3 Months Ended 6 Months Ended December 31, December 31, 2002 2001 2002 2001 -------------------------------------- US $ Millions (except per ADR amounts)
Associated entities before other items (39) 6 (135) (56) Interest expense, net (115) (140) (239) (270) Dividends on exchangeable preferred securities (12) (12) (25) (24) ------- ------- ------- -------
Profit before income tax expense, outside equity interest and other items 563 346 878 504 Income tax expense (178) (104) (276) (146) Outside equity interest (65) (39) (120) (72) ------- ------- ------- ------- Net profit before other items 320 203 482 286 ------- ------- ------- -------
Other items, net of tax and outside equity interest: a
Group (14) (261) (14) (250) Associated entities (67) (548) (67) (569) ------- ------- ------- ------- Total other items (81) (809) (81) (819) ------- ------- ------- -------
Net profit (loss) attributable to members of the parent entity $ 239 $ (606) $ 401 $ (533) ======= ======= ======= ======= Earnings per ADR on net profit before other items, net $ 0.24 $ 0.17 $ 0.36 $ 0.23 ======= ======= ======= ======= Weighted average number of ADRs outstanding in millions (diluted) 1,286 1,221 1,284 1,203 ======= ======= ======= =======
The following commentary discusses the major components of these results.
(a) Previously referred to as "abnormal items". This caption has been changed to be consistent with the presentation contained in the Statement of Financial Performance on page 12 of this release.
3 Months 6 Months Consolidated Operating Income Ended Ended December December 31, 31, 2002 2001 2002 2001 ----- ----- ------- ----- US $ US $ Millions Millions
Commenting on the results, Chairman and Chief Executive Rupert Murdoch said:
"We are delighted with the 48 percent operating income growth we achieved in the second quarter. Such robust growth is a reflection of the strong operating leverage and momentum we have at most of our businesses. Double-digit revenue gains at our cable and television station operations have translated into even stronger double-digit operating income growth as tight cost management resulted in improved operating margins. Our film business continues to thrive from its string of successful theatrical releases and from strong growth in the home entertainment market. And our newspapers continue to enjoy better advertising revenues at most major titles. Although we were disappointed with the performance of the FOX network in the second quarter, the worst is clearly behind it. Indeed, the unprecedented ratings surge we have delivered following the quarter positions us to end this television season equal to or better than last year's numbers - a remarkable turnaround. Our second quarter results underscore the popularity of our media products around the world and our continuing focus on cost-containment and a healthy balance sheet."
Second quarter net losses at associated entities before other items were $39 million versus profits of $6 million a year ago. The year-over-year decline was primarily due to the inclusion of Stream losses and the unfavorable impact of foreign currency fluctuations at the Latin America DTH platforms. Additionally, second quarter losses at the Fox Sports Cable Networks associates reflect increased costs at Madison Square Garden, principally due to a player compensation charge. A detailed discussion of the components of associated entities' losses is provided later in the release.
Second quarter net profit before other items increased to $320 million ($0.24 per ADR) versus $203 million ($0.17 per ADR) in the prior year primarily due to higher consolidated operating income partially offset by higher losses at the associated entities.
The Company reported a loss from other items in the quarter of $81 million versus a loss of $809 million a year ago. The loss in the current year primarily includes a gain related to the Fox Entertainment Group's issuance of 50 million new shares offset by an additional write-down of the Company's carrying value for its Gemstar investment. The loss in the second quarter a year ago primarily included a profit from the sale of a 49.5% interest in Fox Family Worldwide offset by a write-down of the Company's national sports contracts and write-downs related to investments in KirchMedia and Stream. In addition, the loss from other items in the prior year included BSkyB's write-down of its investment in KirchPayTV.
An interim unfranked dividend of A$0.06 per Ordinary ADR and an unfranked dividend of A$0.15 per Preferred Limited Voting ADR has been declared and is payable on May 7, 2003. Completed share transfer received by the Company until 5.00 PM on March 31, 2003 will be registered before entitlements to the dividend are determined. Elections with respect to the Dividend Reinvestment Plan, to have effect with respect to the above dividends, must be lodged with the Company by 5:00 PM on March 31, 2003. A discount of 10% will apply to the weighted average market price of the Ordinary and Preferred Limited Voting ADRs used to determine the respective entitlements under the Dividend Reinvestment Plan.
REVIEW OF OPERATING RESULTS
FILMED ENTERTAINMENT
The Filmed Entertainment segment reported second quarter operating income of $255 million, a $140 million improvement over the $115 million reported in the same period a year ago. This substantial increase was primarily driven by record-breaking worldwide home entertainment sales led by the performance of Ice Age as well as contributions from Star Wars Episode II: Attack of the Clones, Behind Enemy Lines, Like Mike and catalog titles. These contributions were partially offset by the impact of marketing costs for several successful second and third quarter theatrical releases. Prior-year results were primarily driven by the worldwide home entertainment performance of Planet of the Apes and Dr. Dolittle 2.
Twentieth Century Fox Television (TCFTV) contributions increased versus the second quarter a year ago primarily reflecting higher syndication profits from King of the Hill and The X-Files as well as increased network license fees for The Practice. Additionally, continued momentum in home entertainment sales, most notably from The Simpsons and 24, contributed to the year-on-year growth. During the quarter, several of TCFTV's new shows, including Cedric the Entertainer on FOX and Still Standing on CBS, sustained solid ratings, while a number of returning shows, including The Simpsons, 24, King of the Hill and Malcolm in the Middle, continued to perform extremely well, ranking number one in their time slots among adults 18-49.
TELEVISION
The Television segment reported second quarter operating income of $165 million versus $113 million in the same period a year ago, primarily reflecting a 25% increase at the Fox Television Stations.
Fox Television Stations (FTS) second quarter operating income grew $60 million over a year ago largely as a result of stronger advertising revenue. The advertising market was buoyed by increased spending particularly among the automotive, fast food, movie and telecommunication categories, while also benefiting from strong political advertising. Additionally, current-year earnings growth continued to be fueled by margin expansion primarily from cost reductions achieved through FTS' integration of its duopoly stations.
At the Fox Broadcasting Company (FBC), second quarter operating losses increased compared to a year ago. Higher advertising revenues were more than offset by a rise in primetime programming costs reflecting the cancellation of several new series as well as increased promotional spending for the current season. Following the end of the quarter, the network premiered several shows that are handily winning their time slots among all key demographics, including American Idol 2, the highest rated show on network television among Adults 18-49 and Joe Millionaire, the number one new show of the 2002-2003 season.
STAR continued to improve its operating results in the second quarter, generating positive operating income compared to a slight operating loss a year ago despite absorbing start-up losses in the current year from the newly launched Xing Kong Wei Shi channel in China. The improvement was fueled by revenue growth of 17% primarily from an increase in subscription revenue at STAR Plus in India which continues to add new subscribers. Additionally, STAR Plus benefited from lower programming costs as a result of Kuan Banega Crorepati, the Hindi version of Who Wants To Be a Millionaire, being taken off the schedule. STAR Plus maintained its leadership position as the number one cable channel in the region and now broadcasts, on average, 29 of the top 30 Hindi programs.
CABLE NETWORK PROGRAMMING
Cable Network Programming, comprising the Fox News Channel (FNC), Fox Sports Networks (including the Regional Sports Networks (RSNs), the FX Channel (FX) and Speed Channel), the Los Angeles Dodgers and other cable-related businesses, reported second quarter operating income of $121 million, an improvement of $61 million over last year's results. This success reflects strong growth across all of the Company's primary cable television channels.
The Fox News Channel more than tripled its operating income versus the second quarter a year ago due to strong ad sales growth and relatively flat operating costs. FNC finished the calendar year with its fourth consecutive quarter as the most watched cable news network - fiscal second quarter viewership was 29% greater than that of its nearest competitor on a 24-hour basis and 33% higher in primetime.
Fox Sports Networks' operating profit improved 65% during the quarter, driven primarily by double-digit revenue growth at both the RSNs and FX. The revenue increase at the RSNs was largely due to higher affiliate rates and an increase in the number of DTH subscribers. The growth at FX was the result of increases in both advertising and affiliate revenues that were fueled by strong ratings gains, higher pricing and a 6% increase in subscribers over the past year. Subsequent to quarter-end, FX debuted the second season of The Shield, which premiered with the highest second season ratings in basic cable history, in addition to winning Golden Globes for Best Drama Series and Best Actor in a Drama Series.
MAGAZINES AND INSERTS
The Magazines and Inserts segment reported second quarter operating income of $59 million, an increase of $4 million versus a year ago. The 7% improvement was primarily due to higher revenues and market share at both the Free Standing Inserts and In-Store divisions.
NEWSPAPERS
The Newspaper segment reported second quarter operating income of $102 million, a 10% decrease versus the same period a year ago as advertising revenue gains were more than offset by circulation revenue declines in the UK as a result of The Sun's discounted pricing to match the competition.
The UK newspaper group reported a 37% operating income decline in local currency terms for the second quarter compared to a year ago as advertising revenue growth of 6% was more than offset by circulation revenue declines. The improvement in advertising was achieved across all titles, with particular strength at The Times and The Sunday Times. Circulation revenue declined as higher revenues at The News of the World, The Times and The Sunday Times were more than offset by the cover price reductions at The Sun. As a result of this initiative, circulation at The Sun has expanded by 5% compared to the second quarter a year ago.
The Australian newspaper group reported an 18% increase in operating income in local currency terms driven by a 10% increase in advertising revenue over a year ago and a moderate increase in circulation revenue. Advertising growth reflects particular strength in display advertising, including increases in the retail, real estate and national categories as well as growth in classified advertising, which experienced strength across all categories including employment in particular.
BOOK PUBLISHING
HarperCollins reported another quarter of strong operating profit, with contributions of $48 million, 14% above the same period a year ago. The solid quarterly results reflect the strong performance across all divisions worldwide, led by an array of bestsellers, including Michael Crichton's Prey, the ongoing popularity of Lemony Snicket's A Series of Unfortunate Events and J.R.R. Tolkien's Lord of the Rings trilogy, and the breakout success of Zondervan's The Purpose-Driven Life by Rick Warren. During the quarter, HarperCollins had 40 books on The New York Times bestseller lists including four books that reached the no. 1 spot.
REVIEW OF ASSOCIATED ENTITIES RESULTS
Second quarter net losses from associated entities before other items were $39 million versus profits of $6 million a year ago. The year-over-year decline was primarily due to the inclusion of Stream losses and the unfavorable impact of foreign currency fluctuations at the Latin America DTH platforms. Additionally, second quarter losses at the Fox Sports Cable Networks associates reflect increased costs at Madison Square Garden, principally due to a player compensation charge.
The Company's share of associated entities earnings (losses) is as follows:
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3 Months 6 Months Ended Ended December 31, December 31, % Owned 2002 2001* 2002 2001* ------- ------ ------ ------ ------ US $ Millions US $ Millions Platforms: Sky Latin America: Sky Brasil 46.7%(a)$ 10 $ 18 $ (57) $ (13) Innova - Mexico 30.0% (9) - (17) (19) Other Various (6) (11) (14) (22) FOXTEL - Australia 25.0% (2) (2) (4) (4) Stream 50.0%(b) (61) - (100) - Channels: Fox Sports Cable Networks Various (3) 12 9 4 STAR Associates: ESPN STAR Sports 50.0% - (2) 1 (4) Other STAR Various(c) (1) (1) (5) (2) Other Associates Various(d) 33 (8) 52 4 ------ ------ ------ ------ Total associated entities' earnings (losses) before other items $ (39) $ 6 $(135) $ (56) Other items (e) (67) (548) (67) (569) ------ ------ ------ ------ Total associated entities' earnings (losses) $(106) $(542) $(202) $(625) ====== ====== ====== ======
Further details on the associated entities follow.
(a) For the six months ended December 31, 2001, the Company's share of Sky Brasil (formerly NetSat) was 36%.
(b) The Company's share of Stream's start-up losses were not included through March 31, 2002.
(d) Primarily comprising Gemstar-TV Guide International, Independent Newspapers Limited, Queensland Press, The National Geographic Channels, Fox Family Worldwide (until it was sold in October 2001), Fox Sports International (until the remaining interest was purchased and consolidated in December 2001), and BSkyB.
(e) Other items for the current quarter primarily include the Company's share of Sky Brasil's accumulated deferred tax asset write-off. The second quarter a year ago included BSkyB's write-down of its carrying value in KirchPayTV.
* Certain prior year amounts have been reclassified to conform to the current fiscal year presentation.
Sky Brasil (in US$) 3 Months Ended 6 Months Ended ------------------- December 31, December 31, 2002 2001 2002 2001 ----------------------------------- Millions Millions (except (except subscribers) subscribers)
Revenues (in local currency) R$138 R$131 R$ 268 R$ 256
Net Debt (excluding capitalized leases) $ 213 $ 213
Ending Subscribers 732,000 708,000
Sky Brasil's revenues, which grew 5% in local currency terms in the quarter due to a higher subscriber base, decreased on a reported basis due to the decline of the average Brazilian Real versus the U.S. dollar. The decline in EBITDA reflects the lower revenues as well as an increase in programming and marketing costs associated with the Brazilian Soccer Championships, partially offset by cost savings in set-top box subsidies. The reduction in net income principally reflects lower foreign exchange gains compared to the prior year.
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Innova (in US$) - Mexico ------------------------ 3 Months Ended 6 Months Ended December 31, December 31, 2002 2001 2002 2001 ----------------------------------- Millions Millions (except (except subscribers) subscribers)
Revenues (in local currency) Ps805 Ps771 Ps 1,639 Ps 1,560
Net Debt (excluding capitalized leases) $ 350 $ 370
Ending Subscribers 706,000 692,000
Innova's revenues, which grew 4% in local currency terms in the quarter, decreased on a reported basis due to the decline of the average Mexican Peso versus the U.S. dollar. Innova's EBITDA growth reflects the absence of costs associated with the satellite dish repositioning that was completed in the prior year. The increase in EBITDA was more than offset by the unfavorable impact of foreign currency exchange due to the weakening of the Mexican Peso on U.S. dollar denominated liabilities.
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FOXTEL (in A$) - Australia -------------------------- 3 Months Ended 6 Months Ended December 31, December 31, 2002 2001 2002 2001 ------------------------------------- Millions Millions (except (except subscribers) subscribers)
FOXTEL's revenues for the quarter increased 18% principally due to a 12% increase in satellite subscribers compared to a year ago, higher average revenue per subscriber, and the inclusion of Optus wholesale subscribers as of December 1, 2002. EBITDA losses for the quarter increased A$2 million due to an increase in sports programming together with Fox Footy Channel costs and Optus license fee costs, partially offset by the increased revenues.
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Fox Sports Cable ---------------- 3 Months Ended 6 Months Ended Networks* (in US$) December 31, December 31, ------------------ 2002 2001 2002 2001 ------- ----- ------------ ----------- Millions Millions (except (except subscribers) subscribers)
Net (loss) income $(3) $(2) $ 9 $(24) ======= ===== ============ ===========
The increase in net loss reported by Fox Sports Cable Networks for the quarter primarily reflects the impact of a player compensation charge and lower revenues at Madison Square Garden, offset by the favorable impact of lower amortization at Regional Programming Partners from its adoption of FAS 142.
* Various associated interests ranging from 20 percent to 50 percent, primarily comprising Regional Programming Partners (including Madison Square Garden), Sunshine Network (until January 2002), Fox Sports Bay Area, Fox Sports Chicago, National Sports Partnership and National Advertising Partnership.
(1) Principally reflects adjustments for reporting under Australian Generally Accepted Accounting Principles ("AGAAP") relating to identifiable intangible amortization.
ESPN STAR Sports (in US$) - Asia --------------------------- 3 Months Ended 6 Months Ended December 31, December 31, 2002 2001 2002 2001 -------------------------------------- Millions Millions (except (except viewership) viewership)
Revenue for the quarter reflects increased subscription revenues principally due to subscriber and rate growth in India and Hong Kong, partially offset by lower advertising revenues from South Africa Cricket events. EBITDA improved $2 million as the increase in revenues and lower programming and production costs were partially offset by higher promotional costs. Overall viewership at ESPN STAR Sports increased 31% to approximately 185 million, mainly due to growth in China and Korea.
Foreign Exchange Rates
Average foreign exchange rates used in the year-to-date profit results are as follows:
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6 Months Ended December 31, 2002 2001 -----------------
Australian Dollar/U.S Dollar 0.55 0.51 U.K. Pounds Sterling/U.S. Dollar 1.56 1.44
To receive a copy of this press release through the Internet, access News Corp's corporate Web site located at http://www.newscorp.com
Audio from News Corp's meeting with analysts on the second quarter results can be heard live on the Internet at 4:45 p.m. Eastern Standard Time today. To listen to the call, visit http://www.newscorp.com
This document contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from these expectations due to changes in global economic, business, competitive market and regulatory factors. More detailed information about these and other factors that could affect future results is contained in our filings with the Securities and Exchange Commission. The "forward-looking statements" included in this document are made only as of the date of this document and we do not have any obligation to publicly update any "forward-looking statements" to reflect subsequent events or circumstances, except as required by law.
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STATEMENT OF FINANCIAL PERFORMANCE a 3 Months Ended 6 Months Ended
Note December 31, December 31, 2002 2001 2002 2001 ------- -------- ------- -------- US $ Millions (except per ADR amounts)
Dividend on exchangeable preferred securities (12) (12) (25) (24) Other expenses before income tax, net (26) (171) (26) (142) ------- -------- ------- -------- Profit (loss) from ordinary activities before income tax 470 (378) 785 (212) ------- -------- ------- --------
Income tax expense on: Ordinary activities before change in accounting policy and other items (178) (104) (276) (146) Other items 12 (43) 12 (61) ------- -------- ------- -------- Net income tax expense (166) (147) (264) (207) ------- -------- ------- --------
Net profit (loss) from ordinary activities after tax 304 (525) 521 (419)
Net profit attributable to outside equity interests (65) (81) (120) (114)
---------------------------------------------------------------------- Net Profit (Loss) Attributable to Members of the Parent Entity $ 239 $ (606) $ 401 $ (533) ----------------------------------------------------------------------
Net exchange gains (losses) recognized directly in equity 186 (89) 178 234
Other items recognized directly in equity 86 (140) 86 (140)
------- -------- ------- -------- Total change in equity other than those resulting from transactions with owners as owners $ 511 $ (835) $ 665 $ (439) ======= ======== ======= ========
Basic/diluted earnings per ADR on net profit (loss) attributable to members of the parent entity
(a) Following the issuance in June 2002 of the revised Australian Accounting Standard AASB 1018 "Statement of Financial Performance" this statement has been reformatted from previous presentations to be consistent with the format prescribed in the revised Australian Accounting Standard.
STATEMENT OF FINANCIAL POSITION December June 31, 30, 2002 2002 -------- -------- ASSETS US $ Millions Current Assets Cash $ 3,076 $ 3,574 Receivables 4,503 3,276 Inventories 1,297 1,091 Other 289 319 -------- -------- Total Current Assets 9,165 8,260 -------- --------
Non-Current Assets Receivables 503 449 Investments in associated entities 3,653 3,878 Other investments 914 966 Inventories 2,494 2,387 Property, plant and equipment 3,802 3,762 Publishing rights, titles and television licenses 20,497 19,936 Goodwill 221 257 Other 363 398 -------- -------- Total Non-Current Assets 32,447 32,033 -------- --------
Total Assets $41,612 $40,293 ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Interest bearing liabilities $ 76 $ 1,047 Payables 5,086 4,553 Tax liabilities 288 478 Provisions 150 129 -------- -------- Total Current Liabilities 5,600 6,207 -------- --------
Shareholders' equity attributable to members of the parent entity 20,108 19,510 Outside equity interests in controlled entities 3,947 2,751 -------- --------
Total Shareholders' Equity 24,055 22,261 -------- -------- Total Liabilities and Shareholders' Equity $41,612 $40,293 ======== ========
STATEMENT OF CASH FLOWS 6 Months Ended December 31, 2002 2001 -------- -------- Operating Activity US $ Millions
Net profit (loss) attributable to members of the parent entity $ 401 $ (533) Adjustment for non-cash and non-operating activities: Equity earnings, net 145 73 Depreciation and amortization 204 193 Provisions 178 45 Other items, net 81 819 Change in assets and liabilities: Receivables (1,236) (814) Inventories (344) (328) Payables 868 510 -------- --------
Cash provided by (used in) operating activity 297 (35)
Investing and other activity
Property, plant and equipment (184) (152) Investments (837) (1,489) Repayment of loan by associate 96 - Proceeds from sale of non-current assets 54 2,341 -------- --------
Cash (used in) provided by investing activity (871) 700
Financing activity
Repayment of debt, net (1,100) (331) Issuance of shares and preferred securities 1,220 57 Dividends paid (75) (82) Leasing and other finance costs (1) - -------- --------
Note 1 - SEGMENT DATA 3 Months Ended 6 Months Ended December 31, December 31, BY GEOGRAPHIC AREAS 2002 2001 2002 2001 ------- ------- --------------- US $ Millions US $ Millions Revenues
United States $3,670 $3,191 $6,559 $5,752 United Kingdom 641 605 1,231 1,145 Australasia 370 323 704 624 ------- ------- ------- ------- $4,681 $4,119 $8,494 $7,521 ======= ======= ======= =======
