NWS

News Corporation (NWS)

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News Corporation (NWS)

F2Q09 (Qtr End 12/31/08) Earnings Call

February 5, 2009 4:30 pm ET

Executives

Rupert Murdoch - Chairman and CEO

Peter Chernin - President and COO

Dave DeVoe - CFO

Gary Ginsberg - EVP, Global Marketing and Affairs

Analysts

David Jefferies - Kyodo News

Robert McMillan - Reuters

Ken Lee - Financial Times

Rich Greenfield - Pali Capital

Adam Alexander - JB Were

David Bank - RBC Capital Markets

Benjamin Swinburne - Morgan Stanley

Jolanta Masojada - Credit Suisse

Jason Bazinet - Citigroup

John Janedis - Wachovia

Alan Gould - Natixis

Spencer Wang - Credit Suisse

Jessica Reif-Cohen - Bank of America/Merrill Lynch

Doug Mitchelson - Deutsche Bank

Michael Nathanson - Sanford Bernstein

Presentation

Operator

Welcome to the News Corp. 2009 earnings release conference. (Operator Instructions).

I would now like to turn the conference over to Executive Vice President of Global Marketing and Affairs, Gary Ginsberg. Please go ahead.

Gary Ginsberg

Thank you, operator. Hello everyone and welcome to our second quarter fiscal 2009 Earnings Call. On the call today are Rupert Murdoch, Chairman and Chief Executive Officer; Peter Chernin, President and Chief Operating Officer; and Dave DeVoe, our CFO.

Dave will give a detailed presentation of the quarter results at the beginning, followed by Rupert who will offer a more qualitative analysis of the company today and our future prospects. Rupert, Peter and Dave will then take your questions, which given the (inaudible) time, I implore you to limit to just one.

This call may include certain forward-looking information with respect to the News Corp’s business and strategy. Actual results could differ materially from what is said, News Corp’s Form 10-Q for the three months ended December 31st 2008 lists risks and uncertainties that could cause actual results to differ and these statements are qualified by the cautionary statements contained in our filing.

Finally please note that certain financial measures we will use in this call such as adjusted and operating income, adjusted EPS and adjusted net income are expressed on a non-GAAP basis and have been adjusted to exclude impairment charges and other net in the second quarter of fiscal '09.

The GAAP to non-GAAP reconciliation of operating income is included in our press release and the EPS and net income reconciliation is posted on our website on our Investor Relations earnings release page.

And with all that, I will turn the call over to Dave.

Dave DeVoe

Gary, thank you and good afternoon. As you can see in today’s News Corporation’s earnings release, we are operating in a very challenging economic environment and our operating results reflect this.

As a result of the market conditions and the decline in our stock price, we performed a review of our intangible assets during the quarter, which resulted in a pre-tax non-cash impairment charge of $8.4 billion related to goodwill and tangible assets. Because of this charge, reported GAAP operating income for the second quarter was a loss of $7.6 billion as compared to operating income of $1.4 billion for last year.

Excluding this impairment charge, adjusted operating income in the second quarter was $818 million, down 42% as compared to last year’s result, reflecting declines in all segments except magazines and inserts and cable. Bottom-line, the company reported a net loss for the quarter of $6.4 billion as compared to $832 million of net income last year second quarter.

In addition to the impairment charge this quarter, there were a few other comparative items to mention. This quarter's associated entities results include a small ITV write-down at BSkyB as compared to the $270 million charge [recorded] a year ago. Our other expense of $98 million principally reflects the pre-tax loss on the sale of our TV business in Poland, and our tax rate was favorably affected by tax credits from the impairment charge. Our normal tax run rate would approximate 39%.

Including the net income effects of these items in the impairment, adjusted net income was $385 million in the quarter, down 57% from a similarly adjusted second quarter result a year ago. Adjusted earnings per share this quarter was $0.15, down 46% from the adjusted $0.28 in the second quarter a year ago.

Now, I would like to provide some comments on the performance at a number of our businesses. And please note that for comparative purposes, this discussion is based on adjusted operating income and that it excludes the effects of the impairment charge.

Let's begin with the Film and Entertainment segment. This segment reported second quarter operating profit of a $112 million compared to last year’s very strong result of $403 million in profits. Last year's second quarter performance was led by several very strong DVD results, which included the Simpson movie, as well as the pay-TV results of Night at the Museum.

This year’s quarter was led, although at much lower level, by the worldwide home entertainment performance of 'Horton Hears a Who' and 'The Happening' and by the domestic pay-TV performance of 'Juno'. As a result of higher launch cost the results from the current quarter's theatrical releases including 'The Day the Earth Stood Still', 'Australia' and 'Marley & Me' were approximately $60 million lower than films released last year. And additionally, the current year result also reflects a $22 million dollars charge for the bankruptcy of a customer in the United Kingdom.

At our Television segment, adjusted operating income in the quarter was $18 million, as compared to $245 million in the second quarter a year ago. This result reflects the impact of weaker ad markets, higher programming costs at the network and the absence of earnings from the sale of eight stations in July. The eight stations accounted for revenues and earnings declines of $78 million and $23 million respectively.

Revenue at our remaining stations declined 20%. This is right in line with market declines and adjusted operating income decreased 38% in the quarter. The station had good political advertising growth. However, this was more than offset by weaker auto, telecom, movies and fast food categories.

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