News Q4 2010 Earnings Call Transcript

News Q4 2010 Earnings Call Transcript
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News (NWSA)

Q4 2010 Earnings Call

August 04, 2010 4:30 pm ET

Executives

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David DeVoe - Chief Financial Officer, Principal Accounting Officer, Senior Executive Vice President, Executive Director, Senior Executive Vice President of News America, Director of BSkyB, Director of Gemstar-TV Guide, Director of NDS, Director of News America and Director of STAR

Keith Murdoch - Chairman, Chief Executive Officer, Chairman of BSkyB, Director of Gemstar -TV Guide, Director of News America, Director of News International, Director of News Limited and Director of STAR Group

Reed Nolte - Senior Vice President of Investor Relations

Chase Carey - Deputy Chairman, President and Chief Operating Officer

Analysts

Jolanta Masojada - Crédit Suisse AG

Spencer Wang - Crédit Suisse AG

Jessica Cohen - BofA Merrill Lynch

Georg Szalai

Jordon Chong

Sarah Rabil

Richard Greenfield - BTIG, LLC

Alan Gould - Natexis Bleichroeder, Inc.

Adam Alexander - Goldman Sachs

Ben Swinburne - Morgan Stanley

Brian Stelter

Shira Ovide - The Wall Street Journal

Douglas Mitchelson - Deutsche Bank AG

James Dix - Wedbush Securities Inc.

Peter Ryan

Thomas Eagan - Collins Stewart LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the News Corp. Fourth Quarter 2010 Earnings Release Conference Call. [Operator Instructions] And at this time, I will turn the conference call over to your host, Vice President Investor Relations with News Corporation, Mr. Reed Nolte. Please go ahead, sir.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our fourth quarter fiscal 2010 earnings conference call. On the call today are Rupert Murdoch, Chairman and Chief Executive Officer; Chase Carey, President and Chief Operating Officer; and Dave DeVoe, our CFO. Dave will give a detailed presentation of the quarter results, followed by Chase, who will give his own perspective and color on the year. Then Rupert, Chase and Dave will be happy to take your questions, first from the financial community and then from the press.

This call may include certain forward-looking information with respect to News Corporation's business and strategy. Actual results could differ materially from what is said. News Corporation's Form 10-K for the fiscal year ended June 31, 2010, identifies risks and opportunities that could cause actual results to differ. And these statements are qualified by the cautionary statements contained in such filing. Additionally, this call will include certain non-GAAP financial measurements. The definition of and a reconciliation of such measures can be found on our earnings release in our 10-Q filing.

Finally, note that certain financial measures used in this call such as segment operating income, adjusted EPS and adjusted net income are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of segment operating income is included in our earnings release, and the EPS and net income reconciliation is posted on our website at the News Corp. Investor Relations earnings release page. And with that, I'll turn it over to Dave.

David DeVoe

Reed, thank you, and good afternoon, everybody. As you have seen in today's earnings release, News Corporation closed out fiscal 2010 with very solid results in terms of segment operating income, net earnings and cash flow from operations. Let me start with some highlights of our full year results.

Excluding the $500 million pretax litigation charge taken in this year's second quarter, segment operating income was $4.5 billion as compared to $3.6 billion reported a year ago. Factoring out last year's $121 million contribution from NDS, which is no longer consolidated, segment operating income increased 30%. This growth is slightly better than the expectations we provided to you three months ago. This strong financial performance was driven by 8% overall revenue growth and led by sizable operating profit growth at our Cable and Film segments, offset in part by lower results in SKY Italia and MySpace.

Bottom line, the company reported net income of $2.5 billion for this fiscal year and earnings per share of $0.97. This compares to a net loss of $3.4 billion or $1.29 per share reported a year ago, which included significant impairment charges.

For the year, we also generated strong free cash flow, $2.9 billion. This is 150% more than we reported last year.

Turning to the quarter. For the quarter segment operating income of $932 million was down slightly from the fourth quarter a year ago as double-digit growth in our Cable, Newspaper and Television segments was mostly offset by declines in other segments, particularly Film and SKY Italia. Bottom line, the company reported net income for the quarter of $875 million as compared to a loss of $203 million reported for the fourth quarter a year ago, which primarily relates to impairment charges. This year, fourth quarter results includes pretax gains of $212 million in Other, primarily from the sale of our Bulgarian TV station, impairment and restructuring charges of $217 million and $125 million in our share of a favorable litigation settlement at BSkyB. The fourth quarter a year ago included $680 million in pretax, impairment and other charges.

Excluding the net income effect of these items, adjusted earnings per share was $0.30 this quarter as compared to a similarly adjusted $0.19 in the fourth quarter of fiscal 2009. In addition, this quarter's net income includes approximately $312 million of non-cash tax benefits related to the recognition of certain prior year’s tax credits, which contributed $0.12 to our earnings per share in the quarter.

Now I'd like to provide some comments on a few of our businesses, and let's start with the Cable Networks.

Growth in our Cable Network segment continues to drive overall company results with fourth quarter operating income contributions up 31% on 15% higher revenues reflecting the strength of FOX News, the RSNs and our International Cable businesses. The primary drivers behind the year-over-year increases in the quarter were from the FOX News Channel and the RSNs, where their strong market positions led to ad revenue increasing by over 20% versus the fourth quarter a year ago, and affiliate fees continued their strong growth. Keep in mind that at this point, we’ve renegotiated all the original FOX News carriage deals with major cable and satellite distributors. Scheduled renewals will begin again at the end of this calendar year.

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