media s.r.l., News Outdoor Hungary Kft and NewsOutdoor Czech Republic s.r.o., which are outdoor advertising companies located in Poland, Romania, Hungary and the Czech Republic, respectively. News Out of Home BV also owns 64% of Media Support Services Limited, an outdoor advertising company located in Russia.
News Corporation also engages in book publishing in the U.K. through HarperCollins U.K. (For a discussion of News Corporations book publishing activities in the U.K., see United States Operations - Book Publishing above).
In May 2003, News Corporation sold Mushroom Records (UK) Limited, which engaged in recording, promoting and distributing music in the U.K., to Warner Music U.K. Limited.
News Corporation owns approximately 9.8% of Metromedia International Group, Inc., a U.S. publicly-held company with interests in communications businesses in Eastern Europe, the republics of the former Soviet Union, China and other selected emerging markets.
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Australasia Operations
Television
STAR
News Corporation, through its indirect wholly-owned subsidiary STAR Group Limited (Star), is engaged in the development, production and distribution of television programming to 53 countries throughout Asia and the Middle East. STAR currently broadcasts in seven languages and across 39 channels. STAR divides its markets into four regions: India; mainland China; Taiwan; and the rest of Asia, with a primary focus on Hong Kong, South Korea, Singapore, the Middle East, Pakistan, the Philippines, Malaysia and Thailand. STAR estimates that approximately 300 million people in 96 million households have access to STARs owned and affiliated channels. STARs owned and affiliated channels are also distributed in Europe, Australia and North America.
STARs programming is primarily distributed via satellite to local cable operators for distribution to their subscribers. In certain countries, STAR also distributes its programming and other third-party programming via satellite directly to viewers. In addition, STAR distributes Channel [V] Mainland China as a free-to-air channel. Phoenix Chinese Channel, owned and operated by Phoenix Satellite Television Holdings Limited (Phoenix), which is approximately 38% owned by STAR, also transmits on a free-to-air basis.
STAR is the leading provider of television programming in Asia. Of the 39 channels offered by STAR, 16 channels are wholly owned and operated by STAR, including Xing Kong Wei Shi, a mainland China general entertainment channel, launched in March 2002, that is broadcast in southern China where STAR has been granted official landing rights, several versions of STAR Movies, the highest rated international movie channel in India, STAR Chinese Channel, one of the leading cable channels in Taiwan, and STAR Plus, the highest rated cable channel in India. STAR has also expanded into regional language programming in India and holds a 54.9 % interest in Vijay Television Limited, a major producer and distributor of Tamil language television programming, which supplies content for Vijay TV channel, a Tamil language general entertainment channel which is distributed by STAR throughout India. In addition, STAR provides an additional 22 channels owned and operated by News Corporation and other entities, including NGC Networks Asia (National Geographic), Phoenix, and ESPN STAR Sports, a 50/50 joint venture between STAR and ESPN.
The primary sources of programming on STARs owned and affiliated channels include exclusive rights to broadcast: (i) theatrical movies produced by Twentieth Century Fox, Dreamworks SKG, MGM, The Walt Disney Company and StudioCanal; (ii) many of Asias most popular sporting events; (iii) an extensive contemporary Asian film library comprising over 600 titles; (iv) over 25,000 hours of original programming produced or commissioned by STAR; and (v) programming produced pursuant to arrangements with leading local production companies. STARs other sources of programming include rights to broadcast music videos, as well as music and youth-oriented programming, distributed by Channel [V], a 24-hour music television service in which STAR increased its ownership from 87.5% to 100% in March 2003. In addition, Fortune Star Entertainment Limited, a wholly-owned subsidiary of STAR, was formed to produce theatrical movies and television programming.
In September 2001, STAR entered into a partnership with Hathway Cable & Datacom Private Limited (Hathway), one of the leading multi-system cable operators in India, through the acquisition of a 26% equity interest. Hathway also provides broadband Internet services. Hathway is upgrading its existing cable infrastructure to enable it to provide digital cable television service on its platform.
As of July 2003, STAR has aggregate interests of up to 27.1% in 17 cable systems throughout Taiwan, including systems affiliated with the Koos Group, a leading Taiwan business conglomerate. These 17 cable systems had over 2.5 million homes passed and approximately 1.3 million subscribers as at the end of July 2003. The Koos Group and STAR also formed a joint venture company, SK Finance Company Limited, in which STAR has a 20% interest, to fund the digitization and encryption of certain of the Taiwan cable systems in which both the Koos Group and STAR have ownership interests. This digitalization and encryption involves the installation of a digital set-top box in each subscribers home through which cable operators can offer additional pay TV channels and simple interactive services.
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A joint venture of STAR has formed an alliance with Music Broadcast Private Limited to launch Radio City FM radio stations in India. Currently, Radio City has FM stations in Bangalore, Mumbai, Delhi and Lucknow.
News Corporation holds a minority interest in China Netcom Corporation (Hong Kong) Limited, one of the licensed telecommunication operations in mainland China. During fiscal 2003, STAR held up to an 8.5% interest in Netease.com, which interest was disposed of as of July 10, 2003.
FOXTEL
News Corporation, Telstra Corporation Limited, an Australian telecommunications company, and Publishing and Broadcasting Limited own and operate FOXTEL, a cable and satellite television service in Australia with 25%, 50% and 25% interests, respectively. FOXTEL delivers and manages its cable television service using the Telstra cable network and currently delivers 50 channels on cable and 54 channels on satellite. At June 30, 2003, FOXTEL had approximately 1.1 million subscribers (including subscribers to Optus, an Australian telecommunications company). In connection with the joint venture, News Corporation agreed to offer to FOXTEL all programming for which they have Australian pay television rights for a further six years. This offer is subject to standard industry exceptions, and does not apply to rights previously granted to other parties at the date of the agreement (including the grant to Premium Movie Partnership referred to below). Units of FFE currently license programming to FOXTEL for exhibition on channels carried on FOXTELs service. In addition, FOXTEL carries two movie services, Showtime and Encore, programmed by the Premium Movie Partnership, in which a News Corporation subsidiary holds a 20% interest and to which a unit of FFE licenses motion pictures. In December 2002, the FOXTEL channels became available as part of bundled telephony and subscription television offerings by Telstra and Optus.
SKY PerfecTV!
On August 29, 2003, News Corporation sold its approximately 8.1% interest in SKY Perfect Communications Inc., which operates SKY PerfecTV!, the leading multi-channel digital satellite television distribution platform in Japan.
Newspapers
News Corporation is the largest newspaper publisher in Australia, owning more than 100 daily, Sunday, weekly, bi-weekly and tri-weekly newspapers, of which 75 are suburban publications. News Corporation publishes the only nationally distributed general interest newspaper in Australia, leading metropolitan newspapers in each of the major Australian cities of Sydney, Melbourne, Adelaide and Perth and leading suburban newspapers in the suburbs of Sydney, Melbourne, Adelaide and Brisbane. News Corporations daily and Sunday newspapers (exclusive of its suburban and regional newspapers) account for in excess of 50% of the total circulation of all daily and Sunday newspapers (excluding suburban and regional newspapers) published in Australia. In addition, News Corporation owns an approximate 42% equity interest in Queensland Press Limited (QPL) which owns two metropolitan and nine regional newspapers in Australia. The remaining interest in QPL is held by a wholly-owned subsidiary of Cruden Investments Pty. Limited, a substantial shareholder of News Corporation. See Item 7. Major Shareholders and Related Party Transactions.
News Corporations principal daily newspapers in Australia are The Australian; The Daily Telegraph, which is published in Sydney; the Herald-Sun, which is published in Melbourne; and The Advertiser, which is published in Adelaide. The Courier-Mail, which is owned by QPL, is the daily newspaper in Brisbane. The Australian, which is Australias only general interest national daily newspaper, is printed in six cities and distributed nationwide in Australia. News Corporations other principal daily newspapers in Australia, as well as The Courier-Mail, are mass circulation, metropolitan newspapers with broadly-based readerships and are published and distributed regionally. The average Monday to Saturday paid circulation of each of these daily newspapers during fiscal 2003 was as follows: The Australian 158,119; The Daily Telegraph 397,283; the Herald Sun 544,818; The Advertiser 217,425; and The Courier Mail 239,530.
News Corporations principal Sunday newspapers in Australia are The Sunday Telegraph, which is published in Sydney; the Sunday Herald-Sun, which is published in Melbourne; The Sunday Mail, which is published in Adelaide; and the Sunday Times, which is published in Perth. The Sunday Mail, which is
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published by QPL in Brisbane, is the Sunday newspaper in that city. All of these newspapers are mass circulation, metropolitan Sunday newspapers with broadly-based readerships reflecting the diversity of the populations of the cities in which they are published. The average paid circulation of each of these Sunday newspapers during fiscal 2003 was as follows: The Sunday Telegraph 724,628; the Sunday Herald-Sun 578,565; The Sunday Mail (Adelaide) 341,399; the Sunday Times 350,000; and The Sunday Mail (Brisbane) 612,462.
The balance of the newspapers which News Corporation owns and publishes in Australia are distributed to a wide range of readers in urban, suburban and rural areas and are principally weekly publications. The majority of such newspapers are free-distribution suburban publications, having average weekly circulations of between approximately 16,700 and 127,300. In the Sydney suburban markets, News Corporation owns 17 newspapers; in Melbourne, 30 newspapers; in Brisbane, 16 newspapers; in Adelaide, 11 newspapers and one monthly magazine; and in Perth, News Corporations 50% owned suburban group publishes 15 weekly newspapers. The average weekly circulations of News Corporations suburban newspapers for the six months ended March 31, 2003 aggregated approximately 5,486,000 homes. News Corporations suburban newspapers are leading publications in terms of advertising and circulation in each of their respective markets. News Corporations other newspapers in Australia are regional newspapers, circulating throughout broader, less densely populated areas.
News Corporation owns a 45.1% interest in Independent Newspapers Limited (INL), which, until June 30, 2003, published approximately 70 newspapers and 15 magazines in New Zealand, and one provincial and two community newspapers in Australia. INL also operated a magazine distribution business in New Zealand and a news and information website (www.stuff.co.nz). In addition, INL owns a 66.25% interest in Sky Network Television Limited, a land-linked UHF network and digital DBS service. On June 30, 2003, INL sold its New Zealand operations (newspapers and magazine business together with its magazine distribution and news and information website). As from that date, INL consists of the provincial and community newspapers in Australia and the interest in Sky Network Television Ltd. On August 28, 2003, INL announced that it had reached agreement to sell its newspaper interests in Australia and that it will make a takeover offer for the shares in Sky Network Television Ltd that it does not already own.
Except for 36 of its suburban newspapers, News Corporations Australian newspapers are produced and printed in facilities owned by News Corporation.
(For information regarding newspaper competition and distribution, see United Kingdom OperationsNewspapers above).
Filmed Entertainment
Fox Studios Australia is a film and television production facility owned by FEG. Adjacent to the facility is a cinema and retail complex which is a 50/50 joint venture between FEG and Lend Lease Corporation.
Magazines and Inserts
News Magazines Pty. Ltd. (News Magazines), News Corporations Australian magazine division, publishes Inside Out, a home and lifestyle magazine, and Donna Hay, a home cooking and entertainment magazine. (See discussion of competition under United States Operations - Magazines and InsertsMagazines above.)
Other Activities and Interests
In Australia, News Corporation is also engaged in book publishing and owns Festival Records Pty. Limited and Mushroom Records Pty. Limited, which are engaged in the recording, manufacturing, marketing and distribution of pre-recorded music in Australia and New Zealand. (For a discussion of News Corporations book publishing activities in Australia, see United States Operations - Book Publishing above.)
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Latin American Operations
Television
News Corporation, Globopar Communicacoes e Participacoes S.A. (Globo) and Liberty Media International, Inc. (LMI), indirectly hold interests in Sky Brasil Servicos Limitada (Sky Brasil), the leading DTH pay television service in Brazil. As of June 30, 2003, News Corporation held a 36% equity interest and an approximate 49.25% economic interest in Sky Brasil. Sky Brasil had approximately 760,000 subscribers as of June 30, 2003.
News Corporation holds a 30% interest in Innova, operator of Sky Mexico, the leading DTH pay television service in Mexico. The remaining interests in Innova are held by Grupo Televisa, S.A. (Televisa) and LMI, which own 60% and 10% of Innova, respectively. Sky Mexico had approximately 809,000 subscribers as of June 30, 2003.
News Corporation is a partner with Globo, Televisa and LMI in Sky Multi-Country Partners, which was formed to acquire interests in, and develop strategic DTH alliances with, local partners in Latin America and the Caribbean basin, excluding Mexico and Brazil. News Corporation, Globo and Televisa each indirectly hold a 30% interest and LMI indirectly holds a 10% interest in Sky Multi-Country Partners. Sky Multi-Country Partners currently has interests in DTH businesses in Chile (Sky Chile) and Colombia (Sky Colombia).
In addition, News Corporation, Globo and Televisa each indirectly hold a 30% interest and LMI indirectly holds a 10% interest in two Delaware general partnerships, DTH Techco Partners (Techco) and Sky Latin America Partners (Serviceco). From its facilities in Florida, Techco provides uplink services for the various Sky DTH services in Latin America. Serviceco provides management services to Techco and Sky Multi-Country Partners.
The pay television industries in Brazil, Mexico and Latin America have been and are expected to remain highly competitive. Competition in the pay television business is primarily based upon price, program offerings, customer satisfaction and quality of the system network. The DTH strategic alliances between News Corporation, Globo, LMI and Televisa compete with providers of pay television services utilizing Ku-band and C-band DTH technologies, cable systems, national broadcast networks and regional and local broadcast stations, movie theaters, video and DVD rental stores and other entertainment and leisure activities generally.
Cable Network Programming
Fox Latin American Channel, Inc., a subsidiary of FEG, operates Canal Fox, a general entertainment cable and satellite service for Latin America covering Mexico and Central and South America. Canal Fox broadcasts in the Portuguese language in Brazil and in the Spanish language in the rest of the territory. The channels programming line-up consists of movies, series and music specials. Fox LAPTV, LLC, a subsidiary of FEG, owns a 22.5% equity interest in LAPTV, a partnership which distributes three premium pay television channels and one basic television channel in Latin America (excluding Brazil). These channels primarily feature theatrical motion pictures of FEG and three other studio partners in the English language with Spanish subtitles. In addition, Fox Latin America, Inc., a subsidiary of FEG, holds a 12.5% equity interest in Telecine, LLC, which distributes five premium pay television channels in Brazil. These channels primarily feature theatrical motion pictures of FEG and three other studio partners in the English language with Portuguese subtitles.
Seasonality
Although seasonality affects the financial performance of certain of the businesses in which News Corporation is engaged, the financial performance of News Corporation, on a consolidated basis, is not materially affected by seasonal factors.
Raw Materials
As a major publisher of newspapers, magazines, free-standing inserts and books, News Corporation utilizes substantial quantities of various types of paper. In order to obtain the best available prices, substantially all of News Corporations paper purchasing is done on a centralized, volume purchase basis, and draws upon major paper manufacturing countries around the world. News Corporation believes that under present market conditions, its sources of paper supply used in its publishing activities are adequate and that there are alternative sources of supply available at prices comparable to those presently being paid.
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Government Regulation
United States
Filmed Entertainment
FFE is subject to the provisions of so-called trade practice laws in effect in 25 states relating to theatrical distribution of motion pictures. These laws substantially restrict the licensing of motion pictures unless theater owners are first invited to attend a screening of such motion pictures and, in certain instances, also prohibit payment of advances and guarantees to motion picture distributors by exhibitors. Further, pursuant to various consent judgments, FFE and certain other motion picture companies are subject to certain restrictions on their trade practices in the U.S., including a requirement to offer motion pictures for exhibition to theaters on a theater-by-theater basis and, in some cases, a prohibition against the ownership of theaters.
Television
In general, the television broadcast industry in the U.S. is highly regulated by federal laws and regulations issued and administered by various federal agencies, including the FCC. The FCC regulates television broadcast stations pursuant to the Communications Act of 1934, as amended (the Communications Act). The Communications Act permits the operation of television broadcast stations only in accordance with a license issued by the FCC upon a finding that grant of the license would serve the public interest, convenience and necessity. The FCC grants television broadcast station licenses for specific periods of time and, upon application, may renew the licenses for additional terms. Under the Communications Act, television broadcast licenses may be granted for a maximum permitted term of eight years. Generally, the FCC renews broadcast licenses upon finding that (i) the television station has served the public interest, convenience and necessity; (ii) there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and (iii) there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken together, indicate a pattern of abuse. After considering these factors, the FCC may grant the license renewal application with or without conditions, including renewal for a lesser term than the maximum otherwise permitted, or hold an evidentiary hearing.
In February 1998, the FCC adopted a final table of digital channel allotments and rules for the implementation of digital television (DTV) service (including high-definition television) in the U.S. The digital table of allotments provides each existing full power television station licensee or permittee, including the 35 Fox Television Stations, with a second broadcast channel in order to facilitate a transition from analog to digital transmission, conditioned upon the surrender of one of the channels at the end of the DTV transition period. All of the Fox Television Stations have launched digital facilities. Under FCC rules, television stations may use their second channel to broadcast either one or two streams of high definition digital programming or to multicast several streams of standard definition digital programming or a mixture of both. Broadcasters may also deliver data over these channels, provided that such supplemental services do not derogate the mandated, free over-the-air program service. FEG is currently formulating plans for use of its digital channels. It is difficult to assess how digital television will affect FEGs broadcast business with respect to other broadcasters and video program providers.
Under the Communications Act, a broadcast license may not be granted to or held by any corporation that has more than one-fifth of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. The Communications Act further provides that no FCC broadcast license may be granted to any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of its capital stock is owned of record or voted by non-U.S. citizens if the FCC finds the public interest will be served by the refusal of such license. In 1995, the FCC acknowledged that News Corporation owns the vast preponderance of equity of the corporate parent of the Fox Television Stations. The FCC also concluded that Mr. K. Rupert Murdoch, Chairman and Chief Executive of News Corporation, a U.S. citizen, controls the corporate licensee and thus found the level of alien equity to be consistent with the public interest. Mr. Murdoch has 76% voting control of Fox Television Holdings, Inc., the corporate parent of Fox Television Stations, and News Corporation will continue to hold indirectly stock representing the majority of equity of the corporate licensee.
On June 2, 2003, the FCC concluded the 2002 biennial review of its broadcast ownership regulations required by the 1996 Telecom Act by amending its rules governing the ownership of television and radio stations and by replacing its newspaper/broadcast cross-ownership ban and the radio/television cross-ownership restriction with a new set of cross-media ownership limits. The new rules would (i) permit an entity to have an attributable ownership interest in an unlimited number of television stations nationally so long as
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the audience reach of such stations does not exceed, in the aggregate and after the application of the UHF Discount, 45% of U.S. television households; (ii) permit common ownership of up to three television stations in DMAs with 18 or more television stations, and two television stations in DMAs with between 5 and 17 television stations, provided, in both cases, that a single entity cannot have an attributable interest in two television stations ranked among the top four (in terms of audience share) in any DMA (the Local Restriction); (iii) permit (A) in markets with 9 or more television stations, common ownership of daily newspapers and up to the maximum number of television and radio stations permitted by the Local Restriction and the local radio ownership rule, and (B) in markets with between 4 and 8 television stations, common ownership of a daily newspaper and up to 50% of the television and radio stations permitted by the Local Restriction and the local radio ownership rule, or a daily newspaper and up to the maximum number of radio stations permitted by the local radio ownership rule. Several parties have appealed the FCCs biennial review decision and/or have petitioned the FCC to reconsider the new rules. On September 3, 2003, the United States Court of Appeals for the Third Circuit issued an Order staying the effectiveness of the new rules. In addition, several legislative measures have been introduced in Congress to repeal or prevent the implementation of some or all of the new rules. It is not possible to predict the timing or outcome of the appeals, petitions or Congressional action or their effect on News Corporation. For information on the television stations owned and operated by News Corporation, see Fox Television Stations above.
FCC regulations implementing the 1992 Cable Act require each television broadcaster to elect, at three-year intervals, either to (i) require carriage of its signal by cable systems in the stations market (must carry) or (ii) negotiate the terms on which such broadcast station would permit transmission of its signal by the cable systems within its market (retransmission consent). The FCC has initiated a rulemaking proceeding to determine carriage requirements for digital broadcast television signal on cable systems, including carriage during the period of transition from analog to digital signals. The Satellite Home Viewer Improvement Act of 1999 required satellite carriers, by January 1, 2002, to carry upon request all television stations located in markets in which the satellite carrier retransmits at least one local station pursuant to the copyright license provided in the statute. FCC regulations implementing this statutory provision require affected stations to either elect mandatory carriage at the same three year intervals applicable to cable must carry or to negotiate carriage terms with the satellite operators.
Legislation enacted in 1990 limits the amount of commercial matter that may be broadcast during programming designed for children 12 years of age and younger. In addition, under FCC license renewal processing guidelines, television stations are generally required to broadcast a minimum of three hours per week of programming, which, among other requirements, must have, as a significant purpose, the educational and informational needs of children 16 years of age and under. A television station found not to have complied with the programming requirements or commercial limitations could face sanctions, including monetary fines and the possible non-renewal of its license. The FCC has indicated its intent to enforce its childrens television rules strictly.
The FCC continues to enforce strictly its regulations concerning indecent programming, political advertising, environmental concerns, equal employment opportunity, technical operating matters and antenna tower maintenance. FCC rules require the closed captioning of most broadcast and cable programming on a phased in basis, beginning in the year 2000. In addition, television broadcast station licenses retain the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance. Violation of FCC regulations can result in substantial monetary forfeitures, periodic reporting conditions, short-term license renewals and, in egregious cases, denial of license renewal or revocation of license.
Cable Network Programming
FCC regulations adopted pursuant to the 1992 Cable Act prevent a cable operator that has an attributable interest (including voting or non-voting stock ownership of 5% or more or limited partnership equity interests of 5% or more) in a programming vendor from exercising undue or improper influence over the vendor in its dealings with competitors to cable. The regulations also prohibit a cable programmer in which a cable operator has an attributable interest from entering into exclusive contracts with any cable operator or from discriminating among competing multi-channel program distributors in the price, terms and conditions of sale or delivery of programming. With respect to cable systems having channel capacity of less than 76 channels, the FCCs regulations limit to 40% the number of programming channels that may be occupied by video programming services in which the cable operator has an attributable interest. As a result of Libertys ownership interest in News Corporation, cable networks operated by Fox Cable Networks Group and Fox News are subject to these requirements. Similarly, Cablevision is deemed to have an attributable interest in RPP. The FCCs program access and non-discrimination regulations therefore restrict the ability of these cable
26
programming services to enter into exclusive contracts. The rules also permit multi-channel video programming distributors (such as multi-channel multi-point distribution services (MMDS), satellite master antenna televisions (SMATV), DBS and DTH operators) to bring complaints against FEG to the FCC charging that they are unable to obtain the affected programming networks on nondiscriminatory terms. While cable systems are expanding their capacity, there may be instances in which a Cablevision system with 75 channels or less will not be able to carry an RPP channel or will have to remove another affiliated channel.
The FCCs regulations concerning the commercial limits in childrens programs and political advertising also apply to certain cable television programming services carried by cable system operators. FEG must provide program ratings information and increased closed captioning of its cable programming services to comply with FCC regulations, which could increase its operating expenses.
The Childrens Online Privacy Protection Act (COPPA) prohibits websites from collecting personally identifiable information online from children under age 13 without prior parental consent. Online services provided by FEG may be subject to COPPA requirements. Congress and individual states may also consider online privacy legislation that would apply to personal information collected from teens and adults.
United Kingdom
Television
BSkyB is subject to regulation principally in the U.K. and the European Community (EC). The regimes which affect its business include broadcasting, telecommunications and competition (anti-trust) laws and regulations. Relevant authorities may introduce additional or new regulations applicable to BSkyB. In addition to sector specific regulation, various of BSkyBs principal and other agreements and business practices are subject to review under U.K. and/or EC competition law.
Under U.K. and EC competition law, entities which are party to infringing agreements or which engage in infringing conduct may be fined substantially. In addition, infringing agreements may, unless exempted, be void in whole or in part and infringing conduct may be prohibited.
In December 2000, the U.K. Office of Fair Trading (OFT) commenced an investigation of BSkyB under The Competition Act 1998, and in particular, BSkyBs supply of wholesale pay television. This investigation replaced an ongoing review of undertakings given by BSkyB in 1996 under the Fair Trading Act 1973. On December 17, 2002, the OFT announced that BSkyB had not been found in breach of competition law. Two competitors of BSkyB requested, under The Competition Act 1998, the OFT to vary or withdraw its decision concerning BSkyB. On July 29, 2003, the OFT announced that it had rejected both requests. Both competitors have the right to appeal this decision of the OFT to the Competition Appeals Tribunal.
The EC Commission has commenced investigations into a number of agreements, decisions or practices leading to the acquisition of broadcasting rights to football events within the European Economic Area, including the sale of exclusive broadcast rights to Premier League football by the Football Association Premier League (FAPL). In July 2003, BSkyB received a request for information from the EC Commission concerning the bidding process then being undertaken by the FAPL in relation to the sale of Premier League football rights in respect of the three year period 2004-2007. While this EC Commission investigation remains ongoing, the FAPL announced that BSkyB has been awarded all four packages of exclusive live U.K. rights to FAPL football from the beginning of the 2004-2005 season to the end of the 2006-2007 season. BSkyB is currently unable to assess whether this EC Commission investigation will have a material effect on its financial results.
Australasia
Television
STAR broadcasts television programming over a footprint covering approximately 53 countries. Government regulation of direct reception and redistribution via cable or other means of satellite television signals, where it is addressed at all, is treated variously throughout STARs footprint. At one extreme are absolute bans on private ownership of satellite receiving equipment. Some countries, however, have adopted a less restrictive approach, opting to allow ownership of satellite receiving equipment by certain institutions and individuals but they can receive only authorized broadcasts. At the opposite end of the spectrum are countries where private satellite dish ownership is allowed and laws and regulations have been adopted which support popular access to satellite services through local cable redistribution.
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Most television services within STARs footprint, whether free or pay, are also subject to licensing requirements, although these requirements are imposed on the local broadcast operators who collect the subscription fees rather than on program suppliers, such as STAR, which license local broadcast operators to receive its programming. In addition, most countries in STARs footprint control the content offered by local broadcast operators through censorship requirements to which program suppliers, such as STAR are also subject, with the censorship requirements for pay television generally being less stringent than those for free-to-air terrestrial television. Certain countries also impose obligations to carry government-operated or terrestrial channels or require a minimum percentage of local content. Other countries require local broadcast operators to obtain government approval to retransmit foreign programming.
Most countries within STARs footprint, including in STARs key markets, have promulgated legislative regulatory frameworks for the satellite and cable television industry.
In India, private satellite dish ownership is allowed but there are regulations to restrict the type of receiving equipment that is permitted so as to limit viewership of DTH television and there is a licensing framework in place to govern DTH platform operators. Local cable television operators are required to carry certain government-operated or free-to-air terrestrial channels but retransmissions of foreign satellite channels by local cable operators is freely permitted.
In mainland China, private satellite dish ownership is prohibited except with special approval for hotels, government and foreign institutions which can receive only authorized broadcasts. Local cable and free-to-air terrestrial operators are required to broadcast a minimum of local content and retransmission of foreign satellite channels by local operators is prohibited except with special approval.
In Taiwan, private satellite dish ownership is allowed. The maximum subscription fee chargeable by cable television operators is set by both the national and local governments; retransmission of foreign satellite programming by local cable operators is permitted but local cable operators are also required to carry terrestrial channels and broadcast a minimum percentage of local content.
Additional categories of regulation of actual or potential significance to STAR are restrictions on foreign investment in platform or channel businesses, uplink-downlink licensing regulations and copyright protection and enforcement.
Latin America
Each of the Latin American DTH platforms is subject to a specific regulatory regime in its home country. Each platform operates its satellite distribution business subject to a license that it or one of its partners holds. Licenses are currently held for operations in Brazil, Mexico, Colombia, Chile and Argentina. These licenses expire at various dates beginning in 2009.
Other International Regulation
Filmed Entertainment
In countries outside of the U.S., there are a variety of existing or contemplated governmental laws and regulations which may affect the ability of FFE to distribute and/or license its motion picture and television products to cinema, television or in-home media, including copyright laws and regulations which may or may not be adequate to protect its interests, cinema screen quotas, television quotas, contract term limitations, discriminatory taxes and other discriminatory treatment of U.S. products. The ability of countries to deny market access or refuse national treatment to products originating outside their territories is regulated under various international agreements including the World Trade Organizations General Agreement on Tariffs and Trade and General Agreement on Trade and Services; however, these agreements have limited application with respect to preventing the denial of market access to audio-visual products originating outside the European Union.
General
Various aspects of News Corporations activities are subject to regulation in numerous jurisdictions around the world. News Corporation believes that it is in material compliance with the requirements imposed by such laws and regulations. The introduction of new laws and regulations in countries where News Corporations products and services are produced or distributed (and changes in the enforcement of existing laws and regulations in such countries) could have a negative impact on the interests of News Corporation.
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ORGANIZATIONAL STRUCTURE
The following is a list of News Corporations principal subsidiaries. A full list of News Corporations subsidiaries has been filed as Exhibit 8 to this report.
Subsidiary |
Country of Incorporation |
Percentage Ownership |
|||
Fox Entertainment Group, Inc. |
U.S. | 80.6 | % | ||
Twentieth Century Fox Film Corporation |
U.S. | 80.6 | %* | ||
Fox Television Holdings, Inc. |
U.S. | 80.6 | %** | ||
Fox Broadcasting Company |
U.S. | 80.6 | %* | ||
Fox Sports Networks, Inc. |
U.S. | 80.6 | %* | ||
NDS Group plc |
U.K. | 77.8 | % | ||
News America Marketing In-Store Services, Inc. |
U.S. | 100 | % | ||
News America Marketing FSI, Inc. |
U.S. | 100 | % | ||
News International Limited |
U.K. | 100 | % | ||
News Limited |
Australia | 100 | % | ||
HarperCollins Publishers, Inc. |
U.S. | 100 | % | ||
HarperCollins Publishers Limited |
U.K. | 100 | % | ||
STAR Group Limited |
Cayman Islands | 100 | % |
* | News Corporation holds 97.0% of the voting power of these entities. |
** | Mr. K. Rupert Murdoch owns voting preferred stock representing 76% of the voting power of this entity. |
PROPERTY, PLANTS AND EQUIPMENT
News Corporation owns and leases various real properties in the U.S, Latin America, Europe, Australia and Asia which are utilized in the conduct of its businesses (excluding real properties owned or leased by BSkyB, FOXTEL, INL, Sky Latin America, QPL and other entities described herein in which News Corporation holds less than a majority ownership interest). Each of these properties is considered to be in good condition, adequate for its purpose and suitably utilized according to the individual nature and requirements of the relevant operations. News Corporations policy is to improve and replace property as considered appropriate to meet the needs of the individual operation.
United States
News Corporations principal real properties in the U.S. are the following:
(a) The Fox Studios Lot, in Los Angeles, California, owned by FEG. The Fox Studios Lot consists of approximately 54 acres containing sound stages, production facilities, administrative, technical and dressing room structures, screening theaters and machinery, equipment facilities and three restaurants. FEG also leases approximately 320,000 square feet of office space at Fox Plaza, located adjacent to the Fox Studios Lot. In addition, FEG also owns Dodger Stadium, which is situated on approximately 275 acres of property in Los Angeles. FEG is a party to a sale-leaseback arrangement with civic authorities for Dodgertown, the Dodgers 64 acre spring training facility in Vero Beach, Florida.
(b) The U.S. headquarters of News Corporation and FEG, located at 1211 Avenue of the Americas, New York, New York, consisting of an aggregate of approximately 700,000 square feet of leased building space. This space includes the editorial offices of the New York Post and TV Guide magazine, the executive offices of NAMG, and various operations of FEG including the offices and broadcast studios of Fox News.
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(c) The headquarters of HarperCollins Publishers Inc. in New York, New York consisting of approximately 200,000 square feet of leased office space.
(d) The printing plant of the New York Post (the Post) located in a 494,700 square foot building on a 16.4 acre site in Bronx, New York.
Latin America
FEG owns a studio facility in Rosarito, Mexico which consists of approximately 37 acres of land containing office space, production facilities and the largest fresh and salt water tanks used in motion picture production in the world.
Europe
News Corporations principal real properties in Europe for newspaper production and printing facilities in the U.K. are located in Wapping (in East London), Knowsley (near Liverpool) and Kinning Park (in Glasgow) where The Times, The Sunday Times, The Sun and the News of the World are printed. The three newspaper production and printing facilities contain approximately 990,000, 487,000 and 150,000 square feet of building space, respectively. News Corporation owns the real property located at Kinning Park. With respect to the real property located at Wapping and Knowsley, News Corporation owns the buildings and leases on a long-term basis the land on which the buildings are situated. The headquarters of HarperCollins Publishers Limited (which also includes editorial offices) are located in London and consist of approximately 120,000 square feet of leased building space.
Australasia
News Corporations principal real properties in Australasia are the following:
(a) The facility in Sydney (Chullora) at which The Australian, the Daily Telegraph and The Sunday Telegraph are printed. This facility, owned by News Limited, contains approximately 482,000 square feet of building space.
(b) The headquarters facility of News Corporation and News Limited in Sydney (Surry Hills), owned by News Limited, containing approximately 370,000 square feet of building space.
(c) The facility in Melbourne (Westgate Park) at which the Herald-Sun and the Sunday Herald-Sun are printed, owned by News Limited, containing approximately 524,000 square feet of space.
(d) The building in Adelaide utilized in publishing The Advertiser newspaper, owned by News Corporation, containing approximately 380,000 square feet of office and printing plant space.
(e) The facility in Adelaide (Mile End) at which The Advertiser and The Sunday Mail are printed, owned by News Limited, containing approximately 300,000 square feet of space.
(f) Fox Studios Australia, a wholly-owned subsidiary of FEG, has a lease expiring in 2036, with an option to renew for 10 years, over a 35 acre film and television production facility with industry related commercial office space in Sydney, Australia. Adjacent to that facility is a 25 acre cinema and retail complex leased by a joint venture between FEG and Lend Lease Corporation.
(g) The facilities used by STAR for its television broadcasting and programming operations are located in two locations in Hong Kong consisting of approximately 60,000 square feet of space owned in one location and approximately 170,000 square feet of space leased in the other location.
In addition, QPL owns or leases a total of approximately 1,213,000 square feet of building space utilized in its newspaper publishing operations. Of such total, approximately 1,167,000 square feet is situated in buildings owned by QPL.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This section should be read in conjunction with the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries (News Corporation or the Group) and related notes set forth elsewhere herein.
The Consolidated Financial Statements of News Corporation have been prepared in accordance with accounting principles generally accepted in Australia (A-GAAP) and are presented in Australian dollars (except as otherwise indicated). A-GAAP differs significantly in certain respects from accounting principles generally accepted in the United States (US-GAAP) as described in Note 34 to the Consolidated Financial Statements of News Corporation. See US-GAAP Reconciliation in this section for a comparison of revenue, operating income and net profit (loss) attributable to members of the parent entity under A-GAAP and US-GAAP.
Critical Accounting Policies
Our discussion and analysis of our financial condition and financial performance are based upon our consolidated financial statements, which have been prepared in accordance with A-GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of commitments and contingencies. On an ongoing basis, the Group evaluates its estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates. The following accounting policies require significant management judgments and estimates.
Inventories
Accounting for the production and distribution of filmed entertainment and television programming requires managements 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 associated with revenues earned and any fair value adjustments.
The Filmed Entertainment segment amortizes capitalized film costs on an individual film basis in the ratio that the current years gross revenues bears to managements estimate of total ultimate gross revenues from all sources. Revenue forecasts for motion pictures reflect managements estimate of total revenues to be received throughout the life of each motion picture. Estimates of revenues are reviewed and reassessed periodically on a title-by-title basis and revised when warranted by changing conditions.
The Television segment amortizes the costs of multi-year sports contracts based on the ratio of each periods operating profit earned on the contract to the estimated total operating profit expected to be earned over the life of the contract from all segments. Estimates of total operating profit to be earned over the life of the contract are reviewed periodically and amortization is adjusted as necessary. Managements estimates of total operating profit over the life of the contract are primarily dependent upon its projections of the revenue to be derived from selling advertising spots during the games and other directly attributed revenue sources as well as direct selling costs and the direct costs associated with broadcasting the games or events. At the inception of these contracts and periodically thereafter, management evaluates the recoverability of the costs associated therewith against the revenues directly associated with the program material and related expenses. When an evaluation indicates that a multi-year contract will result in an ultimate loss, additional amortization is provided to recognize such loss in the current year.
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Property, Plant and Equipment
Land, buildings 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 Groups business model or changes in the Groups capital strategy could result in the actual useful lives differing from the Groups estimates. In those cases where the Group determines that the useful life of buildings and equipment should be shortened, the Group would depreciate the asset over its revised remaining useful life thereby increasing depreciation expense.
Intangible Assets
The Group has significant intangible assets including Federal Communications Commission (FCC) television station licenses, newspaper mastheads, distribution networks, sports franchises, publishing rights and goodwill. The Group 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 market values. Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair market values assigned to its tangible and identifiable intangible net assets at the date of acquisition. Determining the fair market value of assets acquired and liabilities assumed requires managements judgment and often involves the use of significant estimates and assumptions, including, among others, assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items. The judgments made in determining the estimated fair market value assigned to each class of intangible assets acquired as well as their useful lives can significantly impact net profit (loss) attributable to members of the parent entity. Except for goodwill, no amortization is provided against the Groups intangible assets since, in the opinion of the Directors, the lives of the publishing rights, titles and television licenses are indefinite.
Recoverable Amount
The Group assesses potential impairment of non-current assets under the guidance of Australian Accounting Standards Board 1010, Recoverable Amounts of Non-Current Assets. The recoverable amount of publishing rights, titles and television licenses and goodwill has been determined by discounting the expected net cash inflows arising from their continued use or sale. Discounting has not been used to determine the recoverable amount of all other non-current assets.
Employee Costs
Superannuation and other postretirement benefit costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates and other factors. In respect of the Groups defined benefit superannuation plans the Group recognizes pension costs at the required levels of contributions made or actuarially determined. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the disclosures in respect to projected superannuation and other postretirement obligations.
Associated Entities
The Group accounts for investments in associated entities using the equity method of accounting, whereby investments in associated entities are initially recorded at cost and subsequently adjusted for increases or decreases in the Groups share of post-acquisition results and equity reserves of the associated entities. Investments in associated entities cannot exceed their recoverable amount. Management regularly reviews the carrying value of its investments in associated entities to determine if a diminution in value has occurred. In determining the recoverable amount, management considers the net undiscounted cash flows arising from the investment in associated entities and the subsequent value upon disposition.
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Results of OperationsFiscal 2003 vs. Fiscal 2002
The following table sets forth the Groups operating results by segment, for fiscal 2003 as compared to fiscal 2002.
For the year ended 30 June, |
|||||||||||||||
2003 |
2002 |
Change |
% Change |
||||||||||||
(A$ in millions) | |||||||||||||||
Revenues: |
|||||||||||||||
Filmed Entertainment |
$ | 7,689 | $ | 7,714 | $ | (25 | ) | | % | ||||||
Television |
8,162 | 8,160 | 2 | | % | ||||||||||
Cable Network Programming |
3,891 | 3,569 | 322 | 9 | % | ||||||||||
Direct Broadcast Satellite Television |
340 | | 340 | 100 | % | ||||||||||
Magazines & Inserts |
1,583 | 1,650 | (67 | ) | (4 | )% | |||||||||
Newspapers |
4,659 | 4,604 | 55 | 1 | % | ||||||||||
Book Publishing |
1,992 | 2,059 | (67 | ) | (3 | )% | |||||||||
Other |
1,597 | 1,258 | 339 | 27 | % | ||||||||||
Total revenues |
$ | 29,913 | $ | 29,014 | $ | 899 | 3 | % | |||||||
Operating income: |
|||||||||||||||
Filmed Entertainment |
$ | 1,099 | $ | 904 | $ | 195 | 22 | % | |||||||
Television |
1,459 | 873 | 586 | 67 | % | ||||||||||
Cable Network Programming |
736 | 380 | 356 | 94 | % | ||||||||||
Direct Broadcast Satellite Television |
(104 | ) | | (104 | ) | 100 | % | ||||||||
Magazines & Inserts |
438 | 448 | (10 | ) | (2 | )% | |||||||||
Newspapers |
686 | 822 | (136 | ) | (17 | )% | |||||||||
Book Publishing |
227 | 224 | 3 | 1 | % | ||||||||||
Other |
(189 | ) | (109 | ) | (80 | ) | (73 | )% | |||||||
Total operating income |
$ | 4,352 | $ | 3,542 | $ | 810 | 23 | % | |||||||
Net loss from associated entities |
$ | (89 | ) | $ | (1,434 | ) | $ | 1,345 | 94 | % | |||||
Borrowing costs |
(1,000 | ) | (1,291 | ) | 291 | 23 | % | ||||||||
Interest income |
209 | 291 | (82 | ) | (28 | )% | |||||||||
Net borrowing costs |
(791 | ) | (1,000 | ) | 209 | 21 | % | ||||||||
Dividends on exchangeable preferred securities |
(94 | ) | (93 | ) | (1 | ) | (1 | )% | |||||||
Other revenues before tax |
679 | 5,627 | (4,948 | ) | (88 | )% | |||||||||
Other expenses before tax |
(1,057 | ) | (17,601 | ) | 16,544 | 94 | % | ||||||||
Profit (loss) from ordinary activities before income tax |
$ | 3,000 | $ | (10,959 | ) | $ | 13,959 | 127 | % | ||||||
Income tax benefit (expense) on: |
|||||||||||||||
Ordinary activities before other items |
$ | (989 | ) | $ | (640 | ) | $ | (349 | ) | (55 | )% | ||||
Other items |
215 | (15 | ) | 230 | 1,533 | % | |||||||||
Net income tax benefit (expense) |
$ | (774 | ) | $ | (655 | ) | $ | (119 | ) | (18 | )% | ||||
Net profit (loss) from ordinary activities after tax |
$ | 2,226 | $ | (11,614 | ) | $ | 13,840 | 119 | % | ||||||
Net profit attributable to outside equity interests |
(418 | ) | (348 | ) | (70 | ) | (20 | )% | |||||||
Net profit (loss) attributable to members of parent entity |
$ | 1,808 | $ | (11,962 | ) | $ | 13,770 | 115 | % | ||||||
Overview. For the year ended 30 June, 2003, the Groups revenues increased A$899 million from A$29,014 million for the year ended 30 June, 2002 to A$29,913 million. This 3% increase was primarily due to revenue increases at the Cable Network Programming segment and the consolidation of SKY Italia. On a consolidated
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basis, fiscal 2003 operating expenses increased by A$89 million to A$25,561 million. For the year ended 30 June, 2003, Operating income increased A$810 million to A$4,352 million from A$3,542 million of the corresponding period of the prior year. This increase was due primarily to operating increases at the Television and Cable Network Programming segments. During fiscal 2003, the US Dollar declined approximately 11% from fiscal 2002 as compared to the Australian Dollar, which materially impacted the Groups conversion of the US operations into Australian Dollars for fiscal 2003 as compared to fiscal 2002.
Net losses from associated entities for fiscal 2003 improved to A$89 million from A$1,434 million in fiscal 2002. The reduction in operating losses is primarily due to increased contributions from British Sky Broadcasting Group plc (BSkyB) and National Geographic Channel (US) as well as the comparable favorable impact of foreign currency fluctuations in certain Latin American pay television platforms. Included in net losses from associated entities for the year ended 30 June, 2003 are the Groups share of asset sale gains recognized by Independent Newspapers Limited, offset by a write down in the value of certain assets of Sky Multi-Country Partners, a Latin American pay television platform. Included in fiscal 2002 is the Groups equity accounted share of the write off by its associate BSkyB of its investment in KirchPayTV.
Net profit (loss) attributable to members of the parent entity for the year ended 30 June, 2003 was A$1,808 million (A$0.31 per ordinary share and A$0.37 per preferred limited voting ordinary share), an improvement of A$13,770 million from a loss of A$11,962 million (A$2.17 loss per ordinary share and A$2.60 loss per preferred limited voting ordinary share) for the corresponding period of the prior year. This improvement was primarily due to the fiscal 2002 write down of Gemstar-TV Guide International, Inc. (Gemstar) of A$11 billion as compared to a fiscal 2003 write down of A$551 million. Also contributing to this improvement was the fiscal 2003 gain realized following the issuance of additional common stock by Fox Entertainment Group, Inc. (FEG).
Filmed Entertainment. Revenue at the Filmed Entertainment segment of A$7,689 million was flat as compared to the prior year. In local currency, revenue increased 11% primarily due to increased worldwide home entertainment revenues, most notably from the strong worldwide performance of Ice Age and Shallow Hal, and increased worldwide theatrical revenues due to the strong releases of X-2: X-Men United and Daredevil. During fiscal 2003, the Group had several successful theatrical releases, including the domestic theatrical launches and subsequent strong home entertainment performances of Like Mike and Drumline and the international theatrical launches and subsequent strong home entertainment performances of Minority Report and Road to Perdition. Prior year results included the strong worldwide theatrical, worldwide home entertainment and domestic pay-television performances of Planet of the Apes and Dr. Dolittle 2, worldwide theatrical performance of Ice Age and the international theatrical and worldwide home entertainment performance of Moulin Rouge. For the year ended 30 June, 2003, the Filmed Entertainment segment reported Operating income of A$1,099 million, a 22% increase as compared to A$904 million for the prior year. The increase in Operating income was primarily due to the revenue increases noted above, most notably from Ice Age, and improved margins on DVD product due to increased volume, which were partially offset by increased home entertainment marketing costs. At Twentieth Century Fox Television (TCFTV), for the year ended 30 June, 2003, contributions increased due to increased worldwide home entertainment revenues for 24, Angel, Buffy the Vampire Slayer and The Simpsons, higher network revenues for The Practice and the domestic syndication of The X-Files and King of the Hill. Improved profit rates on series due to DVD products and lower series production costs due to fewer episodes being produced also contributed to TCFTVs increased results.
Television. Revenues for the Television segment of A$8,162 million were consistent as compared to A$8,160 million reported in the corresponding period of the prior year. Decreases at the Fox Broadcasting Company (FOX) were partially offset by increased revenues at STAR. Operating income for the Television segment for the year ended 30 June, 2003 increased 67% to A$1,459 million from A$873 million in the prior year. This increase was due to improved results across all of the Television businesses.
For the year ended 30 June, 2003, the Groups television stations revenues were consistent as compared to the corresponding period of the prior year. In local currency, a 13 % revenue increase primarily resulted from higher advertising revenues, the impact of the stations acquired with the purchase of Chris-Craft Industries, Inc. (the Acquired Stations) and the acquisition of WPWR. Advertising revenues in the 26 markets of the
34
Groups 35 owned and operated television stations (O&Os) continued to improve versus the prior year, up approximately 9%. This increase is primarily due to the market rebounding and heavy political spending. Automotive, movies, telecommunications and political spending are all stronger than the prior year. The revenue increases noted above contributed to the Groups O&Os market share increase of 1.4 percentage points from the prior year. This market share gain was partially offset by heavy political spending on competitor stations this year, the loss of the New York Yankee broadcasts in the New York market and the loss of the Boston Red Sox broadcasts in the Boston market. For the year ended 30 June, 2003, the Groups O&Os reported an Operating income increase of 11% over fiscal 2002. This increase was due to the revenue increases noted above and lower local program production costs as a result of the non-renewal of New York Yankee and Boston Red Sox baseball game broadcasts. This increase was partially offset by higher fringe benefits expenses, a full year of the Acquired Stations operating expenses in the current year, higher marketing costs to promote the FOX prime time schedule and operating expenses of WPWR.
For the year ended 30 June, 2003, FOXs revenues decreased 2% from the corresponding period of the prior year. In local currency, FOXs revenues increased 10% due to higher ratings and pricing increases for prime time programming, most notably from American Idol and Joe Millionaire, higher ratings for the National Football League (NFL), and the DAYTONA 500, which was not telecast on FOX in the prior year. These increases were partially offset by the non-recurring telecast of the Super Bowl on FOX in the prior year. Operating losses for FOX improved 68% from the corresponding period of the preceding year. These operating improvements were driven by the revenue increases in local currency noted above and lower programming rights costs due to the non-recurring telecast of the Super Bowl on FOX in the prior year. These improvements were partially offset by higher prime time license fees for returning series, increased costs for series cancellations, higher programming costs related to the Groups US sports contracts, and increases in advertising expenses for prime time series.
For the year ended 30 June, 2003, STARs revenues increased 5% from the corresponding period of the prior year. Subscription revenues increased 22% due to an increase in subscribers and average affiliate fees. Advertising revenues grew 9% due to the increasing popularity of the STAR channels in Taiwan and India and STAR Plus continuing to maintain its leadership position in India. For the year ended 30 June, 2003, STAR reported Operating income of A$12 million as compared to a loss of A$44 million in the corresponding period of the prior year, an increase of 128%. This increase primarily resulted from the increase in revenues noted above, partially offset by increased expenses, increased advertising and promotional costs in India and the expansion of operations in China.
35
Cable Network Programming. The Cable Network Programming segment reported revenues of A$3,891 million for the year ended 30 June, 2003, an increase of 9% from A$3,569 million in fiscal 2002. This increase reflects improved results across all of the Cable Network Programming channels. Also contributing to this increase was the full year consolidation of the Sunshine Network (Sunshine) and Fox Sports International. Fox News Channels (Fox News), FX Networks (FX) and the majority-owned regional sports networks (RSNs) revenues increased 24%, 3% and 3%, respectively.
At Fox News, advertising revenues increased 85% in local currency from the prior year due to improved ratings and increased pricing, partially offset by higher pre-emptions. Affiliate revenues increased by 9% in local currency, attributed to an increase in subscribers versus the prior year. As of 30 June, 2003, Fox News reached approximately 83 million Nielsen households, a 3% increase over the prior year.
At FX, advertising revenues increased 25% in local currency over the prior year as a result of increased subscribers and higher pricing. FX affiliate revenues increased 9% in local currency from the prior year, reflecting an increase in subscribers. As of 30 June, 2003, FX reached over 80 million Nielsen households, a 3% increase over the prior year.
At the RSNs, affiliate revenues increased 19% in local currency over the prior year primarily from an increase in direct to home (DTH) subscribers and the consolidation of Sunshine. Advertising revenues increased 12% in local currency primarily due to the telecast of more Major League Baseball (MLB) and collegiate games and the higher pricing per game for MLB, National Basketball Association (NBA) and National Hockey League telecasts resulting from an improved sports advertising market, partially offset by a reduced number of NBA games.
The Cable Network Programming segment reported Operating income of A$736 million, an increase of A$356 million from the prior year. These improvements were primarily driven by the revenue increases noted above, the prior year bad debt provision related to Adelphia Communications Corporation receivables and the consolidation of Sunshine for the full year. Partially offsetting these improvements were higher expenses for programming enhancements and consumer marketing at Fox News, higher programming costs at FX and Speed Channel, Inc. (SPEED Channel), higher average rights fees for professional events at the RSNs and the consolidation of expenses from Sunshine and Fox Sports International for the full year.
Direct Broadcast Satellite Television. In April 2003, the Group and Telecom Italia S.p.A. (Telecom Italia) completed the previously announced acquisition of the Italian satellite pay-television platform, Telepiu, S.p.A. (Telepiu), from Vivendi Universal for consideration of approximately A$1,313 million including the assumption of A$602 million indebtedness and a cash payment of A$711 million. As a result of the transaction, the Group and Telecom Italia combined Telepiu with Stream S.p.A. (Stream) to form SKY Italia, resulting in the Group owning 80.1% of SKY Italia and Telecom Italia owning the remaining 19.9%.
For the two months ended 30 June, 2003, in which the Group consolidated the results of SKY Italia, SKY Italia reported revenues of A$340 million. For the two months ended 30 June, 2003, SKY Italia reported an operating loss of A$104 million reflecting initial losses from the integration of the two platforms. The integration process is focusing on the subscriber management systems, broadcast operations and programming content to support the new unified platform launched on 31 July, 2003.
Magazines and Inserts. For the year ended 30 June, 2003, the revenues of the Magazine and Inserts segment decreased 4% to A$1,583 million from A$1,650 million in the corresponding period of the prior year. In local currency, revenues increased 7% from the corresponding period of the prior year due to volume increases at both the Free Standing Insert (FSI) business and the InStore advertising business. The volume increase at FSI was due to an increase in market share and the increase at InStore was due to higher demand for their shelf products. Operating income decreased 2% to A$438 million in fiscal 2003 from A$448 million in the corresponding period of the prior year. In local currency, Operating income increased 9% primarily due to the revenue increases noted above, lower paper costs and lower circulation rates, partially offset by an increase in operating expenses directly correlated to the volume increases at FSI and InStore and higher marketing costs.
36
Newspapers. The Newspapers segment reported revenue of A$4,659 million, which was flat as compared to A$4,604 million in the corresponding period of the prior year. For the year ended 30 June, 2003, Operating income at the Newspapers segment was A$686 million, a decline of 17% from A$822 million reported in the prior year, primarily due to decreases at the UK Newspapers.
For the year ended 30 June, 2003, the UK newspapers revenues were consistent as compared to the corresponding period of the prior year due to increases in advertising revenues for fiscal 2003 being offset by declines in circulation revenues. The increase in advertising revenue was driven by growth at The Sun and The News of the World due to higher classified and display advertisements. Circulation revenues declined as a result of cover price reductions at The Sun, partially offset by increased circulation revenues at The Times and The Sunday Times. As a result of the reduction in cover price at The Sun, circulation of The Sun has increased 3% as compared to fiscal 2002. Operating income at the UK Newspapers decreased 29% due to cover price reductions at The Sun and the costs associated with the war coverage and higher employee costs.
For the year ended 30 June, 2003, the Australian newspapers revenues increased 5% from the corresponding period of the prior year due to a 6% increase in advertising revenues. Advertising revenues increased due to increases in display advertising driven by strong growth in the national, retail and real estate categories. Circulation revenues increased 2% in fiscal 2003 due to increases in circulation and cover prices. The Australian newspapers Operating income increased 10% as compared to fiscal 2002. This operating income increase primarily resulted from the revenue increases noted above, partially offset by an increase in salaries, new editorial costs and increased marketing costs.
Book Publishing. HarperCollins revenues of A$1,992 million in fiscal 2003 decreased 3% as compared to A$2,059 million in fiscal 2002. In local currency, revenues improved 8%, primarily attributable to the strong performances in US General Books, Zondervan and the UK divisions. In fiscal 2003, HarperCollins had 111 titles on the New York Times bestseller lists as compared to 106 in fiscal 2002. During fiscal 2003, 13 titles reached the number one position as compared to nine in the prior year. Notable releases in fiscal 2003 include Prey by Michael Crichton, The Purpose Driven Life by Rick Warren, Let Freedom Ring by Sean Hannity, Who Says Elephants Cant Dance by Louis V. Gerstner and Unless Im Very Much Mistaken by Murray Walker. The Lemony Snicket series in the Childrens division continued to contribute significant revenues in fiscal 2003. For the year ended 30 June, 2003, Operating income of A$227 million was consistent as compared to A$224 million from the corresponding period of the prior year. In local currency, Operating income increased 13% as compared to the prior year as a result of revenue increases noted above and strict cost controls, partially offset by increased operating expenses as a result of higher volume sales.
Net loss from associated entities. Net loss from associated entities of A$89 million improved A$1,345 million from losses of A$1,434 million in fiscal 2002.
For the year ended 30 June, |
|||||||||||||||
2003 |
2002 |
Change |
% Change |
||||||||||||
(A$ in millions) | |||||||||||||||
The Groups share of the profit (loss) after income tax of its associated entities consist principally of: |
|||||||||||||||
BSkyB |
$ | 132 | $ | (51 | ) | $ | 183 | 359 | % | ||||||
Stream, S.p.A. |
(294 | ) | (66 | ) | (228 | ) | (345 | )% | |||||||
Sky Latin America: |
|||||||||||||||
Sky Brasil |
(56 | ) | (120 | ) | 64 | 53 | % | ||||||||
Innova, S. de R.L. de C.V. (Mexico) |
(37 | ) | (92 | ) | 55 | 60 | % | ||||||||
Other |
(41 | ) | (78 | ) | 37 | 47 | % | ||||||||
Fox Sports Cable Networks |
44 | 33 | 11 | 33 | % | ||||||||||
FOXTEL |
(15 | ) | (15 | ) | | | % | ||||||||
ESPN Star Sports |
3 | (11 | ) | 14 | 127 | % | |||||||||
Other associated entities |
105 | 86 | 19 | 22 | % | ||||||||||
Net loss from associated entities after income tax before other items |
(159 | ) | (314 | ) | 155 | 49 | % | ||||||||
Other items after income tax |
70 | (1,120 | ) | 1,190 | 106 | % | |||||||||
Net loss from associated entities after income tax and other items |
$ | (89 | ) | $ | (1,434 | ) | $ | 1,345 | 94 | % | |||||
37
Net losses from associated entities for fiscal 2003 improved to A$89 million from A$1,434 million in fiscal 2002. The reduction in operating losses is primarily due to increased contributions from BSkyB and National Geographic Channel (US) as well as the favorable impact of foreign currency fluctuations in certain Latin American pay television platforms. Included in net losses from associated entities for the year ended 30 June, 2003 are the Groups share of asset sale gains recognized by Independent Newspapers Limited, offset by a write down in the value of certain assets of Sky Multi-Country Partners, a Latin American pay television platform. Included in fiscal 2002 is the Groups equity accounted share of the write off by its associate BSkyB of its investment in KirchPayTV.
Net borrowing costs. Net borrowing costs decreased A$209 million for the year ended 30 June, 2003 to A$791 million from A$1,000 million in fiscal 2002 due to the decreased interest expense related to the redemption of the Fox Sports Networks Notes, the 8 5/8% Notes due 2003 and the 10 1/8% Notes due 2012 during fiscal 2003.
Net income tax (expense) benefit. Net income tax expense of A$774 million during fiscal 2003 increased from an expense of A$655 million during fiscal 2002. The difference of the net income tax expense of A$774 million as compared to the prima facie tax at the statutory rate of A$927 million is primarily attributed to benefits received from amortization of certain intangible assets.
Net profit attributable to outside equity interests. Net profit attributable to outside equity interests of A$418 million for the year ended 30 June, 2003 increased from A$348 million in fiscal 2002 due to increased results at FEG and NDS partially offset by SKY Italia losses.
Net profit (loss) attributable to members of the parent entity. Net profit (loss) attributable to members of the parent entity for the year ended 30 June, 2003 was A$1,808 million, an improvement of A$13,770 million from a loss of A$11,962 million for the corresponding period of the prior year. This improvement was primarily due to the fiscal 2002 write down of Gemstar of A$11 billion as compared to a fiscal 2003 write down of A$551 million. Also contributing to this improvement was the fiscal 2003 gain realized following the issuance of additional common stock by FEG. The prior year loss primarily relates to the write down of the Groups carrying value in Gemstar, Stream and KirchMedia as well as the write down of the Groups US sports contracts for the NFL, MLB and the National Association of Stock Car Auto Racing (NASCAR) and Cricket programming rights. These prior year write downs were partially offset by the gains recognized on the sales of Fox Family Worldwide, Inc. (FFW), EchoStar Communications Corporation and Outdoor Life Network LLC (Outdoor Life).
38
Results of OperationsFiscal 2002 vs. Fiscal 2001
The following table sets forth the Groups operating results by segment, for fiscal 2002 as compared to fiscal 2001.
For the year ended 30 June, |
|||||||||||||||
2002 |
2001 |
Change |
% Change |
||||||||||||
(A$ in millions) | |||||||||||||||
Revenues: |
|||||||||||||||
Filmed Entertainment |
$ | 7,714 | $ | 6,795 | $ | 919 | 14 | % | |||||||
Television |
8,160 | 6,838 | 1,322 | 19 | % | ||||||||||
Cable Network Programming |
3,569 | 2,696 | 873 | 32 | % | ||||||||||
Magazines & Inserts |
1,650 | 1,675 | (25 | ) | (1 | )% | |||||||||
Newspapers |
4,604 | 4,600 | 4 | 0 | % | ||||||||||
Book Publishing |
2,059 | 1,907 | 152 | 8 | % | ||||||||||
Other |
1,258 | 1,067 | 191 | 18 | % | ||||||||||
Total revenues |
$ | 29,014 | $ | 25,578 | $ | 3,436 | 13 | % | |||||||
Operating income: |
|||||||||||||||
Filmed Entertainment |
$ | 904 | $ | 487 | $ | 417 | 86 | % | |||||||
Television |
873 | 1,007 | (134 | ) | (13 | )% | |||||||||
Cable Network Programming |
380 | 197 | 183 | 93 | % | ||||||||||
Magazines & Inserts |
448 | 437 | 11 | 3 | % | ||||||||||
Newspapers |
822 | 904 | (82 | ) | (9 | )% | |||||||||
Book Publishing |
224 | 205 | 19 | 9 | % | ||||||||||
Other |
(109 | ) | (144 | ) | 35 | 24 | % | ||||||||
Total operating income |
$ | 3,542 | $ | 3,093 | $ | 449 | 15 | % | |||||||
Net loss from associated entities |
$ | (1,434 | ) | $ | (249 | ) | $ | (1,185 | ) | (476 | )% | ||||
Net borrowing costs |
(1,000 | ) | (935 | ) | (65 | ) | (7 | )% | |||||||
Dividends on exchangeable preferred securities |
(93 | ) | (90 | ) | (3 | ) | (3 | )% | |||||||
Other revenues before tax |
5,627 | 3,335 | 2,292 | 69 | % | ||||||||||
Other expenses before tax |
(17,601 | ) | (4,609 | ) | (12,992 | ) | 282 | % | |||||||
Change in accounting policy before income tax |
| (1,107 | ) | 1,107 | 100 | % | |||||||||
Profit (loss) from ordinary activities before income tax |
$ | (10,959 | ) | $ | (562 | ) | $ | (10,397 | ) | (1,850 | )% | ||||
Income tax benefit (expense) on: |
|||||||||||||||
Ordinary activities before change in accounting policy and other items |
$ | (640 | ) | $ | (428 | ) | $ | (212 | ) | (50 | )% | ||||
Other items |
(15 | ) | 19 | (34 | ) | (179 | )% | ||||||||
Change in accounting policy |
| 421 | (421 | ) | (100 | )% | |||||||||
Net income tax benefit (expense) |
$ | (655 | ) | $ | 12 | $ | (667 | ) | (5,558 | )% | |||||
Net profit (loss) from ordinary activities after tax |
$ | (11,614 | ) | $ | (550 | ) | $ | (11,064 | ) | (2,012 | )% | ||||
Net profit attributable to outside equity interests |
(348 | ) | (196 | ) | (152 | ) | (78 | )% | |||||||
Net profit (loss) attributable to members of parent entity |
$ | (11,962 | ) | $ | (746 | ) | $ | (11,216 | ) | (1,503 | )% | ||||
Consolidated. News Corporations consolidated revenues increased approximately 13% to A$29,014 million in fiscal 2002 from A$25,578 million in fiscal 2001. This increase was led by increased revenues at the Filmed Entertainment, Television and Cable Network Programming segments.
Consolidated operating income of A$3,542 million in fiscal 2002 increased approximately 15% as compared to A$3,093 million in fiscal 2001. The Filmed Entertainment and Cable Network Programming segments experienced strong performances, which were partially offset by a decrease from the Television segment.
Net loss from associated entities of A$1,434 million increased A$1,185 million from A$249 million in the prior year. The higher net loss was primarily due to the Groups share of BSkyBs write off of its investment in KirchPayTV. Additionally, increased losses were due to unfavorable foreign exchange movements in our Latin American pay television platforms, the first-time inclusion of losses recognized from our Italian pay television platform Stream and reduced profitability of Fox Sports Domestic Cable Networks primarily due to lower revenues and higher costs at Madison Square Garden, an entertainment company owned by Regional Programming Partners.
39
Net profit (loss) attributable to members of parent entity was a loss of A$11,962 million in fiscal 2002 as compared to a loss of A$746 million in fiscal 2001. The current year loss primarily relates to the write downs in the Groups carrying value of its investments in Gemstar, Stream and KirchMedia. Also contributing to this loss was the Groups write down of its U.S. national sports rights contracts for MLB, NASCAR, the NFL and non-U.S. cricket programming rights. These write downs were partially offset by the gain on the sale of the Groups interest in FFW. Fiscal 2001 losses primarily related to the loss incurred for the restructuring of the Healtheon/WebMD transaction, the write off of the One.Tel investment and increased new media related investment write downs.
Filmed Entertainment. Revenues increased A$919 million, or approximately 14%, from A$6,795 million in fiscal 2001 to A$7,714 million in fiscal 2002. This increase is due to the worldwide theatrical and home entertainment and domestic pay-television performance of Planet of The Apes, domestic theatrical and home entertainment performance of Kiss of the Dragon, the worldwide theatrical performance of Ice Age, the worldwide home entertainment performances of Moulin Rouge and Dr. Dolittle 2 and library titles released on DVD. Fiscal 2001 results included the worldwide theatrical and worldwide home entertainment and domestic pay-television performance of X-Men, the international television sales of Titanic and the worldwide home entertainment performance of library titles. Additionally, at TCFTV, increased syndication revenues for NYPD Blue and King of the Hill, higher license fees for Buffy the Vampire Slayer, Dharma and Greg and The Practice and increased worldwide home entertainment and international free-television revenues for The Simpsons contributed to the increase in revenues. Operating income increased to A$904 million in fiscal 2002 from A$487 million in fiscal 2001, an increase of approximately 86%. This increase is due to the revenue increases noted above, compared to the prior years results, which were partially offset by the disappointing results of Monkeybone, Say It Isnt So and The Legend of Bagger Vance.
Television. Revenues increased A$1,322 million, or approximately 19% from A$6,838 million in fiscal 2001 to A$8,160 million in fiscal 2002. This increase in revenues is due primarily to the inclusion of the Acquired Stations that were acquired in July 2001, and the increase in advertising revenues from the telecast of the Super Bowl at FOX, which was not telecast on FOX in the prior year. Also impacting revenues was an estimated 1.4 percentage point gain in market share over the prior year at the Fox Television Stations (FTS), A$162 million of revenue recognized from the sale of the MLB divisional series rights to ABC Family, and increased advertising revenue for MLB due to additional postseason games compared to the prior year. Partially offsetting these increases was the soft advertising environment prevalent for much of the year in the U.S., which was further weakened by the terrorist attacks on September 11th. Operating income decreased to A$873 million in fiscal 2002 from A$1,007 million in fiscal 2001, a decrease of approximately 13%. The decrease in operating income was primarily related to increased programming costs at FTS and at FOX resulting from more MLB games shown than in the prior year and higher primetime license fees, the telecast of the Super Bowl during fiscal 2002 and license fees for Star Wars Episode I: The Phantom Menace.
At STAR, continued increases in both subscriber and advertising revenues contributed to overall revenue growth for fiscal 2002 as compared to fiscal 2001. Increased subscription revenues were generated from pricing increases and subscriber growth. Advertising revenue increases are attributable to Kahaani Ghar Ghar Ki and Kyunki Saas Bhi Kabhi Bahu Thi, the top Indian cable shows on STAR Plus (cable and satellite channel in India). These revenue gains were partially offset by increased programming costs at STAR News and increased production costs.
Cable Network Programming. Revenues of A$3,569 million increased 32% as compared to fiscal 2001 revenues of A$2,696 million due to a combination of subscriber growth and improved ratings primarily at the Fox News and FX, as well as the acquisition of SPEED Channel in July 2001. At Fox News, a 72% increase in advertising revenue was driven by improved ratings, partially offset by lower national sell-out and pre-emptions. Affiliate revenues increased 31% at Fox News which was attributable to an 18% increase in subscribers. As of 30 June, 2002, Fox News reached 80 million U.S. cable and DBS households, an increase of 12 million households over the prior year. FX affiliate revenues increased 22%, reflecting a 20% increase in average households over the prior year. As of 30 June, 2002, FX reached over 78 million U.S. DBS and cable
40
households, an increase of 13 million households over the prior year. Despite the difficult advertising sales market, FX advertising revenues increased 26% over the prior year, as the result of an increase in average audience and higher ratings, primarily due to the success of The Shield, which was partially offset by declines in pricing. Affiliate revenues increased 13% at the RSNs primarily from increased average cable rates per subscriber, as well as increases in total reached U.S. cable and DBS households. Operating income increased 93% to A$380 million as compared to A$197 million in fiscal 2001. This significant increase relates primarily to the increased revenues across all channels. Fox News improved results were driven by significant gains in subscriber base and advertising revenues from higher pricing and improved ratings, which was only partially offset by higher costs associated with breaking news events and programming expenses. At the RSNs, increased affiliate revenues were partially offset by increased operating expenses related to an increased number of professional sports events and higher average rights fees associated with new professional sports rights agreements at the RSNs. FX revenue increases of 17% were only partially offset by increased programming and marketing expenses due to the fall line-up and The Shield.
Magazines and Inserts. Revenues of A$1,650 million in fiscal 2002 decreased A$25 million as compared to A$1,675 million reported in fiscal 2001. Operating income increased from A$437 million to A$448 million in fiscal 2002. This decrease in revenues is due to lower advertising volume and rates from free-standing inserts and lower revenue from instant coupon machines. The operating income increase is due to cost reductions in printing, paper, media and field expenses which more than offset by the revenue shortfalls noted above.
Newspapers. Revenues were flat at A$4,604 million in fiscal 2002 compared to A$4,600 million in fiscal 2001. Operating income decreased by 9% to A$822 million in fiscal 2002 from A$904 million in fiscal 2001. In the U.K., lower advertising volume and advertising rates were partially offset by circulation revenue gains across all major titles due to cover price increases and a decrease in production costs. In Australia, lower advertising revenues and higher newsprint costs were partially offset by increased circulation revenue due to cover price increases. In the U.S., increased circulation and advertising revenue were more than offset by increased costs related to the new printing plant at the New York Post.
Book Publishing. Revenues increased approximately 8% from A$1,907 million in fiscal 2001 to A$2,059 million in fiscal 2002. Operating income was A$224 million, a 9% increase over the prior years operating income of A$205 million. These increases were driven by the strong performance in the U.K. of Pamela Stephensons biography of comedian Billy Connolly and J.R.R. Tolkiens Lord of the Rings Trilogy, coupled with a successful childrens program and local publishing programs in Canada and Australia/New Zealand. HarperCollins had 106 titles on the New York Times bestsellers list during the year, including nine titles that reached the number 1 spot.
Net loss from associated entities. Net loss from associated entities of A$1,434 million increased A$1,185 million from A$249 million in fiscal 2001.
For the year ended 30 June, |
|||||||||||||||
2002 |
2001 |
Change |
% Change |
||||||||||||
(A$ in millions) | |||||||||||||||
The Groups share of the profit (loss) after income tax of its associated entities consist principally of: |
|||||||||||||||
BSkyB |
$ | (51 | ) | $ | (76 | ) | $ | 25 | 33 | % | |||||
Stream, S.p.A. |
(66 | ) | | (66 | ) | | |||||||||
Sky Latin America: |
|||||||||||||||
Sky Brasil |
(120 | ) | (101 | ) | (19 | ) | (19 | )% | |||||||
Innova, S. de R.L. de C.V. (Mexico) |
(92 | ) | (52 | ) | (40 | ) | (77 | )% | |||||||
Other |
(78 | ) | (63 | ) | (15 | ) | (24 | )% | |||||||
Fox Sports Cable Networks |
33 | 89 | (56 | ) | (63 | )% | |||||||||
FOXTEL |
(15 | ) | (11 | ) | (4 | ) | (36 | )% | |||||||
ESPN Star Sports |
(11 | ) | (23 | ) | 12 | 52 | % | ||||||||
Other associated entities |
86 | 75 | 11 | 15 | % | ||||||||||
Net loss from associated entities after income tax before other items |
$ | (314 | ) | $ | (162 | ) | $ | (152 | ) | (94 | )% | ||||
Other items after income tax |
(1,120 | ) | (87 | ) | (1,033 | ) | (1,187 | )% | |||||||
Net loss from associated entities after income tax and other items |
$ | (1,434 | ) | $ | (249 | ) | $ | (1,185 | ) | (476 | )% | ||||
41
The higher net loss was primarily due to the Groups share of BSkyBs write off of its investment in KirchPayTV. Additionally, increased losses were due to the unfavorable foreign exchange movements in our Latin American pay television platforms, losses recognized from our Italian pay television platform Stream and reduced profitability of Fox Sports Domestic Cable Networks primarily due to lower revenues and higher costs at Madison Square Garden.
Net borrowing costs. Net borrowing costs increased to A$1,000 million in fiscal 2002 from A$935 million in fiscal 2001. This increase is due to lower rates of return on cash balances, which was partially offset by a decrease in interest expense due to the redemption of certain debt.
Net income tax benefit (expense). Net income tax expense of A$655 million during fiscal 2002 decreased from a benefit of A$12 million during fiscal 2001. Net income tax expense of A$655 million was recognized in fiscal 2002 as opposed to an income tax benefit of A$2,858 million that would have been recognized if the statutory rate had been applied without adjustments. The difference is primarily due to the exclusion of the Gemstar write down, as it is not expected to be realized in the future.
Net profit (loss) attributable to members of parent entity. Net profit (loss) attributable to members of the parent entity was a loss of A$11,962 million in fiscal 2002 as compared to a loss of A$746 million in fiscal 2001. The current year loss primarily relates to the write downs in the Groups carrying value of its investments in Gemstar, Stream and KirchMedia. Also contributing to this loss was the Groups write down of its U.S. national sporting contracts for MLB, NASCAR, the NFL and non-U.S. cricket programming rights. These write downs were partially offset by the gain on the sale of the Groups interest in FFW. Fiscal 2001 losses primarily related to the loss incurred for the restructuring of the Healtheon/WebMD transaction, the write off of the One.Tel investment and increased new media related investment write downs.
42
Liquidity and Capital Resources
The Groups principal sources of cash flow are internally generated funds; however, as additional sources of funding, the Group has access to the worldwide capital markets, a revolving credit facility of US$1.75 billion and various film financing alternatives and as of 30 June, 2003, the Group had consolidated cash and cash equivalents of A$6.7 billion. Management of the Group believes that funds available from cash flows from operations and alternative sources will be adequate for the Group to conduct its operations. The Groups internally generated funds are highly dependent upon the state of the advertising market and public acceptance of film products. Any significant decline in the advertising market or the performance of its films could adversely impact its cash flows from operations.
The principal uses of cash flow that affect the Groups 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 programming and sporting events, operational expenditures, capital expenditures, investments in associated entities, interest expense and income tax payments.
Cash flows provided by operating activities during the fiscal years ended 30 June, 2003, 2002 and 2001 were A$2,483 million, A$3,078 million and A$920 respectively. During the year ended 30 June, 2003, higher sports rights payments at the Television segment, increased contributions to pension plans and increased receivables at the Book Publishing and Newspaper segments contributed to the decrease in cash provided by operating activities. Partially offsetting these uses of cash, was increased net profit attributable to members of the parent entity of A$1,808 million (after consideration of non-cash activity).
Cash used in investing activities were A$1,797 million during fiscal year 2003. Fiscal 2002 had cash flows provided by investing activities of A$400 million. Fiscal 2001 had cash flows used in investing activities of A$1,779 million. The year ended 30 June, 2003 included the purchase of WPWR and a controlling interest in SKY Italia, as well as investments in Stream, the National Geographic Channels and the Latin American pay television platforms. Investing activities in fiscal 2002 were A$2,179 million lower than fiscal 2001 primarily due to proceeds received from the sales of FFW and Outdoor Life.
Cash flows provided by financing activities were A$456 million during fiscal year 2003. Fiscal 2002 had cash flows used by financing activities of A$2,333 million. Fiscal 2001 had cash flows provided by financing activities of A$1,188 million. During fiscal year 2003, the Group issued A$3.2 billion in debt and exchangeable securities as well as an issuance of shares of A$1.9 billion, primarily resulting from the secondary issue made by FEG in December 2002. Partially offsetting this was the redemption of A$3.7 billion in non-current interest bearing liabilities and exchangeable securities as well as A$0.7 billion as cash collateral for SKY Italia long-term debt. Financing activities in fiscal 2002 included the redemption of A$1,639 million of debt and A$443 million related to the settlement of the MCI and other obligations.
On 27 June, 2003, News America Incorporated, a subsidiary of the Group, terminated its existing Revolving Credit Agreement (the Prior Credit Agreement) and entered into a new US$1.75 billion (A$2.6 billion) Five Year Credit Agreement (the New Credit Agreement) with Citibank N.A., as administrative agent, JP Morgan Chase Bank, as syndication agent, and the lenders named therein. The News Corporation Limited, FEG Holdings, Inc., Fox Entertainment Group, Inc., News America Marketing FSI, Inc., and News Publishing Australia Limited are guarantors (the Guarantors) under the New Credit Agreement. The New Credit Agreement provides a US$1.75 billion (A$2.6 billion) revolving credit facility with a sub-limit of US$600 million (A$904 million) available for the issuance of letters of credit, and expires on 30 June, 2008. Borrowings are in US dollars only, while letters of credit are issuable in US dollars or Euros. The significant terms of the agreement include the requirement that the Group maintain specific gearing and interest coverage ratios and limitations on secured indebtedness. The Group pays a facility fee of 0.20% regardless of facility usage. The Group pays interest for borrowings and letters of credit at LIBOR plus 0.675%. The Group pays an additional fee of 0.125% if borrowings under the facility exceed 25% of the committed facility. The interest and fees are based on the Groups current debt rating. On 27 June, 2003, letters of credit representing 119 million (A$205 million) were issued under the New Credit Agreement.
Total unused credit facilities as at 30 June, 2003 amounted to A$2,637 million (2002 A$3,546 million). Subsequent to 30 June, 2003, additional letters of credit representing 120 million (A$204 million) were issued under the New Credit Agreement.
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The New Credit Agreement and the indentures governing certain debt instruments (the Indentures) each contain various covenants affecting News Corporation. Covenants and provisions contained in the New Credit Agreement among other things: (i) prohibit the Reporting Group, as defined in the New Credit Agreement, from incurring indebtedness if at the time of such incurrence a default under the New Credit Agreement has occurred and is still continuing; (ii) require the Reporting Group to maintain certain financial ratios; and (iii) limit certain corporate acts of the Reporting Group, such as the creation of liens and the entrance into transactions with affiliates. Among other things, the Indentures limit News Corporations ability to (i) incur, issue, assume, guarantee or otherwise become liable with respect to indebtedness; (ii) purchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, and any subordinated indebtedness; (iii) create, assume, incur or suffer to exist liens on property; (iv) use the proceeds from asset sales; and (v) pay dividends or make distributions.
The Groups principal operations are in the U.S., Europe and Australasia. Cash is managed centrally within each of the three 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, local overdrafts are available to be drawn.
News Corporation was in compliance with all covenants and had satisfied all financial ratios and tests contained in its long-term debt obligations as of 30 June, 2003 and expects to remain in compliance and satisfy all such financial ratios and tests. News Corporation expects that compliance with the covenants contained in its long-term debt obligations will not have a material adverse effect on its business and operations.
As of 30 June, 2003, News Corporations debt ratings, by Moodys (Ba1 for subordinated notes and Baa3 for senior unsecured notes) and Standard & Poors (BBB-) were within the investment grade scale.
Redemptions of Debt
During fiscal year 2003, the Group redeemed A$3,673 million of debt. The Group recognized an aggregate loss of approximately A$143 million on the following early extinguishments of debt.
| In June 2002, the Group and Fox Sports Networks, LLC, an indirect subsidiary of the Group, irrevocably called for redemption of all outstanding 8.875% Senior Notes due August 2007 and the 9.75% Senior Discount Notes due August 2007. The Group recognized a loss of A$80 million in fiscal 2002 on the irrevocable early extinguishment of the debt. The redemption was completed in August 2002. |
| In March 2003, the Group purchased approximately 74% of its outstanding US$500 million aggregate principal amount of 8 1/2% Senior Notes due February 2005 at a premium, plus accrued interest. The Group recognized a loss of US$45 million (A$76 million) on the early redemption of the 8 1/2% Senior Notes which is included within Other expenses in the Statement of Financial Performance. |
| Also in March 2003, 8,247,953 exchangeable Trust Originated Preferred Securities (TOPrS) and related warrants were redeemed by the Group using proceeds from the issuance of Beneficial Unsecured Exchangeable Securities (BUCS). The Group recognized a loss of US$37 million (A$64 million) on early redemption of the TOPrS (including the write off of deferred issuance costs), which is included within Other expenses in the Statement of Financial Performance. |
Issuances of Debt
During fiscal year 2003, the Group issued A$3,172 million of debt.
| In March 2003, the Group issued US$150 million of 4.750% Senior Notes due March 2010 and US$350 million of 6.55% Senior Notes due March 2033 at a discount. Proceeds from the issuance of these new Senior Notes were used to purchase the 8 1/2% Senior Notes due February 2005 and for general corporate purposes. |
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| On 30 April, 2003, in connection with its acquisition of Telepiu, the Group assumed Telepius obligations under its 350 million (A$602 million) 5.625% Guaranteed Notes due 2004 (the Eurobonds). The Eurobonds mature on 29 July, 2004 and accrue interest at 5.625% per annum with annual interest payments made on each anniversary date. The Group procured the issuance of a letter of credit for the benefit of the holders of the Eurobonds and established a cash collateral account, reflected as Cash on Deposit on the Statement of Financial Position, to make any required payments on the Eurobonds and secure the Groups obligations under the letter of credit. Subsequent to 30 June, 2003, certain Eurobond holders exercised their option to require the Group to purchase approximately 126 million (A$217 million) aggregate principal amount of Eurobonds. The Group made payment of the principal amount and accrued interest on 19 August, 2003 from the cash collateral account. |
| During 2003, News Corporation Finance Trust II (the Trust) issued an aggregate of US$1.655 billion 0.75% BUCS representing interests in debentures issued by NAI and guaranteed on a senior basis by the Group and certain of its subsidiaries. On or after 2 April, 2004, at the holders option, the BUCS are exchangeable into BSkyB ordinary shares based on an exchange ratio of 77.09 BSkyB ordinary shares per US$1,000 original liquidation amount of BUCS. The trust may pay the exchange market value of each BUCS in cash, by delivering ordinary shares of BSkyB, or a combination of cash and ordinary shares of BSkyB. |
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The Group has commitments under certain firm contractual arrangements (firm commitments) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes the Groups material firm commitments at 30 June, 2003.
Payments Due by Period | |||||||||||||||
1 year |
2-3 years |
4-5 years |
After 5 years |
Total | |||||||||||
(A$ in millions) | |||||||||||||||
Contracts for Capital Expenditure |
|||||||||||||||
Plant and machinery |
$ | 118 | $ | 15 | $ | 3 | $ | | $ | 136 | |||||
Operating Leases (a) |
|||||||||||||||
Land and buildings |
274 | 497 | 473 | 1,962 | 3,206 | ||||||||||
Plant and machinery |
288 | 436 | 323 | 422 | 1,469 | ||||||||||
562 | 933 | 796 | 2,384 | 4,675 | |||||||||||
Other Commitments |
|||||||||||||||
Unsecured loans payable |
| 804 | 527 | 11,000 | 12,331 | ||||||||||
Term loans |
33 | 65 | | | 98 | ||||||||||
Exchangeable securities |
| | | 2,084 | 2,084 | ||||||||||
New Millennium II Preferred Interest |
760 | 388 | | | 1,148 | ||||||||||
News America Marketing (b) |
106 | 140 | 5 | | 251 | ||||||||||
Major League Baseball (c) |
532 | 1,270 | 701 | | 2,503 | ||||||||||
National Football League (d) |
1,092 | 2,381 | | | 3,473 | ||||||||||
National Association Stock Car Auto Racing (e) |
293 | 812 | 790 | 245 | 2,140 | ||||||||||
Cricket (f) |
65 | 227 | 180 | | 472 | ||||||||||
Other including programming (g) |
3,656 | 3,901 | 2,077 | 2,417 | 12,051 | ||||||||||
6,537 | 9,988 | 4,280 | 15,746 | 36,551 | |||||||||||
Total commitments, borrowings and contractual obligation |
$ | 7,217 | $ | 10,936 | $ | 5,079 | $ | 18,130 | $ | 41,362 | |||||
The Group also has certain contractual arrangements in relation to certain associates that would require the Group to make payments or provide funding if certain circumstances occur (contingent guarantees). The Group does not expect that these contingent guarantees will result in any material amounts being paid by the Group 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 Group expects to incur an obligation to make payments during that time frame.
Amount of Commitment Expiration Per Period | |||||||||||||||
1 year |
2-3 years |
4-5 years |
After 5 years |
Total | |||||||||||
(A$ in millions) | |||||||||||||||
Sports rights (h) |
$ | 111 | $ | 149 | $ | 167 | $ | 1,091 | $ | 1,518 | |||||
Transponder leases (i) |
48 | 90 | 83 | 293 | 514 | ||||||||||
Star Channel (j) |
40 | 35 | | | 75 | ||||||||||
Other |
2 | 4 | 74 | 105 | 185 | ||||||||||
$ | 201 | $ | 278 | $ | 324 | $ | 1,489 | $ | 2,292 | ||||||
(a) | The Group 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 2036. In addition, the Group leases various printing plants, which expire at various dates through 2094. |
(b) | News America Marketing (NAM), a leading provider of in-store marketing products and services primarily to consumer packaged goods manufacturers, enters into minimum guarantee agreements with retailers. |
(c) | The Groups contract with MLB grants the Group rights to telecast certain regular season and all postseason MLB games. The contract began with the 2001 MLB season and ends with the 2006 MLB |
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season. The remaining future scheduled payments for telecast rights to such MLB games aggregated approximately US$1.7 billion (A$2.5 billion) as of 30 June, 2003. For the duration of the term of its contract with MLB, the Group has sublicensed telecast rights to certain MLB post-season games to The Walt Disney Company, and is entitled to be paid a sublicense fee aggregating US$495 million (A$746 million) over the remaining term. The amounts reflected on this schedule have not been reduced by the sublicense. |
(d) | Under the Groups contract with the NFL through 2006, remaining future minimum payments for program rights to broadcast certain football games aggregated approximately US$2.3 billion (A$3.5 billion) as of 30 June, 2003, and are payable over the remaining term of the contract. This contract provided the NFL with the option to renegotiate the programming rights to broadcast certain football games at the end of the 2002 football season. This option was not exercised and expired in February 2003. |
(e) | The Groups contracts with NASCAR, which contain certain termination clauses, give the Group rights to broadcast certain NASCAR races through fiscal 2009 and exclusive NASCAR content rights as well as the NASCAR brand to be exploited with a new NASCAR cable channel or the existing SPEED Channel through fiscal 2013. The remaining future minimum payments aggregated approximately US$1.4 billion (A$2.1 billion) as of 30 June, 2003, and are payable over the remaining terms assuming no early terminations. |
(f) | The Group acquired the exclusive rights to transmit and exploit the signals for the 2003 and 2007 Cricket World Cups and other related International Cricket Council (ICC) cricket events for a minimum guarantee of US$550 million (A$887 million) through fiscal year 2007. The Group has guaranteed this contract and has been granted the first right of refusal and the last right to match the highest bid received for the broadcast rights in their respective territories. As of 30 June, 2003, the remaining minimum guarantee is A$472 million over the remaining term. |
(g) | The Groups minimum commitments and guarantees under certain other programming, local sports broadcast rights, players, licensing, telecommunications services and other agreements aggregated approximately A$12,051 million at 30 June, 2003. |
(h) | The Group has guaranteed various sports rights agreements for certain associated entities which aggregate approximately US$1,007 million (A$1.5 billion) (2002 US$1,050 million (A$1.9 billion)) and extend through 2019. |
(i) | The News Corporation Limited has guaranteed various transponder leases for certain associated companies operating in Latin America. The aggregate of these guarantees is approximately US$341 million (A$514 million) (2002 US$355 million (A$675 million)) and extends to 2019. |
(j) | The Group has guaranteed a bank loan facility of A$75 million for Star Channel Japan pro rata with the Groups ownership interest (17.78%). The facility covers a term loan of A$35 million which matures in September 2005 and an agreement for overdraft of A$40 million. |
New Millennium II
On 30 March, 2001, the Groups film distribution arrangement with New Millennium Investors LLC (New Millennium) expired. The Group acquired the outstanding equity of New Millennium and repaid all of New Millenniums existing debt, resulting in the acquisition of film inventories of US$650 million (A$1,314 million) and the elimination of current and non-current payables of US$117 million (A$237 million). Concurrently, the Group entered into a new series of film rights agreements whereby a controlled consolidated entity of the Group, Cornwall Venture LLC (NM2), that holds certain library film rights, funds the production or acquisition costs of all eligible films, as defined, to be produced by Twentieth Century Fox Film Corporation (TCF), a subsidiary of the Group, between 2001 and 2005 (these film rights agreements, as amended, are collectively referred to as the New Millennium II Agreement). NM2 is a separate legal entity from the Group and TCF and has separate assets and liabilities. NM2 issued a preferred limited liability membership interest (Preferred Interest) to a third party to fund the film financing, which is presented on the consolidated Statement of Financial Position as outside equity interests in controlled entities. The Preferred Interest has no fixed redemption rights but is entitled to an allocation of the gross receipts to be derived by NM2 from the distribution of each eligible film. Such allocation to the extent available based on the gross receipts from the distribution of the eligible films consists of (i) a return on the Preferred Interest (the Preferred Payments), based on certain reference rates (generally based on US commercial paper rates or LIBOR) prevailing on the respective dates of determination, and (ii) a redemption of the Preferred Interest, based on a contractually determined amortization schedule. The Preferred Interest has a preference in the event of a liquidation of NM2 equal to the unredeemed portion of the investment plus any accrued and unpaid Preferred Payments.
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The net change in Preferred Interest outstanding was US$88 million (A$133 million) and US$8 million (A$14 million) for the years ended 30 June, 2003 and 2002, respectively. These amounts were comprised of issuances by the Group of additional Preferred Interest under New Millennium II in the amount of US$520 million (A$783 million) and US$657 million (A$1,165 million) and redemptions by the Group of Preferred Interest of US$608 million (A$916 million) and US$649 million (A$1,150 million) during fiscal year 2003 and 2002, respectively.
At 30 June, 2003, there was A$1,148 million (2002 A$1,507 million) of Preferred Interest outstanding, which is included in the Statement of Financial Position as outside equity interest in controlled entities, with the Preferred Payments recorded in the Statement of Financial Performance as outside equity interest.
A Ratings Trigger Event for the above agreement would occur if the Groups debt rating:
(i) | (a) | falls below BB+ and below Ba1, or (b) falls below BB, or (c) falls below Ba2, or (d) it is not rated by both rating agencies, and, in each case, the Group has not, within ten business days after the occurrence of such event, provided credit enhancement so that the resulting agreement is rated at least BB+ and Ba; or | ||
(ii) | (a) | falls below BBB- and Baa3, or (b) it is not rated by both rating agencies, and, in each case, more than US$25 million in capital payments redeemable at that time from film gross receipts remain unredeemed for at least one quarter. |
If a Ratings Trigger Event were to occur, then (a) no new films will be transferred, (b) rights against certain film assets may be enforced, and (c) the Preferred Interest may become redeemable.
During the year ended 30 June, 2003, no Ratings Trigger Event occurred. If a Ratings Trigger Event were to occur, then US$425 million (A$640 million) (or approximately 56% of the outstanding balance at 30 June, 2003) may be payable immediately. The balance of the redemption would be payable to the extent of future gross receipts from films that had been transferred to NM2.
Acquisitions and Dispositions
WebMD
As a result of the restructure of the Groups investment in Healtheon/WebMD (WebMD) in fiscal 2001, the Group swapped out of its preferred stock investment and recognized an impairment loss on its remaining common stock interest in WebMD. In exchange for the preferred stock the Group received the ownership interest in The Health Network (THN), warrants to purchase additional common stock in WebMD, a reduction in its obligation to provide future media services to and license content from WebMD and the elimination of future funding commitments to an international joint venture. The Group recorded a non-cash charge of A$426 million related to this restructuring. The Group subsequently sold its interest in THN for consideration valued at A$433 million.
RSN North
In February 2001, Fox Sports Networks LLC (Fox Sports Networks), acquired certain assets and liabilities constituting the business of Midwest Sports Channel, a regional sports network serving the Minneapolis, Minnesota and Milwaukee, Wisconsin metropolitan areas, pursuant to an Assignment and Assumption Agreement among Fox Sports Networks, Viacom and Comcast Corporation (Comcast) and a Purchase Agreement between Viacom and Comcast for approximately US$40 million (A$79 million).
48
Home Team Sports
In February 2001, Fox Sports Networks sold its approximate 34% limited partnership interest in Home Team Sports, in a non-cash exchange for new or amended cable carriage arrangements (the Carriage Arrangements) related to the distribution of certain of the Groups programming services on cable systems. The value ascribed to the Carriage Arrangements was A$89 million and was based upon the value of similar cash transactions that the Group had completed. The Group has recognized a gain of approximately A$80 million related to this transaction for the year ended 30 June, 2001.
Taiwan Cable Group (China Network System)
In April 2001, STAR purchased a 20% interest in each of the Koos Groups (Koos) 15 cable systems in Taiwan. The aggregate purchase price for this transaction was A$474 million. As of June 2003, STAR had aggregate interests of up to 23% in 17 cable systems throughout Taiwan, including systems affiliated with Koos. The Group accounts for this investment under the equity method of accounting from the date of acquisition. Koos is a leading business group based in Taiwan encompassing finance, telecommunications, entertainment and other businesses.
The Golf Channel
In June 2001, the Group sold its 31% interest in The Golf Channel for total consideration of approximately A$695 million, of which A$676 million was received in cash during fiscal 2001. The Group recorded a gain on the sale of A$476 million in relation to this transaction.
Chris-Craft
In July 2001, the Group, through a wholly-owned subsidiary, acquired all of the outstanding common stock of Chris-Craft Industries, Inc. and its subsidiaries, BHC Communications, Inc. and United Television, Inc., (collectively, Chris-Craft). The consideration for the acquisition was approximately US$2.0 billion (A$3.5 billion) in cash and the issuance of 68,854,209 American Depositary Receipts (ADRs) representing 275,416,836 preferred limited voting ordinary shares valued at A$4.4 billion. Simultaneously with the closing of the acquisition, the Group transferred US$3,432 million (A$4,438 million) of certain net assets, constituting Chris-Crafts ten television stations (the Acquired Stations) to its majority owned subsidiary, FEG, in exchange for 122,244,272 shares of FEGs Class A Common Stock (the Exchange), thereby increasing the Groups ownership in FEG from 82.76% to 85.25%. FEG assigned the licenses issued by the FCC for the Acquired Stations to its indirect subsidiary, Fox Television Stations, Inc., which became the licensee and controls the operations of the Acquired Stations. The Group acquired Chris-Craft and transferred to FEG the Acquired Stations in order to strengthen FEGs existing television station business.
The Group consolidated the operations of the Acquired Stations, as of the date of Exchange, 31 July, 2001, with the exception of KTVX-TV in Salt Lake City, whose operations were not consolidated as of the Exchange due to regulatory requirements which precluded the Group from controlling the station and required its disposal (see description for Clear Channel swap below).
In October 2001, the Group exchanged KTVX-TV in Salt Lake City and KMOL-TV in San Antonio with Clear Channel Communications, Inc. for WFTC-TV in Minneapolis (the Clear Channel swap). In addition, in November 2001, the Group exchanged KBHK-TV in San Francisco with Viacom Inc. for WDCA-TV in Washington, DC and KTXH-TV in Houston (the Viacom swap). In June 2002, the Group exchanged KPTV-TV in Portland, an Acquired Station, for Meredith Corporations WOFL-TV in Orlando and WOGX-TV in Ocala (the Meredith Swap, and together with the Viacom and Clear Channel swaps, the Station Swaps). All of the stations exchanged in the Station Swaps were Acquired Stations. The stations received in the Station Swaps have been independently appraised at the same fair values as those Acquired Stations that were exchanged. Accordingly, no gain or loss was recognized by the Group as a result of the Station Swaps.
49
SPEED Channel
In July 2001, as a result of the exercise of rights by existing shareholders of Speedvision Network, LLC, the Group acquired an additional 53.44% of Speedvision Network, LLC, now Speed Channel, Inc. (SPEED Channel) for US$401 million (A$789 million). This acquisition resulted in the Group owning 85.46% of SPEED Channel. As a result, the Group has consolidated the results of SPEED Channel from July 2001. In October 2001, the Group acquired the remaining 14.54% minority interest in SPEED Channel for approximately US$111 million (A$221 million) bringing the Groups ownership percentage to 100%.
Outdoor Life
On 25 July, 2001, as a result of the exercise of rights by existing shareholders, FEG acquired 50.23% of Outdoor Life for approximately A$608 million. This acquisition resulted in FEG owning 83.18% of Outdoor Life. On 23 August, 2001, a shareholder of Outdoor Life exercised its option to acquire FEGs ownership interest in Outdoor Life for A$977 million in cash. Upon the closing of the sale, the Group recognized a gain of A$271 million.
Fox Family Worldwide
In October 2001, a subsidiary of the Group, FOX, Haim Saban and the other shareholders of FFW, sold FFW to The Walt Disney Company (Disney) for total consideration of approximately A$10.3 billion (including the assumption of certain debt), of which approximately A$3.2 billion was in consideration of the Groups interest in FFW. As a result of this transaction, the Group recognized a gain on sale of A$2,323 million. In addition, the Group sublicensed certain post-season MLB games through the 2006 MLB season to Disney for aggregate consideration of approximately A$1.2 billion, payable over the entire period of the sublicense.
Fox Sports International
The Group and Liberty Media Corporation (Liberty) at 30 June, 2001 each owned 50% of Fox Sports International. In July 2001, under a pre-existing option, Liberty exercised its right to sell its 50% interest in Fox Sports International to the Group in exchange for an aggregate 3,673,183 ADRs representing 14,692,732 preferred limited voting ordinary shares valued at A$180 million. The transaction closed in December 2001. Under the terms of this transaction, the Group transferred the acquired interest in Fox Sports International to FEG in exchange for the issuance of 3,632,269 FEG Class A Common Stock. This issuance increased the Groups interest in FEG from 85.25% to 85.32%, while its voting interest remained at 97.8%.
Sunshine
In January 2002, the Group acquired an additional 23.3% voting interest in Sunshine for approximately A$41.3 million. This resulted in the acquisition of a controlling financial interest in Sunshine and increased the Groups ownership percentage in Sunshine to approximately 93%. In February 2002, the Group acquired an additional approximate 0.4% interest in Sunshine. Since the Group obtained a controlling financial interest upon acquisition in January 2002, Sunshine has been consolidated into the Cable Network Programming segment of the Group as it is now under the control of the Group.
WPWR-TV
In August 2002, the Group acquired the television station WPWR-TV in the Chicago designated market area from Newsweb Corporation for US$425 million (A$640 million) in cash.
FEG
In November 2002, FEG sold 50 million shares of its Class A Common Stock pursuant to an underwritten public offering. The net proceeds received by FEG were approximately US$1.2 billion (A$1.8 billion) and were used to repay intercompany indebtedness. Upon consummation of the offering, the Groups equity and voting interest in FEG decreased from 85.32% and 97.84% to 80.58% and 97%, respectively. The resulting gain has been recorded as Other revenue.
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Gemstar-TV Guide
In July 2000, TV Guide, Inc. (TVG) completed a merger with Gemstar International Group Limited (Gemstar) pursuant to which TVG became a wholly-owned subsidiary of Gemstar which was renamed Gemstar-TV Guide International, Inc. (Gemstar TV Guide). The Groups ownership of the merged entity at July 2000 was 21.38%. In May 2001, the Group acquired 80% of Libertys 21.3% interest in Gemstar-TV Guide in exchange for 121.5 million ADRs representing 486 million preferred limited voting ordinary shares of the Group. The acquisition by the Group of a further interest in Gemstar-TV Guide through the issuance of preferred shares was a non-cash transaction, with investments and contributed equity increasing by A$7,920 million. In December 2001, the Group acquired the remaining 20% of Libertys interest in Gemstar-TV Guide in exchange for 28.8 million ADRs of the Group representing 115.2 million preferred limited voting ordinary shares valued at A$1,407 million. This acquisition was a non-cash transaction, with investments and contributed equity increasing by A$1,407 million. As a result of this transaction, the Groups ownership interest in Gemstar-TV Guide increased to 42.9% (42.9% at 30 June, 2002). As at 30 June, 2002, the Group owned 175 million shares in Gemstar-TV Guide and recorded a charge to reflect the permanent impairment in carrying value of A$11.1 billion. The charge was determined by reference to Gemstar-TV Guides share price at 28 June, 2002 of US$5.39 (A$9.56) per share. During fiscal 2003, Gemstar-TV Guides market value continued to decline and the Group considered several factors to determine if an additional charge was required. As a result of this review, the Group recorded a A$551 million charge to reduce the carrying value of the investment in Gemstar-TV Guide to US$3.75 (A$6.66) per share to reflect a permanent decline in value.
Liberty Media Transaction
In March 2003, the Group and Liberty entered into an agreement under which Liberty has the right, prior to 30 September, 2003, to purchase US$500 million (A$835 million) of the Groups preferred limited voting ordinary ADRs, at US$21.50 (A$35.93) per ADR. If Liberty does not exercise its right, the Group can require Liberty to purchase US$500 million (A$835 million) of its preferred limited voting ordinary ADRs, at this price should the Group acquire an ownership interest in Hughes Electronics Corporation prior to 27 March, 2005.
Telepiu
In April 2003, the Group acquired a controlling interest in Stream, which concurrently acquired all of the outstanding stock of Telepiu, a majority-owned subsidiary of Vivendi Universal and Streams only direct competitor in the Direct Broadcast Satellite Television business in Italy. The aggregate consideration paid for Telepiu consisted of 438 million (A$711 million) in cash and the assumption of 350 million (A$602 million) in indebtedness. The excess purchase price over the fair value of the net assets acquired of A$1,524 million is reported within publishing rights, titles and television licenses.
Telepiu has been merged with Stream, and the combined platform has been renamed SKY Italia, which is owned 80.1% by the Group and 19.9% by Telecom Italia. The results of SKY Italia have been included in the Groups Consolidated Statement of Financial Performance from 30 April, 2003, the date of acquisition, and is presented in a new segment, Direct Broadcast Satellite Television. As a result of the acquisition, commencing 30 April, 2003, the Group ceased to equity account its share of Streams results.
Hughes Electronics
In April 2003, the Group, General Motors Corporation (GM) and Hughes Electronics Corporation (Hughes) reached an agreement in which the Group would acquire 34% of Hughes. The Group will acquire GMs 19.9% interest in Hughes for approximately US$3.8 billion (A$5.7 billion), of which US$768 million (A$1,157 million) of the consideration may be paid in preferred ADRs. The Group will acquire through a merger an additional 14.1% of Hughes for approximately US$2.7 billion (A$4.1 billion) that is payable, at the Groups option, in cash or preferred ADRs. Simultaneously with the closing of this transaction, the Group will
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transfer its 34% ownership interest in Hughes to FEG in exchange for promissory notes representing US$4.5 billion (A$6.8 billion) and approximately 74.2 million shares of FEGs Class A Common Stock. This will increase the Groups ownership interest in FEG from 80.6% to approximately 82%, whilst its voting percentage of FEG will remain at 97%. The closing of this transaction is subject to a number of conditions, including regulatory approvals.
Subsequent Events
On 19 September 2003, the Group purchased substantially all of the outstanding equity of Tintagel Investors L.L.C. (Tintagel), the entity that held the Preferred Interest in NM2, for US$25.5 million (A$38.3 million) plus accrued and unpaid Preferred Payments in the amount of approximately US$106,000 (A$159,109). As a result of the acquisition of this equity interest, the Group will consolidate the assets and liabilities of Tintagel for accounting purposes. The 30 June 2003 outstanding NM2 Preferred Interest of US$762 million (A$1,148 million), included in Outside equity interests in controlled entities prior to the acquisition, will be eliminated upon consolidation; and Tintagels 30 June 2003 outstanding indebtedness of US$736 million (A$1,109 million) will now be included in Interest bearing liabilities on the consolidated statements of financial position of the Group. After the acquisition, Tintagel will continue to be a separate legal entity from the Group with separate assets and liabilities.
As of 30 June, 2003 the Group guaranteed sports rights agreements for SportsChannel Chicago Associates (SportsChannel Chicago), which aggregated approximately $1,007 million. On 30 September 2003, SportsChannel Chicago received notice that each of the Chicago Cubs, Bulls, Blackhawks and White Sox have exercised their right to terminate their rights agreement with SportsChannel Chicago effective 30 September 2004. Upon termination of the sports rights agreements, the remaining guarantee would be approximately US$43 million through fiscal 2005.
On 10 October, 2003, the Group announced that it had reached an agreement in principle to sell the Los Angeles Dodgers, together with Dodger Stadium and the teams training facilities in Vero Beach, Florida and the Dominican Republic, to an investment group headed by Mr. Frank McCourt. This agreement is subject to MLB approval and customary conditions.
On 15 October, 2003 Liberty acquired US$500 million (A$835 million) of the Groups preferred limited voting ordinary ADRs, at US$21.50 (A$35.93) per ADR, pursuant to a right that Liberty had acquired in March 2003.
Contingencies
Regional Programming Partners
In December 1997, Rainbow Media Sports Holdings, Inc. (Rainbow) (a subsidiary of Cablevision Systems Corporation) (Cablevision) and Fox Sports Net, Inc. (Fox Sports Net) (a subsidiary of the Group) formed Regional Programming Partners (RPP) to hold various programming interests in connection with the operation of certain Regional Sports Networks (RSNs). Rainbow contributed various interests in RSNs, the Madison Square Garden Entertainment Complex, Radio City Music Hall, the New York Rangers National Hockey League franchise, and the New York Knickerbockers National Basketball Association franchise, to RPP in exchange for a 60% partnership interest in RPP, and Fox Sports Net contributed US$850 million (A$1,295 million) in cash for a 40% partnership interest in RPP.
Pursuant to the RPP partnership agreement upon certain actions being taken by Fox Sports Net, Rainbow has the right to purchase all of Fox Sports Nets interests in RPP. The buyout price will be the greater of (i) (a) US$2.125 billion (A$3.2 billion), increased by capital contributions and decreased by capital distributions, times Fox Sports Nets interest in RPP plus (b) an 8% rate of return on the amount in (a) and (ii) the fair market value of Fox Sports Nets interest in RPP. Consideration will be, at Rainbows option, in the form of cash or a three-year note with an interest rate of prime plus 1/2%.
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In addition, for 30 days following 18 December, 2005 (the Put Date) and during certain periods subsequent to the put date so long as RPP has not commenced an initial public offering (IPO) of its securities, Fox Sports Net has the right to cause Rainbow to, at Rainbows option, either (i) purchase all of its interests in RPP or (ii) consummate an IPO of RPPs securities. The purchase price will be the fair market value of Fox Sports Nets interest in RPP and the consideration will be, at Rainbows option, in the form of marketable securities of certain affiliated companies of Rainbow or a three year note with an interest rate of prime plus 1/2%. The determination of the fair market value of the investment in RPP will be made in accordance with the terms of the partnership agreement and will be affected by the valuation of the consideration received from Rainbow.
In connection with the above transaction, Rainbow and Fox Sports Net formed National Sports Partners (NSP) in which each of Rainbow and Fox Sports Net were issued a 50% partnership interest to operate Fox Sports Net (FSN), a national sports programming service that provides its affiliated RSNs with 24 hour per day national sports programming. In addition, Rainbow and Fox Sports Net formed National Advertising Partners (NAP), in which each of Fox Sports Net and Rainbow were issued a 50% partnership interest, to act as the national advertising sales representative for the Fox Sports Net-owned RSNs and the RPP-owned and managed RSNs. Independent of the arrangements discussed above relating to RPP, for 30 days following the put date and during certain periods subsequent to the put date, or any subsequent put date so long as NSP and NAP have not commenced an IPO of its securities, Rainbow has the right to cause Fox Sports to, at Fox Sports option, either (i) purchase all of Rainbows interests in NSP and NAP, or (ii) consummate an initial public offering of NSPs and NAPs securities. The purchase price will be the fair market value of Rainbows interest in NSP and NAP and the consideration will be, at Fox Sports Nets option, in the form of marketable securities of certain affiliated entities of Fox Sports Net or a three-year note with an interest rate of prime plus 1/2%. The determination of the fair market value of the investments in NAP and NSP will be made in accordance with the terms of the partnership agreement and will be affected by the valuation of the consideration paid to Rainbow.
In January 2003, FSN exercised its right to put its 50% direct ownership interests in SportsChannel Chicago and SportsChannel Pacific Associates (collectively, the SportsChannels) to RPP in connection with the Rainbow Transaction. In March 2003, RPP and FSN agreed on a US$150 million (A$252 million) purchase price for the interest in the SportsChannels, payable in the form of three-year promissory notes of the subsidiaries of RPPwhich own only the interests in the Sport Channels, the terms of which are under negotiation. The transaction is expected to close in the first half of fiscal 2004. Following the closing of this sale, the SportsChannels will be held 100% by RPP and indirectly 40% by Fox Sports Net and 60% by Rainbow, and each will remain a Fox Sports Net affiliate.
PanAmSat International Systems
In late June 2003, an arbitration award was issued in favor of PanAmSat International Systems against the Group. The arbitration involved a dispute regarding the termination provisions of an agreement to provide satellite transponder capacity over India. The Group disagrees with the findings of fact and the conclusions of law reached by the arbitrator and, pursuant to the terms of the arbitration agreement between the parties, intends to appeal the award.
NDS
In September 2002, NDS Group plc and two of its subsidiaries were named as defendants in a lawsuit filed by DIRECTV, Inc. (DIRECTV) and certain of its affiliates in the United States District Court for the Central District of California. At DIRECTVs request, the action was filed under seal. On 21 October, 2002, NDS filed counterclaims against DIRECTV and a chip manufacturer. In late April 2003, the parties agreed to stay proceedings pending efforts to resolve the disputes through mediation. In August 2003, the parties agreed to stay the litigation between them until the closing of the Groups acquisition of a 34% interest in Hughes Electronics Corporation. Upon the closing of the acquisition of the Hughes interest, the litigation and all claims and counter claims alleged therein will be dismissed with prejudice.
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On 2 October, 2002, NDS Americas, Inc. was served with subpoenas by the U.S. Attorneys office in San Diego, California, seeking documents apparently in connection with an investigation related to claims made in early 2002 by Canal+ Technologies (these claims have since been dismissed) and EchoStars claims. NDS is cooperating with the investigation. NDS was advised by the U.S. Attorneys Office in San Diego that it is not currently considered either a target or a subject in the investigation. Lead responsibility for the investigation has been transferred to the U.S. Attorneys Office for the Central District of California.
On 6 June, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies Corporation and Nagrastar L.L.C. (together, Echostar) filed an action against NDS Group plc and NDS Americas Inc. (together NDS) in the United States District Court for the Central District of California. Echostar filed an amended complaint on October 8, 2003. The amended complaint purports to allege claims for violation of the Digital Millennium Copyright Act, the Communications Act of 1934, the Electronic Communications Privacy Act, The Computer Fraud and Abuse Act, Californias Unfair Competition statute and the federal RICO statute. The complaint also purports to allege claims for civil conspiracy, misappropriation of trade secrets and interference with prospective business advantage. The complaint seeks injunctive relief, compensatory and exemplary damages and restitution. NDS response to the amended complaint is not yet due. NDS believes the claims to be baseless and intends to vigorously defend the action. On 25 July, 2003, Sogecable, S.A. and its subsidiary Canalsatelite Digital, S.L., Spanish satellite broadcasters and customers of Canal+ Technologies (together, Sogecable), filed an action against NDS in the United States District Court for the Central District of California. Sogecable filed an amended complaint on October 9, 2003. The amended complaint purports to allege claims for violation of the Digital Millennium Copyright Act and the federal RICO statute. The complaint also purports to allege claims for interference with contract and prospective business advantage. The complaint seeks injunctive relief, compensatory and exemplary damages and restitution. NDS response to the amended complaint is not yet due. NDS believes the claims to be baselessand intends to vigorously defend the action.
Hughes Electronics Transaction
In April 2003, a putative derivative and shareholder class action (Norman Levin v. K. Rupert Murdoch et al., 03 CV 2929) was filed in the United States District Court for the Southern District of New York against FEGs board members and FEG (as nominal defendant), alleging among other things that in approving the Hughes transaction, they breached their fiduciary duties to FEGs public shareholders. The action seeks monetary and unspecified equitable relief. FEG and FEGs board members intend vigorously to defend this action. On 15 July, 2003, defendants moved to dismiss the complaint. On 15 September, 2003, the plaintiff agreed to dismiss the action with prejudice as to himself and without prejudice to putative class members other than himself. On 19 September, 2003, the Court entered the agreed upon order of dismissal.
In April 2003, six putative shareholder class actions were filed in state courts in Delaware (four actions) and California (two actions) against GM and certain of its board members, alleging that in approving the above-described transaction, the defendants breached their fiduciary duties to public holders of GMs Class H shares. Hughes and its board members are defendants in certain of these actions and are also alleged to have breached fiduciary duties to the same shareholders. The Group is a defendant in two of the Delaware actions and is alleged to have aided and abetted the other defendants purported breaches of fiduciary duties. The actions seek monetary and injunctive relief, including enjoining consummation of the transaction. The Group believes it is entitled to indemnification by GM under the agreements related to the transaction. The Group has not been served in any of these actions. The Delaware actions were consolidated on 6 May, 2003, and a consolidated complaint was filed on 29 August, 2003. The Group was not named as a defendant in the consolidated complaint.
Other
Various claims arise in the ordinary course of business against controlled entities. The amount of the liability (if any) at 30 June, 2003 cannot be ascertained, and the parent entity believes that any resulting liability would not materially affect the financial position of the Group.
Income tax would arise if certain fixed assets, investments and publishing rights, titles and television licenses were disposed. As there is no present intention to dispose of any of these assets, the Directors believe it would be misleading to record any amount against this contingency.
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US-GAAP Reconciliation
A-GAAP differs from US-GAAP with respect to News Corporations results of operations in a number of significant respects. A comparison of the results for fiscal 2001, 2002 and 2003 under both A-GAAP and US-GAAP is as follows (A$ in millions):
Fiscal Year Ended June 30, |
|||||||||||
2003 |
2002 |
2001 |
|||||||||
Revenue |
|||||||||||
A-GAAP |
$ | 29,913 | $ | 29,014 | $ | 25,578 | |||||
US-GAAP (a) |
$ | 29,752 | $ | 28,776 | $ | 25,387 | |||||
Operating income |
|||||||||||
A-GAAP |
$ | 4,352 | $ | 3,542 | $ | 3,093 | |||||
US-GAAP |
$ | 3,886 | $ | 256 | $ | 1,823 | |||||
Net profit (loss) attributable to members of the parent entity |
|||||||||||
A-GAAP |
$ | 1,808 | $ | (11,962 | ) | $ | (746 | ) | |||
US-GAAP |
$ | 1,421 | $ | (14,670 | ) | $ | (218 | ) |
(a) | Under US-GAAP, in November 2001, the Financial Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF) No. 01-09, Accounting for the Consideration Given by a Vendor to a Customer or a Reseller of the Vendors Products. This EITF states that the financial statement classification of customer incentives, including the amortization of cable distribution investments over the original term of the cable distribution agreement, should be presented as a reduction in revenue. Under A-GAAP, costs associated with cable distribution investments are reflected as intangible assets. As required, under US-GAAP, effective January 1, 2002, the Group reclassified the amortization of cable distribution investments against revenues. The amortization of cable distribution investments had previously been included in Depreciation and amortization. US-GAAP Operating income, Net profit (loss) attributable to members of the parent entity and Earnings (loss) per share are not affected by this reclassification. |
As more completely described and quantified in Note 34 to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries included elsewhere herein, the major differences in each of the periods are: (a) the amortization of intangible assets for fiscal years 2001 and 2002, (b) the accounting for deferred taxes under the SFAS No. 109, (c) the charge for the market value of the warrants issued in connection with the Exchangeable Preferred Securities, (d) the differences in the recorded net investment of sold properties (basis difference principally arising from the amortization of the associate intangible assets for US-GAAP), (e) costs incurred in the development of major new businesses for fiscal 2001 and (f) the differences in the date of measurement of the fair value of purchase business combinations and investments in associates.
News Corporations gains or losses on the sale of business entities included in other items under A-GAAP are included in other income (expense) under US-GAAP.
US-GAAP New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires an investor to consolidate a variable interest entity if it is determined that the investor is a primary beneficiary of that entity, subject to the criteria set forth in FIN 46. Assets, liabilities, and non controlling interests of newly consolidated variable interest entities will be initially measured at fair value. After initial measurement, the consolidated variable interest entity will be accounted for under the guidance provided by Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 is effective for variable interest entities created or entered into after 31 January, 2003. For variable interest entities created or acquired before 1 February, 2003, FIN 46 applies in the first fiscal year or interim period beginning after 15 June, 2003. Beginning on 1 July, 2003 the adoption of FIN 46 will require the reclassification of the Groups A$2,084 million in Exchangeable securities related to the TOPrS and BUCs issuances to non-current interest bearing
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liabilities on the consolidated balance sheets and the A$94 million annual payments from Dividend on exchangeable securities to Net borrowing costs on the consolidated statements of operations with no resulting effect on the Groups net profit attributable to members of the parent entity. The Group is currently assessing the adoption of FIN 46 as it relates to other variable interests.
In May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 amends SFAS No. 6, Elements of Financial Statements, to improve accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. For financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by this statement. The Group will adopt SFAS No. 150 on 1 July, 2003 and does not expect it to have a material impact on its consolidated balance sheets and statements of operations.
Trend Information
Inflation has not had a material impact on the Group.
The Results of Operations as discussed in this Item 5, reflect any other significant trends, which have had a material effect on the financial condition of the Group. Any additional information of note has been included in the Notes to the Consolidated Financial Statements of The News Corporation Limited and Subsidiaries and elsewhere in this report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
The directors and senior management of News Corporation as of October 15, 2003 are as follows:
Name |
Age |
Position with the Company |
Date Last | |||
K. Rupert Murdoch AC |
72 | Chairman and Chief Executive | 1990 | |||
Geoffrey C. Bible |
66 | Director* | 2001 | |||
Chase Carey |
49 | Director | 2002 | |||
Peter Chernin |
52 | Director, President and Chief Operating Officer | 2002 | |||
Kenneth E. Cowley AO |
68 | Director* | 2001 | |||
David F. DeVoe |
56 | Director, Senior Executive Vice President and Chief Financial Officer | 2001 | |||
Roderick I. Eddington |
53 | Director* | 2002 | |||
Andrew S.B. Knight |
63 | Director* | 2002 | |||
Graham J. Kraehe AO |
61 | Director* | 2001 | |||
James R. Murdoch |
30 | Director and Executive Vice President | 2001 | |||
Lachlan K. Murdoch |
32 | Director and Deputy Chief Operating Officer | 2003 | |||
Thomas J. Perkins |
71 | Director* | 2003 | |||
Stanley S. Shuman |
68 | Director* | 2003 | |||
Arthur M. Siskind |
65 | Director, Senior Executive Vice President and Group General Counsel | 2003 |
* | Non-Executive |
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There is no arrangement or understanding between any of the above listed persons and any other person pursuant to which he or she was elected as a director or executive officer. There is no family relationship between any director or executive officer of News Corporation and any other director of News Corporation, except that James R. Murdoch and Lachlan K. Murdoch are sons of K. Rupert Murdoch.
Further information with respect to the directors and senior management is set forth below.
K. Rupert Murdoch AC, has been Chairman of the Board of Directors of News Corporation since 1991 and Executive Director and Chief Executive since 1979. He has been a Director of News Limited, News Corporations principal subsidiary in Australia, since 1953, a Director of News International, News Corporations principal subsidiary in the United Kingdom, since 1969 and a Director of News America, News Corporations principal subsidiary in the United States, since 1973. Mr. Murdoch has been a Director of STAR Group since 1993 and served as Chairman of STAR Group from 1993 to 1998. Mr. Murdoch has been a Director of FEG since 1985, Chairman since 1992 and Chief Executive Officer since 1995. Mr. Murdoch has served as a Director of BSkyB since 1990 and Chairman since 1999. Mr. Murdoch has served as a Director of Gemstar-TV Guide since 2001, and a Director of China Netcom (Hong Kong) Limited since 2001.
Geoffrey C. Bible has been a Non-Executive Director of News Corporation since 1998. Mr. Bible served as Chairman of the Board and Chief Executive Officer of Philip Morris Companies Inc. from 1995 to 2000 and was employed by Philip Morris Companies Inc. and its various subsidiaries and divisions in an executive capacity continuously from 1976 until 2002. Mr. Bible is Chairman of the Nominating and Corporate Governance Committee of News Corporation.
Chase Carey has been an Executive Director of News Corporation from 1996 until January 2002, a Non-Executive Director from January 2002 until April 2003 and an Executive Director since April 2003. Mr. Carey served as Co-Chief Operating Officer of News Corporation from 1996 until 2002. Mr. Carey served as a Director, President and Chief Executive Officer of Sky Global Networks, Inc. from 2001 until 2002. Mr. Carey served as a Director of FEG from 1992 and served as Co-Chief Operating Officer from 1998 until 2002. Mr. Carey was Chairman and Chief Executive Officer of Fox Television from 1994 until 2000. Mr. Carey was a Director of News America until 2002, President and Chief Operating Officer from 1998 until 2002 and Executive Vice President from 1996 to 1998. Mr. Carey served as a Director of STAR from 1993 until 2002, a Director of NDS from 1996 until 2002, and a Director of Gemstar-TV Guide from 2000 until 2002. Mr. Carey was appointed to the Board of Directors of BSkyB in February 2003. Mr. Carey has served on the Boards of Gateway, Inc. and Colgate University since 1996. Upon completion of the Hughes Transaction, Mr. Carey will become Chief Executive Officer of Hughes.
Peter Chernin has been an Executive Director, President and Chief Operating Officer of News Corporation since 1996. Mr. Chernin has been a Director, President and Chief Operating Officer of FEG since 1998. Mr. Chernin has been a Director, Chairman and Chief Executive Officer of News America since 1996. Mr. Chernin served as Chairman and Chief Executive Officer of FFE from 1994 to 1996 and in various executive capacities at Fox subsidiaries since 1989. Mr. Chernin has served as a Director of Gemstar TV-Guide since 2002 and was a Director of TV Guide, Inc. from 1999 to 2000. Mr. Chernin has been a Member of the Advisory Board of PUMA AG since 1999.
Kenneth E. Cowley AO, has been a Non-Executive Director of News Corporation since 1997. Mr. Cowley has been a Director of Independent Newspapers Limited since 1990 and its Chairman since 2001. Mr. Cowley served as an Executive Director of News Corporation from 1979 to 1997, as a Director of News Limited from 1978 to 1997 and as Chairman of News Limited from 1992 to 1997. Mr. Cowley was the Managing Director of News Corporations Australian operations from 1980 to 1996. Mr. Cowley was a Director and Executive Vice President of News America from 1992 until 1997. Mr. Cowley served as an Executive Director of Ansett Holdings Limited (AHL) from 1988 to 2000 and Chairman from 1992 to 1996. Mr. Cowley served as a Director of Commonwealth Bank of Australia from 1997 until 2001 and as Chairman of PMP Communications Limited from 1991 until 2001. Mr. Cowley has been the Chairman of RM Williams Holdings Limited since 1994. Mr. Cowley is a member of the Nominating and Corporate Governance Committee of News Corporation.
David F. DeVoe has been an Executive Director of News Corporation since 1990, Senior Executive Vice President since 1996 and Chief Financial Officer and Finance Director since 1990. Mr. DeVoe served as an Executive Vice President of News Corporation from 1990 until 1996. Mr. DeVoe has been a Director of News America since 1991, Senior Executive Vice President since 1998 and Executive Vice President from 1991 to
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1998. Mr. DeVoe has been a Director of FEG since 1991 and Senior Executive Vice President and Chief Financial Officer since 1998. Mr. DeVoe has been a Director of STAR since 1993 and a Director of NDS since 1996. Mr. DeVoe has been a Director of BSkyB since 1994 and a Director of Gemstar-TV Guide since 2001.
Roderick I. Eddington has been a Non-Executive Director of News Corporation since 2000. Mr. Eddington served as an Executive Director of News Corporation from 1999 until 2000. Mr. Eddington has been Chief Executive of British Airways since 2000. Mr. Eddington served as a Director of News Limited from 1998 until 2000 and as a Director from 1997 until 2000. Mr. Eddington served as Executive Chairman of AHL and as a Director of each of Ansett Australia Limited and Ansett Australia Holdings Limited from 1997 until 2000. Mr. Eddington served as Managing Director of Cathay Pacific Airways from 1992 to 1996. Mr. Eddington has been a Director of John Swire & Sons Pty Ltd since 1997. Mr. Eddington is a member of the Nominating and Corporate Governance Committee and the Compensation Committee of News Corporation.
Andrew S. B. Knight has been a Non-Executive Director of News Corporation since 1994. Mr. Knight served as an Executive Director of News Corporation from 1991 to 1994 and served as Executive Chairman of News International and as a Director of BSkyB from 1990 to 1994. Mr. Knight was Editor of The Economist from 1974 to 1986, and Chief Executive and Editor in Chief of the Daily Telegraph plc from 1986 to 1989. Mr. Knight has been a Non-Executive Director of Rothschild Investment Trust Capital Partners plc since 1997. Mr. Knight is Chairman of the Compensation Committee and a member of the Audit Committee of News Corporation.
Graham J. Kraehe AO has been a Non-Executive Director of News Corporation since 2001. Mr. Kraehe has served as Chairman of BHP Steel since 2002. Mr. Kraehe was the Managing Director and Chief Executive Officer of Southcorp Limited from 1994 until 2001. Mr. Kraehe has been a Non-Executive Director of National Australia Bank Limited since 1997 and a Non-Executive Director of Brambles Industries Ltd since 2000. Mr. Kraehe is Chairman of the Audit Committee of News Corporation.
James R. Murdoch has been an Executive Director of News Corporation since 2000 and an Executive Vice President since 1999. Mr. Murdoch has been a Director, Chairman and Chief Executive of STAR Group since 2000. Mr. Murdoch was President of News Digital Media, Inc. from 1997 to 1999 and Vice President, Music and New Media of News Corporation from 1996 to 1997. Mr. Murdoch has been a Director of NDS since 1999, a Director of YankeeNets L.L.C. since 1999, a Director of Phoenix Satellite Television Holdings, Ltd. since 2000 and was appointed as a director of BSkyB in February 2003.
Lachlan K. Murdoch has been an Executive Director of News Corporation since 1996 and Deputy Chief Operating Officer since 2000. Mr. Murdoch served as a Senior Executive Vice President of News Corporation from 1999 until 2000. Mr. Murdoch has been a Director of News Limited since 1995, Chairman since 1997 and served as Chief Executive from 1997 to 2000, Managing Director from 1996 to 1997 and Deputy Chief Executive from 1995 to 1996. Mr. Murdoch has been the Chairman of Queensland Press Limited since 1996 and a Director since 1994. Mr. Murdoch has been Deputy Chairman of STAR since 1995. Mr. Murdoch has been a Director of FOXTEL Management since 1998, a Director of Gemstar-TV Guide since 2001, and a Director of NDS since 2002.
Thomas J. Perkins has been a Non-Executive Director of News Corporation since 1996. Mr. Perkins has been Partner of Kleiner Perkins Caufield & Byers since 1972. Mr. Perkins has been a Director of Hewlett-Packard Company since 2002 and was a Director of Compaq Computer Corporation from 1997 until 2002. Mr. Perkins is a member of the Audit and Compensation Committees of News Corporation.
Stanley S. Shuman has been a Non-Executive Director of News Corporation since 1982. Mr. Shuman has been a Managing Director of Allen & Company LLP since 1970. Mr. Shuman has been a Director of News America since 1985. Mr. Shuman has been a Director of Six Flags, Inc. since 2000.
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Arthur M. Siskind has been an Executive Director of News Corporation since 1991. Mr. Siskind has been a Senior Executive Vice President of News Corporation since 1996 and Group General Counsel since 1991. Mr. Siskind served as Executive Vice President of News Corporation from 1991 until 1996. Mr. Siskind has been a Director of News America since 1991, a Senior Executive Vice President since 1998 and served as Executive Vice President from 1991 to 1998. Mr. Siskind has been a Director, Senior Executive Vice President and General Counsel of FEG since 1998. Mr. Siskind has been a Director of STAR since 1993 and a Director of NDS since 1996. Mr. Siskind has been a Director of BSkyB since 1992. Mr. Siskind has been a Member of the Bar of the State of New York since 1962.
The Company Secretaries are as follows:
Keith D. Brodie has been a Company Secretary of News Corporation since 1990.
Robert K. Moon has been a Company Secretary of News Corporation since 1981.
Laura A. OLeary has been a Company Secretary of News Corporation since 2000.
Board Practices
The Board of Directors (the Board) oversees the business of News Corporation and its controlled entities and is responsible for corporate governance of the Group. The Board establishes broad corporate policies, sets the strategic direction for the Group and oversees management with a focus on enhancing the interests of shareholders.
Directors are classified as either Executive or Non-executive Directors, the former being those directors engaged in full time employment by the Group. The Board currently comprises seven Executive Directors, including the Chairman, and seven Non-executive Directors.
News Corporations Constitution provides that at every annual general meeting, one-third (or the nearest number to but not exceeding one-third) of the directors (exclusive of any managing directors and directors appointed since the most recent annual general meeting) shall retire from office and all vacant directorships may be filled at that meeting. The directors to retire in each year are the directors who have been in office longest since their last election or appointment. Retiring directors are eligible for re-election. No director (other than any managing director) can serve for a term longer than three years without re-election. Further, directors appointed since the last annual general meeting must retire but are eligible to be re-elected for a three-year term. New directors are given an orientation regarding the Groups businesses, corporate governance and reporting procedures and, on a continuing basis, are advised with respect to policies and procedures applicable to Board and Committee meetings and the rights and responsibilities of directors. The Group does not have a policy with respect to the tenure, retirement or succession of directors.
Board Committees
To assist in the execution of its responsibilities, the Board has established the following Committees:
| Audit Committee; |
| Nominating and Corporate Governance Committee; and |
| Compensation Committee. |
In December 2002, the Board reconstituted the composition and charters of its Committees in accordance with recent corporate governance proposals including the requirements of the Sarbanes-Oxley Act and related SEC rules, proposed New York Stock Exchange Listing Standards, and corporate governance guidelines issued by the Australian Stock Exchange Limited (ASX).
Audit Committee
The Audit Committee assists the Board in its oversight of (i) the integrity of the Groups financial statements and the Groups financial reporting processes and systems of internal control, (ii) the qualifications, independence and performance of the Groups independent accountants and the performance of the Groups corporate auditors and corporate audit function and (iii) the Groups compliance with legal and regulatory requirements, and provides an avenue of communication among management, the independent accountants, the corporate auditors and the Board.
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The Audit Committees Charter, which was redrafted in accordance with currently proposed NYSE rules, was adopted by the Board on August 12, 2003. As provided in the Charter, the Audit Committee shall be comprised of three or more directors as determined by the Board or the Nominating and Corporate Governance Committee, each of whom shall be independent directors in accordance with NYSE listing standards and who meet the requirements of the SEC for membership on audit committees. The Audit Committee consists of the following Non-Executive Directors: Messrs. Kraehe, Knight and Perkins.
The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. In addition to any other responsibilities that may be assigned from time to time by the Board, the Audit Committee is responsible for the following matters:
1. | Evaluate the independent accountants qualifications, performance and independence, and present its conclusions and recommendations with respect to the independent accountants to the Board of Directors on at least an annual basis. |
2. | Determine compensation of the independent accountants and pre-approve all audit engagement fees and terms as well as all audit-related and non-audit services to be provided by the Groups independent accountants. |
3. | Meet with, discuss and review, prior to the annual audit, the scope of the audit to be performed by the independent public accountants. |
4. | Review and monitor, at least annually, the plans and activities of the corporate audit department. |
5. | Review a summary of findings from completed corporate audits and a progress report on the current years corporate audit plan. When and as deemed necessary, review the individual corporate audit reports to management prepared by the corporate audit department and managements response. |
6. | Review and discuss with the independent accountants and with management the results of the annual audit of the Groups consolidated financial statements including (i) the Groups disclosures under Item 5. Operating and Financial Review and Prospects to be included in the Groups Annual Report on Form 20-F to be filed with the SEC and (ii) any appropriate matters regarding accounting principals, practices and judgments and the independent accountants opinion as to the quality thereof and any items required to be communicated to the Committee by the independent accountants in accordance with standards established and amended from time to time by the American Institute of Certified Public Accountants (AICPA). |
7. | Review and discuss with the independent accountants any audit problems or difficulties encountered during the course of the audit, and managements response thereto, including those matters required to be discussed with the Audit Committee by the independent accountants pursuant to U.S. Statement on Auditing Standards No. 61. |
8. | Recommend to the Board of Directors whether the Groups consolidated financial statements be accepted for inclusion in the Groups Annual Report filed with the ASX and in the Groups Annual Report on Form 20-F filed with the SEC. |
9. | Review and discuss with management and the independent accountants the Groups half-year financial statements and any items required to be communicated to the Committee by the independent accountants in accordance with existing AICPA guidance. |
10. | In consultation with management, the independent accountants, and the director of the corporate audit department, review the integrity of the Groups financial reporting processes, internal controls and disclosure controls and procedures, including whether there are any |
60
significant deficiencies in the design or operation of such processes, controls and procedures, material weaknesses in such processes, controls and procedures, any corrective actions taken with regard to such deficiencies and any fraud involving management or other employees with a significant role in such processes, controls and procedures. |
11. | Review the following with management, the corporate auditors and the independent accountants: |
| Any analysis prepared by management, the corporate auditors and/or the independent accountants setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; |
| The critical accounting policies of the Group; |
| Related-party transactions and off-balance sheet transactions and structures; |
| Any major issues regarding accounting principles and financial statement presentations, including any significant changes in the Groups selection or application of accounting principles; |
| The quality and the acceptability of the Groups accounting policies as applied in its financial reporting; and |
| Regulatory and accounting initiatives or actions applicable to the Group (including any ASIC or SEC investigations or proceedings). |
12. | Discuss, in conjunction with management, the Groups earnings releases as well as financial information and earnings guidance provided to analysts and rating agencies (paying particular attention to use of pro forma or adjusted non-GAAP information). |
13. | Review, with the Groups counsel and management, any legal or regulatory matter that could have a significant impact on the Groups financial statements. |
14. | Review the Groups policies and practices with respect to risk assessment and risk management, including discussing with management the Groups major financial risk exposures and the steps that have been taken to monitor and control such exposures. |
15. | Establish procedures for: |
| The receipt, retention and treatment of complaints received by the Group regarding accounting, internal accounting controls or auditing matters, and |
| The confidential, anonymous submission by employees of the Group of concerns regarding questionable accounting or auditing matters, |
and shall review any significant complaints regarding accounting, internal accounting controls or auditing matters received pursuant to such procedures.
16. | Consider and approve, if appropriate, major changes to the Groups auditing and accounting principles and practices as suggested by the independent accountants, management, or the corporate audit department. |
17. | Review with the independent accountants, the corporate audit department and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented. |
18. | Report to the Board of Directors on a regular basis, (and this report shall include a review of any issues that arise with respect to the quality or integrity of the Groups financial statements, the Groups legal and regulatory requirements, the qualifications, independence and performance of the Groups independent accountants and the performance of the corporate audit function. |
19. | Prepare a report of the Audit Committee to be included in the Groups annual report and other filings as required by the applicable regulatory rules, and review any reports that may be required to be filed with the NYSE or other regulatory agencies with respect to the Audit Committee. |
61
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committees Charter, which was redrafted in accordance with currently proposed NYSE rules, was adopted by the Board on August 12, 2003. As provided in the Charter, the Nominating and Corporate Governance Committee shall consist entirely of directors who the Board determines are independent in accordance with the NYSE listing standards. The Committee currently consists of the following Non-Executive Directors: Messrs. Bible, Cowley and Eddington.
The Committee shall meet as often as it deems is appropriate to carry out its responsibilities. In addition to any other responsibilities which may be assigned from time to time by the Board of Directors, the Nominating and Corporate Governance Committee is responsible for the following matters:
1. | Review the qualifications of candidates for director suggested by Board members, stockholders, management and others in accordance with criteria recommended by the Committee and approved by the Board; |
2. | Consider the performance of incumbent directors in determining whether to nominate them for reelection; |
3. | Recommend to the Board a slate of nominees for election or reelection to the Board at each annual meeting of stockholders; |
4. | Recommend to the Board candidates to be elected to the Board as necessary to fill vacancies and newly created directorships; |
5. | Make recommendations to the Board as to determinations of director independence; |
6. | Recommend to the Board retirement policies for directors; |
7. | Make recommendations to the Board concerning the function, composition and structure of the Board and its committees; |
8. | Establish, together with all Non-Executive directors, the frequency of executive sessions in which only Non-Executive Directors will participate; |
9. | Develop and recommend to the Board a set of corporate governance principles and review and recommend changes to those principles, as necessary; |
10. | Develop and recommend to the Board an annual self-evaluation process for the Board; and |
11. | Evaluate the Committees performance at least annually and report to the Board on such evaluation. |
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Compensation Committee
The Compensation Committees Charter, which was drafted in accordance with currently proposed NYSE rules, was adopted by the Board on August 12, 2003. As provided in the Charter, the Compensation Committee shall consist entirely of directors who the Board determines are independent in accordance with the NYSE listing standards. The Compensation Committee currently consists of the following Non-Executive Directors: Messrs. Knight, Eddington and Perkins.
The Committee shall meet as often as it deems is appropriate to carry out its responsibilities. In addition to any other responsibilities which may be assigned from time to time by the Board of Directors, the Committee is responsible for the following matters:
1. | Review and approve goals and objectives relevant to the compensation of the Chief Executive, to evaluate the performance of the Chief Executive in light of these goals and objectives, and recommend to the Board the compensation of the Chief Executive based on this evaluation; |
2. | Administer and make recommendations to the Board with respect to incentive compensation plans and equity based plans, including the granting of stock options under the Groups stock option plans, and to review the cumulative effect of its actions; |
3. | Review and approve compensation, benefits and terms of employment of senior executives who are members of the Groups Executive Management Committee; |
4. | Review and make recommendations to the Board regarding the Groups recruitment, retention, termination and severance policies and procedures for senior executives who are members of the Groups Executive Management Committee; |
5. | Monitor compliance by executives with the Groups stock ownership guidelines as set forth in the Groups Standards of Business Conduct; |
6. | Review and assist with the development of executive succession plans, review and approve the executive compensation information to be included in the Groups annual report, and consult with the Chief Executive regarding the selection of senior executives; |
7. | Review the compensation of directors for service on the Board and its committees and recommend changes in compensation to the Board; and |
8. | Evaluate the Committees performance at least annually and report to the Board on such evaluation. |
Executive Management Committee
The Executive Management Committee is an internal body comprising Executive Directors of News Corporation as well as senior executives from the Groups businesses or companies in which the Group holds a significant interest. The primary objective of the Executive Management Committee is to strengthen the coordination and profitability of the Groups activities. The Executive Management Committee discusses major operating issues; evaluates opportunities and business risks; refines and redefines the Groups priorities worldwide and by market; and reviews and sets the strategic focus and direction of all major businesses of the Group. In advising the Chief Executive and the Board, the Executive Management Committee also considers strategic direction, brand management, corporate communications, human resources and risk management.
63
Compensation of Executive Directors
Remuneration for the Executive Directors consists of basic salary, performance related bonuses, share options plans and benefits including pension, life insurance, medical insurance and, where appropriate, company cars. Each of the Executive Directors, other than K. Rupert Murdoch, is party to an employment agreement which provides that if his employment is terminated without cause or for good reason prior to the end of the employment term, such person will be entitled to receive his annual compensation (which may be payable in a lump sum) until the end of the employment term. Each Executive Director is entitled to receive pension and other retirement benefits upon such persons retirement. Except as described above, none of the Directors is party to a service contract with News Corporation pursuant to which he will receive material employment termination benefits.
The table below sets out the fees and other amounts paid by News Corporation to its Executive Directors for the year ended June 30, 2003:
Name |
Salary |
Bonuses |
Other (1) |
Value of (2) |
Total |
Number of Options (3)(4) | ||||||
US$000 | US$000 | US$000 | US$000 | US$000 | ||||||||
K. R. Murdoch AC |
4,508 | 7,500 | 2,088 | 14,096 | ||||||||
C. Carey |
1,600 | 1,500 | 568 | 6 | 3,674 | 12,000 | ||||||
P. Chernin |
8,104 | 8,000 | 662 | 577 | 17,343 | 1,000,000 | ||||||
D. F. DeVoe |
2,104 | 7,150 | 474 | 277 | 10,005 | 480,000 | ||||||
J. R. Murdoch |
900 | 1,200 | 14 | 127 | 2,228 | 220,000 | ||||||
L. K. Murdoch |
1,403 | 1,200 | 150 | 196 | 2,949 | 340,000 | ||||||
A. M. Siskind |
1,965 | 1,200 | 663 | 277 | 4,105 | 480,000 |
(1) | Other amounts comprise contributions to News Corporation pension plans and the cost of limited non-cash benefits in addition to salary for executives in line with local country regulations and competitive market conditions. |
(2) | These options are valued using the Black-Scholes Option Pricing Model. These options are granted under News Corporations various executive share options plans described below. Pursuant to guidelines issued on July 7, 2003 by the ASIC, there has been a change in the determination of the amount of emoluments disclosed relating to options granted during the financial year. In prior years, 100% of the value of options granted was disclosed as emoluments in the year of grant. The new ASIC guidelines now require that the value of options granted be disclosed as emoluments over their vesting period, being four years from the date of grant. Accordingly, the value of emolument recorded for options granted during the current financial year represents only the vested portion of the full option value. |
The following table lists the value of emolument attributable to options granted in financial years prior to fiscal 2003 and previously disclosed as emoluments in prior years, that vest in the current year.
US$000 | ||
Executive Directors |
||
K. R. Murdoch AC |
8,814 | |
C. Carey |
2,794 | |
P. Chernin |
14,861 | |
D. F. DeVoe |
2,752 | |
J .R. Murdoch |
661 | |
L. K. Murdoch |
2,641 | |
A. M. Siskind |
2,752 |
(3) | All options are over preferred limited voting ordinary shares and were granted during the financial year. |
(4) | The exercise price is A$8.02 and the options expire on August 13, 2012 for each Executive Director. |
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Compensation of Non-Executive Directors
The basic fees payable to the Non-Executive Directors are set by the Board of Directors. For the year ended June 30, 2003, the fees were set at US$45,000 per annum and an additional US$1,000 for each Board meeting attended, US$2,500 for each Audit Committee meeting attended and $1,500 for each other Committee meeting attended. In prior years Non-Executive Directors were granted options over Preferred Shares, subject to shareholder approval at each annual general meeting of News Corporation. No share options were granted to Non-Executive Directors in 2003.
Fees paid to Non-Executive Directors on the Board take into consideration the level of fees paid to Board members of other multinational corporations, the size and complexity of News Corporations operations and the responsibilities and workload requirements of Board members. The Board is reviewing an increase in the fees to be paid to Non-Executive Directors during the current fiscal year.
Because the focus of the Board is on the long-term direction of News Corporation, there is no direct link between Non-Executive Director remuneration and the short-term results of News Corporation.
The table below sets out the fees and other amounts paid by News Corporation to its Non-Executive Directors for the year ended June 30, 2003:
Name |
Fees |
Value of Options Granted |
Total |
Number of Options Granted | ||||
(1) | (2)(3) | |||||||
US$000 | US$000 | US$000 | ||||||
G. C. Bible |
53 | 6 | 59 | 12,000 | ||||
K. E. Cowley AO |
53 | 6 | 59 | 12,000 | ||||
R. Eddington |
53 | 6 | 59 | 12,000 | ||||
J. A. M. Erkko KBE (a) |
54 | 6 | 60 | 12,000 | ||||
A. S. B. Knight |
83 | 6 | 89 | 12,000 | ||||
G. J. Kraehe AO |
64 | 6 | 70 | 12,000 | ||||
T. J. Perkins |
61 | 6 | 67 | 12,000 | ||||
B.C. Roberts Jr.(b) |
9 | 6 | 15 | 12,000 | ||||
S. S. Shuman |
120 | 6 | 126 | 12,000 |
(a) | Mr. Erkko resigned from the Board in October 2003. |
(b) | Fees paid prior to resignation in August 2002. |
(1) | These options are valued using the Black-Scholes Option Pricing Model. These options are granted under News Corporations various executive share options plans described below. |
Pursuant to guidelines issued on July 7, 2003 by the ASIC, there has been a change in the determination of the amount of emoluments disclosed relating to options granted during the financial year. In prior years, 100% of the value of options granted was disclosed as emoluments in the year of grant. The new ASIC guidelines now require that the value of options granted be disclosed as emoluments over their vesting period, being four years from the date of grant. Accordingly, the value of emolument recorded for options granted during the current financial year represents only the vested portion of the full option value.
The following table lists the value of emolument attributable to options granted in financial years prior to fiscal 2003 and previously disclosed as emoluments in prior years, that vest in the current year.
US$000 | ||
Non-executive Directors |
||
G. C. Bible |
28 | |
K. E. Cowley AO |
28 | |
R. Eddington |
66 | |
J. A. M Erkko KBE |
28 | |
A. S. B. Knight |
28 | |
G. J. Kraehe AO |
7 | |
T. J. Perkins |
28 | |
B. C. Roberts Jr. |
28 | |
S. S. Shuman |
28 |
(2) | All options are over preferred limited voting ordinary shares and were granted during the financial year. |
(3) | The exercise price of the options is A$7.73 and the options expire on October 9, 2012 for each Director. |
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Employees
At June 30, 2003, News Corporation had approximately 37,000 full-time employees worldwide, of whom approximately 19,300 were located in the U.S., approximately 8,200 in the U.K. and approximately 9,500 in Australasia. At June 30, 2002, News Corporation had approximately 33,800 full-time employees worldwide, of whom approximately 17,100 were located in the U.S., approximately 7,600 in the U.K. and approximately 9,100 in Australasia. At June 30, 2001, News Corporation had approximately 32,900 full-time employees worldwide, of whom approximately 16,000 were located in the U.S., approximately 7,600 in the U.K. and approximately 9,300 in Australasia. The foregoing employee data does not include employees of BSkyB, FOXTEL, QPL, INL, Gemstar-TV Guide, Sky Latin America and other entities described herein in which News Corporation held less than a majority ownership interest during each of the last three fiscal years. Certain industries in which News Corporation is engaged (such as filmed entertainment, television broadcasting and newspaper publication) have traditionally been heavily unionized. News Corporation has entered into numerous collective bargaining agreements with unions representing its employees. News Corporation believes that its relations with its employees are satisfactory.
Share Ownership
The following table sets forth as of June 30, 2003, the total share ownership of each of the Directors:
Ordinary Shares |
Preferred Shares |
Ordinary Share Options |
Preferred Share Options(2) | |||||
K. R. Murdoch (1) |
* | * | 24,000,000 | |||||
G. C. Bible |
60,000 | |||||||
C. Carey |
5,312,000 | |||||||
P. Chernin |
18,275,000 | |||||||
K. E. Cowley AO |
* | 196,000 | ||||||
D. F. DeVoe |
3,670,000 | |||||||
R. Eddington |
897,000 | |||||||
J. A. M. Erkko KBE |
* | * | 78,000 | |||||
A. S. B. Knight |
* | * | 72,000 | |||||
G. J. Kraehe |
* | 24,000 | ||||||
J. R. Murdoch |
* | * | 1,062,352 | |||||
L. K. Murdoch |
* | * | 3,640,000 | |||||
T. J. Perkins |
* | 72,000 | ||||||
S. S. Shuman |
* | * | 16,000 | 104,000 | ||||
A. M. Siskind |
* | * | 3,680,000 |
* | Less than 1%. |
(1) | K. R. Murdoch directly owns 31,924 Ordinary Shares and 8,601 Preferred Shares. In addition, K. R. Murdoch is deemed to have a relevant interest in shares by reason of his beneficial and trustee interests in Cruden Investments Pty. Limited, a substantial shareholder, and may also be entitled to shares by reason of his connection with Kayarem Pty. Limited, which has a relevant interest in an additional 17,374,354 Ordinary Shares and 8,872,628 Preferred Shares. See Item 7. Major Shareholders and Related Party Transactions. |
(2) | The following table sets forth as of June 30, 2003 the options granted to Directors under the Companys option Plans as detailed below. All options vest over a four-year period, i.e. 25% each year on the anniversary date of the grant. |
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Name |
Date of Option Grant |
Expiration Date |
Option Price |
Number of Options Granted | |||||
G.C. Bible: |
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | ||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | |||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | |||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | |||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | |||||
C. Carey: |
07/25/1996 | 07/25/2006 | $ | 5.1700 | 500,000 | ||||
10/28/1996 | 10/28/2006 | $ | 5.8300 | 1,000,000 | |||||
08/19/1997 | 08/19/2007 | $ | 4.7900 | 460,000 | |||||
09/07/1998 | 09/07/2008 | $ | 9.3500 | 480,000 | |||||
11/15/1999 | 11/15/2009 | $ | 11.0000 | 1,000,000 | |||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 360,000 | |||||
05/01/2000 | 05/01/2010 | $ | 17.7500 | 1,000,000 | |||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 240,000 | |||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 260,000 | |||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | |||||
P. Chernin: |
07/25/1996 | 07/25/2006 | $ | 5.1700 | 125,000 | ||||
10/28/1996 | 10/28/2006 | $ | 5.8300 | 1,500,000 | |||||
08/19/1997 | 08/19/2007 | $ | 4.7900 | 250,000 | |||||
09/07/1998 | 09/07/2008 | $ | 9.3500 | 800,000 | |||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 600,000 | |||||
11/15/1999 | 11/15/2009 | $ | 11.0000 | 6,000,000 | |||||
05/01/2000 | 05/01/2010 | $ | 17.7500 | 6,000,000 | |||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 1,000,000 | |||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 1,000,000 | |||||
08/13/2002 | 08/13/2012 | $ | 8.0200 | 1,000,000 | |||||
K.E. Cowley: |
08/19/1997 | 08/19/2007 | $ | 4.7900 | 130,000 | ||||
10/07/1997 | 10/07/2007 | $ | 6.0900 | 6,000 | |||||
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | |||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | |||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | |||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | |||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | |||||
D.F. DeVoe: |
08/19/1997 | 08/19/2007 | $ | 4.7900 | 90,000 | ||||
09/07/1998 | 09/07/2008 | $ | 9.3500 | 300,000 | |||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 300,000 | |||||
11/15/1999 | 11/15/2009 | $ | 11.0000 | 1,000,000 | |||||
05/01/2000 | 05/01/2010 | $ | 17.7500 | 1,000,000 | |||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 240,000 | |||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 260,000 | |||||
08/13/2002 | 08/13/2012 | $ | 8.0200 | 480,000 | |||||
R.I. Eddington: |
01/01/1997 | 01/01/2007 | $ | 5.6000 | 300,000 | ||||
10/12/1998 | 10/12/2008 | $ | 8.0800 | 100,000 | |||||
08/19/1997 | 08/19/2007 | $ | 4.7900 | 393,000 | |||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 68,000 | |||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | |||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | |||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 |
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J.A.M. Erkko KBE: |
10/10/1995 | 10/10/2005 | $ | 6.3300 | 3,000 | |||||
10/15/1996 | 10/15/2006 | $ | 5.8200 | 6,000 | ||||||
10/07/1997 | 10/07/2007 | $ | 6.0900 | 9,000 | ||||||
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | ||||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | ||||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | ||||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | ||||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | ||||||
A.S.B. Knight: |
10/07/1997 | 10/07/2007 | $ | 6.0900 | 12,000 | |||||
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | ||||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | ||||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | ||||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | ||||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | ||||||
G. Kraehe: |
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | |||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | ||||||
J.R. Murdoch: |
08/19/1997 | 08/19/2007 | $ | 4.7900 | 43,752 | |||||
10/12/1998 | 10/12/2008 | $ | 8.0800 | 75,000 | ||||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 63,600 | ||||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 500,000 | ||||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 160,000 | ||||||
08/13/2002 | 08/13/2012 | $ | 8.0200 | 220,000 | ||||||
K.R. Murdoch: |
11/05/1999 | 11/05/2009 | $ | 22.0000 | 24,000,000 | |||||
L.K. Murdoch: |
08/19/1997 | 08/19/2007 | $ | 4.7900 | 440,000 | |||||
10/12/1998 | 10/12/2008 | $ | 8.0800 | 200,000 | ||||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 200,000 | ||||||
11/15/1999 | 11/15/2009 | $ | 11.0000 | 1,000,000 | ||||||
05/01/2000 | 05/01/2010 | $ | 17.7500 | 1,000,000 | ||||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 200,000 | ||||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 260,000 | ||||||
08/13/2002 | 08/13/2012 | $ | 8.0200 | 340,000 | ||||||
T.J. Perkins: |
10/07/1997 | 10/07/2007 | $ | 6.0900 | 12,000 | |||||
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | ||||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | ||||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | ||||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | ||||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 | ||||||
S. S. Shuman: |
10/12/1993 | 10/12/2003 | $ | 10.8600 | 8,000 | * | ||||
10/18/1994 | 10/18/2004 | $ | 8.2600 | 8,000 | * | |||||
10/10/1995 | 10/10/2005 | $ | 6.3300 | 12,000 | ||||||
10/15/1996 | 10/15/2006 | $ | 5.8200 | 12,000 | ||||||
10/07/1997 | 10/07/2007 | $ | 6.0900 | 12,000 | ||||||
10/13/1998 | 10/13/2008 | $ | 7.9800 | 12,000 | ||||||
11/03/1999 | 11/03/2009 | $ | 10.5500 | 12,000 | ||||||
10/18/2000 | 10/18/2010 | $ | 17.8300 | 12,000 | ||||||
10/11/2001 | 10/11/2011 | $ | 11.2700 | 12,000 | ||||||
10/09/2002 | 10/09/2012 | $ | 7.7300 | 12,000 |
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A.M. Siskind: |
09/07/1998 | 09/07/2008 | $ | 9.3500 | 400,000 | ||||
09/06/1999 | 09/06/2009 | $ | 10.4600 | 300,000 | |||||
11/15/1999 | 11/15/2009 | $ | 11.0000 | 1,000,000 | |||||
05/01/2000 | 05/01/2010 | $ | 17.7500 | 1,000,000 | |||||
08/01/2000 | 08/01/2010 | $ | 18.1500 | 240,000 | |||||
08/30/2001 | 08/30/2011 | $ | 14.0300 | 260,000 | |||||
08/13/2002 | 08/13/2012 | $ | 8.0200 | 480,000 |
* | Indicates options over one Ordinary Share and 1/2 Preferred Share |
Executives Share Option Scheme, Share Option Plan and Australian Executive Share Option Plan (the Plans)
The terms of these three Plans provide that the total number of shares, the transfer of which may be required to be procured by the Company, in respect of which options have been granted to employees of management or equivalent status, including Executive Directors, which have not been exercised or terminated or expired shall not exceed five percent of News Corporations issued share capital. The exercise price of the options issued under the Plans is the weighted average market price of the shares sold on the Australian Stock Exchange during the five trading days immediately prior to the date the option is granted. Options granted under the Plans have a term of 10 years after the date of grant. The Plans allow News Corporation to procure the transfer of issued Ordinary Shares or Preferred Shares to option holders rather than issue new shares to them.
With the exception of special grants made to certain individuals on hiring, grants under the Plans have been made and continue to be made on an annual basis.
Other Plans
In connection with News Corporations acquisition of New World, Heritage and Chris-Craft, each outstanding option under such companies option plans was converted into the right to purchase ADRs of News Corporation, each of which represents four Preferred Shares. No additional options were granted under such plans following these acquisitions.
News International Sharesave Scheme
In October 1997, shareholders approved the establishment of a sub-plan to The News Corporation Share Option Plan. The U.K. Sub-Plan is a salary sacrifice savings scheme, which was established for the benefit of U.K. resident employees of News International plc to provide those employees with an opportunity to participate in the equity of News Corporation. The U.K. Sub-Plan involves the grant of options over Preferred Shares to participating employees. The option entitles holders to call for the delivery to them of these shares upon the maturity of 3, 5 or 7 year savings plans which were implemented in conjunction with the the U.K. Sub-Plan. The options have an exercise price which represents a discount of up to 20% of the market price of shares at the date of the grant of the option. The exercise price is paid by an automatic withdrawal from the participants savings plan in favor of the Trustee who, on exercise of the option, uses those proceeds to acquire the requisite number of shares and transfer them to the participant.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The sole outstanding class of voting securities of News Corporation is Ordinary Shares. In addition, in November 1994, News Corporation issued, by means of a bonus issue (i.e. stock dividend), one previously unissued Preferred Share, which has limited voting rights, for each two of its Ordinary Shares held of record on November 11, 1994.
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The following table sets forth as of September 30, 2003, the percentage of Ordinary Shares owned by Cruden Investments Pty. Limited, a corporation organized under the laws of the State of Victoria, Australia and a subsidiary thereof (collectively, Cruden Investments), which is the sole person known to News Corporation to be the owner of more than 5% of its Ordinary Shares.
Identity of Person or Group |
Amount of Ordinary Shares Owned (1) |
Percentage of Class |
||||
Cruden Investments |
626,084,797 | (2) | 30 | % (3) |
(1) | Based upon record ownership. |
(2) | Includes Ordinary Shares owned by (1) Mr. K. Rupert Murdoch, (2) Cruden Investments Pty. Limited, a private Australian investment company owned by Mr. K. Rupert Murdoch, members of his family and various corporations and trusts, the beneficiaries of which include Mr. K. Rupert Murdoch, members of his family and certain charities and (3) corporations which are controlled by trustees of settlements and trusts set up for the benefit of the Murdoch family, certain charities and other persons. By virtue of shares of News Corporation owned by such persons and entities, and Mr. K. Rupert Murdochs positions as Chairman and Chief Executive of News Corporation, Mr. K. Rupert Murdoch may be deemed to control the operations of News Corporation. In addition, Mr. K. Rupert Murdoch, Cruden Investments Pty. Limited and such other entities beneficially own 217,126,040 Preferred Shares. |
(3) | Approximate percentage is calculated based on 2,097,473,050 Ordinary Shares outstanding on September 30, 2003. Does not consider as outstanding (i) 152,000-Ordinary Shares issuable upon exercise of outstanding stock options and (ii) up to 72,889,020 Preferred Shares issuable upon exchange of Liquid Yield Option Notes. |
As of September 30, 2003, 2,477,156 News Corporation Ordinary Shares were held of record in the U.S. These Ordinary Shares were held by 162 record holders and represented 0.12% of the total number of News Corporation Ordinary Shares then outstanding. As of September 30, 2003, 1,293,514 News Corporation Preferred Shares were held of record in the U.S. These Preferred Shares were held by 63 record holders and represented 0.04% of the total number of News Corporation Preferred Shares then outstanding. As of September 30, 2003, 85,309,273 News Corporation Ordinary ADRs (representing 341,237,092 News Corporation Ordinary Shares) and 463,592,801 News Corporation Preferred ADRs (representing 1,854,371,204 News Corporation Preferred Shares), were held of record in the U.S. Such Ordinary ADRs were held by 840 record holders and represented 99.99% of the News Corporation Ordinary ADRs then outstanding and approximately 16.27% of the total number of News Corporation Ordinary Shares then outstanding. Such Preferred ADRs were held by 6,346 record holders and represented 98.28% of the News Corporation Preferred ADRs then outstanding and approximately 57.40% of the total number of News Corporation Preferred Shares then outstanding. Since certain of these Ordinary Shares, Preferred Shares, Ordinary ADRs and Preferred ADRs, were held by brokers or other nominees, the number of record holders in the U.S. may not be representative of the number of beneficial holders or where the beneficial holders are resident.
As far as is known to News Corporation, there are no arrangements the operation of which may at a subsequent date result in a change of control of News Corporation.
RELATED PARTY TRANSACTIONS
Arrangements between News Corporation and Director-Related Entities
Directors of News Corporation and directors of its related parties, or their director-related entities, conduct transactions with subsidiaries of News Corporation that occur within a normal employee, customer or supplier relationship on terms and conditions no more favorable than those with which it is reasonable to expect the entity would have adopted if dealing with the director or director-related entity at arms length in similar circumstances.
In 1999, the Company advanced US$1 million to Chase Carey, a Director of News Corporation, in connection with his relocation. This loan is non-interest bearing and repayable on or before January 19, 2005. As of September 30, 2003, US$1 million remained outstanding.
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During fiscal 2002 and 2003 there were a number of transactions between News Corporation and Queensland Press Limited. Queensland Press Limited is controlled by Cruden Pty. Limited in which K. Rupert Murdoch, by reason of his beneficial and trustee interest, may be deemed to have an interest. The net value of these transactions was A$62,408,000 and A$95,550,000 for the years ending June 30, 2002 and 2003, respectively. Details of these transactions are set forth in Note 30 to the Consolidated Financial Statements.
Arrangements between News Corporation and Controlled Entities
News Corporation guaranteed borrowings of controlled and associated entities of A$15,441 million and A$12,429 million at June 30, 2002 and 2003, respectively. News Corporation guaranteed film distribution agreements in respect of controlled and associated entities of A$1,507 million and A$1,148 million at June 30, 2002 and 2003, respectively. Under terms of deeds of indemnity, any deficiency of funds, if any Australian wholly-owned controlled entity is wound up, will be met by the parent entity.
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CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
The financial statements filed as part of this document are included in Item 18.
Legal Proceedings
News Corporation has extensive international operations and is a party to a number of pending legal proceedings. News Corporation does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on its financial statements taken as a whole, or on in its financial condition, liquidity or results of operations.
Dividends
News Corporation declares dividends on its Ordinary Shares and Preferred Shares from time to time at the discretion of its Board of Directors.
Significant Changes
Other than those events described in other items in this Annual Report on Form 20-F, including Item 18. Financial Statements, and fluctuations in borrowings, there have not been any significant changes to our financial condition or results of operations since June 30, 2003.
News Corporation Ordinary Shares and News Corporation Preferred Shares are listed on the ASX, which operates stock exchanges in the capital cities of each State in Australia, the London Stock Exchange and the New Zealand Stock Exchange. The ASX presently constitutes the principal non-U.S. trading market for News Corporation Ordinary Shares and Preferred Shares.
In the U.S., News Corporation Ordinary ADRs and News Corporation Preferred ADRs are listed on the NYSE. In accordance with the rules of the NYSE, the News Corporation Ordinary Shares and Preferred Shares are also listed on the NYSE but only for technical reasons and without trading privileges.
The following table sets forth in Australian dollars the reported high and low closing sales prices on the ASX of Ordinary Shares and Preferred Shares for the periods listed.
Ordinary Shares |
Preferred Shares | |||||||
A$ High |
A$ Low |
A$ High |
A$ Low | |||||
Fiscal Year Ended June 30, |
||||||||
1999 |
14.24 | 8.64 | 13.46 | 7.65 | ||||
2000 |
27.50 | 10.11 | 23.75 | 9.31 | ||||
2001 |
26.05 | 13.85 | 22.35 | 12.40 | ||||
2002 |
18.87 | 9.68 | 16.29 | 8.18 | ||||
2003 |
12.98 | 8.46 | 10.96 | 7.20 | ||||
Fiscal Year Ended June 30, |
||||||||
2002 |
||||||||
First Quarter |
18.87 | 12.06 | 16.29 | 10.60 | ||||
Second Quarter |
16.35 | 12.74 | 13.92 | 11.00 | ||||
Third Quarter |
15.66 | 11.86 | 13.16 | 10.08 | ||||
Fourth Quarter |
13.82 | 9.68 | 11.88 | 8.18 | ||||
2003 |
||||||||
First Quarter |
10.81 | 8.46 | 9.28 | 7.20 | ||||
Second Quarter |
12.98 | 8.76 | 10.96 | 7.43 | ||||
Third Quarter |
12.74 | 9.39 | 10.63 | 7.86 | ||||
Fourth Quarter |
12.07 | 10.63 | 10.05 | 8.68 | ||||
2004 |
||||||||
First Quarter |
13.62 | 11.06 | 11.50 | 9.16 | ||||
Second Quarter (through October 24, 2003) |
12.60 | 11.80 | 10.90 | 9.80 | ||||
Month Ended |
||||||||
April 30, 2003 |
11.73 | 10.63 | 9.70 | 8.68 | ||||
May 31, 2003 |
11.80 | 10.93 | 9.78 | 9.00 | ||||
June 30, 2003 |
12.07 | 11.07 | 10.05 | 9.01 | ||||
July 31, 2003 |
11.96 | 11.06 | 9.95 | 9.16 | ||||
August 31, 2003 |
13.20 | 11.60 | 11.05 | 9.80 | ||||
September 30, 2003 |
13.62 | 12.01 | 11.50 | 10.02 |
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The following table sets forth in U.S. dollars the reported high and low closing sales prices on the NYSE of News Corporation Ordinary ADRs and Preferred ADRs for the periods listed.
Ordinary ADRs |
Preferred ADRs | |||||||
US$ High |
US$ Low |
US$ High |
US$ Low | |||||
Fiscal Year Ended June 30, |
||||||||
1999 |
36.44 | 20.81 | 33.69 | 18.25 | ||||
2000 |
65.81 | 26.56 | 56.44 | 24.56 | ||||
2001 |
57.38 | 28.70 | 48.63 | 24.60 | ||||
2002 |
39.06 | 21.99 | 33.33 | 18.62 | ||||
2003 |
32.39 | 18.03 | 26.64 | 15.32 | ||||
Fiscal Year Ended June 30, |
||||||||
2002 |
||||||||
First Quarter |
39.06 | 23.55 | 33.33 | 20.51 | ||||
Second Quarter |
32.71 | 24.89 | 27.60 | 21.65 | ||||
Third Quarter |
32.41 | 24.97 | 27.15 | 20.99 | ||||
Fourth Quarter |
30.43 | 21.99 | 25.91 | 18.62 | ||||
2003 |
||||||||
First Quarter |
23.72 | 18.03 | 20.26 | 15.32 | ||||
Third Quarter |
29.42 | 22.84 | 24.60 | 18.95 | ||||
Second Quarter, |
28.54 | 18.90 | 23.95 | 16.00 | ||||
Fourth Quarter |
32.39 | 25.45 | 26.64 | 21.00 | ||||
2004 |
||||||||
First Quarter |
35.20 | 29.87 | 29.84 | 25.05 | ||||
Second Quarter (through October 24, 2003) |
39.88 | 33.20 | 28.86 | 27.61 | ||||
Month Ended |
||||||||
April 30, 2003 |
28.56 | 25.45 | 23.65 | 21.00 | ||||
May 31, 2003 |
30.84 | 28.32 | 25.51 | 23.42 | ||||
June 30, 2003 |
32.39 | 30.00 | 26.64 | 24.55 | ||||
July 31, 2003 |
31.55 | 30.06 | 26.30 | 25.05 | ||||
August 31, 2003 |
34.35 | 29.87 | 28.92 | 25.40 | ||||
September 30, 2003 |
35.20 | 32.50 | 29.84 | 27.05 |
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ITEM 10. ADDITIONAL INFORMATION
Constitution
General Information
News Corporation is registered with the Australian Securities and Investments Commission (ASIC) and our Australian Company Number (ACN) is 007 910 330.
The Directors
Directors Interests. Pursuant to News Corporations Constitution, directors cannot vote at a meeting of the directors in regard to any contract or proposed contract or arrangement in which he or she has, directly or indirectly, a material interest.
Remuneration. The aggregate amount of fees payable to non-executive directors is determined by the Company in general meeting (and directors cannot vote on such resolutions). Subject to that limitation, the directors are remunerated with such fees as the directors determine. When directors remuneration is considered at meetings of directors, directors can vote and be counted in the quorum.
Borrowing powers. The directors can exercise all the borrowing powers of News Corporation and News Corporation has all the same borrowing powers as a natural person. The borrowing powers (like any other power) can be modified by amending the Constitution. This can be done by a special resolution of shareholders in general meeting.
Age qualification. The Constitution does not contain a requirement for a director to retire at any certain age.
Share qualification. The Constitution expressly provides that no share qualification is required of a director.
Rotation. Directors must submit themselves for re-election every 3 years (or at the 3rd annual general meeting after that persons appointment). Further, at every annual general meeting, one third of directors (rounded down) will retire from office for re-election. The directors to retire in every year are those longest in office since last being elected or re-elected, and, between directors who were elected on the same day, the director to retire is determined by lot unless they otherwise agree. This does not apply to the managing director.
Our Shares Rights and Restrictions
The Constitution provides directors with the power to issue shares, options and securities with such preferred, deferred or other special rights or such restrictions, whether with regards to dividends, voting, return of capital, payment of calls or otherwise, as the directors may decide, including:
| preferred limited voting ordinary shares in the Company (Preferred Ordinary Shares); |
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| ordinary shares in the Company (Ordinary Shares); |
| non-voting ordinary shares in the Company (Non-Voting Ordinary Shares); |
| converting preference shares in the Company (Converting Preference Shares), which are convertible into Ordinary Shares; |
| redeemable ordinary shares in the Company (Redeemable Ordinary Shares), which upon transfer or disposal prior to a trigger event (as defined at the time of issuance) other than to a permitted transferee (also as defined) are automatically redeemed and converted into one Preferred Ordinary Share for each Redeemable Ordinary Share redeemed, plus an amount of cash calculated in accordance with the Companys Constitution equating to the excess of the then current market price of the Redeemable Ordinary Shares over the current market price of the Preferred Ordinary Shares; |
| perpetual preference shares in the Company (Perpetual Preference Shares), with such rights attaching to them as the directors determine on or prior to allotment; and |
| redeemable preference shares in the Company (Redeemable Preference Shares), with such rights attaching to them as the directors determine on or prior to allotment. |
Currently, News Corporation only has Preferred Ordinary Shares and Ordinary Shares on issue.
Dividends, Voting Rights and Rights to Share in Any Surplus in the Event of Liquidation
For information relating to dividend rights, voting rights and rights to share in any surplus in the event of liquidation, please refer to the information contained in the registration statement on Form F-4 of The News Corporation Limited (Registration No. 333-105853) filed with the Securities and Exchange Commission on June 5, 2003, under the caption News Corporation Capital Stock Preferred Ordinary Shares which is incorporated herein by reference.
Redemption and Sinking Fund
The Constitution does not provide for redemption of any of the shares currently on issue (that is, the Preferred Ordinary Shares or Ordinary Shares) and it does not provide for any sinking fund.
Liability for Further Capital Calls
Members are not liable for any capital calls except in relation to money unpaid on that members shares.
All shares currently on issue are fully paid. However, it is possible for News Corporation to have shares not fully paid, in which case, the directors have the power to make calls on members in respect of any money unpaid on the shares of the members and members are obliged to pay the amount called upon receiving at least 14 days notice.
Limitations on Owning a Substantial Number of Shares
There is no provision in the Constitution that discriminates against an existing or prospective shareholder as a result of that shareholder owning a substantial number of shares. However, there are some restrictions imposed by law (refer to Limitations on the Right to Own Securities below).
Actions Necessary to Change the Rights of Holders of Shares
The rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied:
| by a special resolution passed at a separate general meeting of the holders of the shares of the class; or |
| if the necessary majority is not obtained at such meeting, with the consent in writing of the holders of three quarters of the issued shares of that class within 2 months after the day of such meeting. |
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General Meetings
For information relating to general meetings, please refer to the information contained in the registration statement on Form F-4 of The News Corporation Limited (Registration No. 333-105853) filed with the Securities and Exchange Commission on June 5, 2003, under the caption Comparison of Rights of Holders of GM Class H Common Stock, Hughes Common Stock and News Corporation Preferred ADSs Comparison Annual Meeting; Special Meetings of Stockholders News Corporation Preferred ADSs which