News Corporation Reports Third Quarter Net Income of $639 Million and Total Segment Operating Income of $1.06 Billion

NEW YORK--(BUSINESS WIRE)--News Corporation (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV) today reported third quarter total segment operating income⁽¹⁾ of $1.06 billion compared with $1.25 billion reported a year ago. These results include a $125 million pre-tax charge ($80 million or $0.03 per share, net of tax) at the Company’s Integrated Marketing Services business related to the settlement of litigation. Excluding this charge, third quarter adjusted total segment operating income of $1.19 billion decreased 5% from the prior year, as significant operating income increases at the Television and Cable Network Programming segments were more than offset by decreases at the Filmed Entertainment segment, reflecting the prior year contributions from Avatar, and at the Publishing segment.

The Company reported third quarter net income of $639 million ($0.24 per share) compared with $839 million ($0.32 per share) in the third quarter a year ago. Excluding the net income effects in both periods of non-recurring items, third quarter adjusted earnings per share⁽²⁾ this year are $0.26 compared with the adjusted year-ago result of $0.29.

Commenting on the results, Chairman and Chief Executive Officer Rupert Murdoch said:

“As we anticipated, News Corporation’s third quarter financial results faced challenging comparisons when set against last year’s record Avatar contribution at our Filmed Entertainment business. However, the great response to Rio and our confidence in our upcoming releases, indicate that the difficult comparisons in this segment over the past nine months are now behind us. Looking beyond our film business, I am delighted with the continued and significant operational momentum of our channels businesses, with their market-leading positions across the globe. I’m particularly pleased that our Television segment, viewed by the market just one year ago as a challenged business, more than quadrupled its earnings contributions over the prior year quarter on the strength of the national advertising market, increased retransmission consent revenues, and the popularity of our programming. And our largest earnings generator, Cable Networks, increased earnings 25% on 13% revenue growth. I fully expect these vibrant businesses to continue driving future profit growth for News Corporation and to ensure our strength in the years ahead.”

Cable Network Programming

Cable Network Programming reported third quarter segment operating income of $735 million, a 25%, or $147 million increase over the third quarter a year ago, driven by a 13% increase in revenue. Operating income contributions from the domestic channels increased 22%, and the Company’s international cable channels grew earnings by 34%.

Affiliate revenue growth of 10% at the domestic cable channels and 21% at the international cable channels for the third quarter of fiscal 2011 primarily reflects higher rates and subscribers. The domestic increase was led by rate increases at the Regional Sports Networks, while the international increase was driven by growth in Latin America and Asia.

Advertising revenue at the domestic cable channels grew 14% in the third quarter of fiscal 2011 over the prior year period led by pricing and 20% ratings growth at the FX Network. The international cable channels’ advertising revenue grew 18% over the prior year, primarily due to improving advertising markets and higher viewership trends, led by particular strength at our STAR India channels.

Filmed Entertainment

Filmed Entertainment reported third quarter segment operating income of $248 million, compared with $497 million reported in the same period a year ago. The prior year results, representing the highest quarterly results in the Company’s history, were driven by the theatrical box office success of Avatar, which contributed more than half of last year’s quarterly operating profit. Current year third quarter film results include the theatrical performance of Black Swan (winner of the Academy Award for Best Actress) which has generated nearly $300 million of worldwide box office receipts to date, as well as launch costs for the worldwide theatrical release of Rio (which has generated over $370 million of worldwide box office receipts to date). The successful theatrical performance of Rio will be reflected in the fourth quarter film results.

Television

Television reported third quarter segment operating income of $192 million, an increase of $152 million versus the same period a year ago, led by a 23% increase in revenues. This growth reflects an increase in advertising revenue driven by higher revenue from the broadcast of National Football League playoff games and Super Bowl XLV, as well as a stronger overall national advertising market. Also contributing to this growth were increased retransmission consent revenues and lower general entertainment programming costs resulting from the absence of 24 and lower costs at American Idol.

Direct Broadcast Satellite Television

SKY Italia reported third quarter segment operating income of $17 million, compared to $35 million of operating income reported a year ago. Local currency revenue declined slightly due to lower advertising contributions. Overall costs increased slightly as lower programming costs were offset by higher subscriber acquisition costs. Increased marketing efforts resulted in the addition of approximately 45,000 net new subscribers during the quarter, bringing SKY Italia’s quarter-end subscriber base to 4.92 million, its highest subscriber base ever.

Publishing

Publishing reported third quarter segment operating income of $36 million, a $207 million decrease compared with the $243 million reported a year ago, reflecting the current year’s $125 million litigation settlement charge at the Integrated Marketing Services business. Excluding this charge, segment operating income decreased $82 million from last year’s third quarter driven by advertising revenue declines at the Australian and U.K. newspapers, the inclusion of costs related to the launch of The Daily and lower contributions from the Integrated Marketing Services business. Also contributing to the decline is the absence of earnings contributions from the Dow Jones Index business due to its disposition in March 2010.

Other

The Other segment reported a third quarter operating loss of $165 million, which is $15 million greater than the prior year. This decline was primarily due to increased losses at Myspace, stemming largely from lower advertising and search revenues partially offset by lower operating expenses.

REVIEW OF EQUITY EARNINGS (LOSSES) OF AFFILIATES’ RESULTS

Fiscal 2011 third quarter earnings from affiliates were $111 million as compared to $181 million in the same period a year ago. This decline was driven by lower contributions from BSkyB due to a gain related to the partial sale of its ITV investment in the prior year.

The Company’s share of equity earnings (losses) of affiliates is as follows:

Foreign Exchange Rates

Average foreign exchange rates used in the year-to-date profit results are as follows:

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 conference call with analysts on the third quarter results can be heard live on the Internet at 4:30 p.m. Eastern Daylight Time today. To listen to the call, visit http://www.newscorp.com.

Cautionary Statement Concerning Forward-Looking Statements

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.

NOTE 1 – ADJUSTED NET INCOME AND ADJUSTED EPS

The calculation of net income and earnings per share excluding the Litigation settlement, “Other, net”, Restructuring charges and Equity affiliate adjustments may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment. Net income and earnings per share excluding the Litigation settlement, “Other, net”, Restructuring charges and Equity affiliate adjustments are not measures of performance under generally accepted accounting principles and should not be construed as substitutes for consolidated net income and earnings per share as determined under GAAP as a measure of performance. However, management uses these measures in comparing the Company’s historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of our performance relative to prior periods and our competitors.

The Company uses net income and earnings per share excluding the Litigation settlement, “Other, net”, Restructuring charges and Equity affiliate adjustments to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period.

The following table reconciles reported net income and reported diluted earnings per share (“EPS”) to adjusted net income and adjusted diluted earnings per share.

NOTE 2 – TOTAL SEGMENT OPERATING INCOME AND SEGMENT OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the performance of operating businesses separate from non-operating factors. Total segment operating income and segment operating income before depreciation and amortization are non-GAAP measures and should be considered in addition to, not as a substitute for, net income, cash flow and other measures of financial performance reported in accordance with GAAP. In addition, these measures do not reflect cash available to fund requirements. These measures exclude items, such as impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. Segment operating income before depreciation and amortization also excludes depreciation and amortization which are also significant components in assessing the Company’s financial performance.

Management believes that total segment operating income and segment operating income before depreciation and amortization are appropriate measures for evaluating the operating performance of the Company’s business and provide investors and equity analysts a measure to analyze operating performance of the Company’s business and enterprise value against historical data and competitors’ data. Total segment operating income and segment operating income before depreciation and amortization is the primary measure used by our chief operating decision maker to evaluate the performance of and allocate resources to the Company’s business segments.

Total segment operating income does not include: Impairment and restructuring charges, Equity earnings of affiliates, Interest expense, net, Interest income, Other, net, Income tax expense and Net income attributable to noncontrolling interests.

Segment operating income before depreciation and amortization is defined as segment operating income plus depreciation and amortization and the amortization of cable distribution investments and eliminates the variable effect across all business segments of depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and, as such, it is excluded from segment operating income before depreciation and amortization.

The following table reconciles segment operating income before depreciation and amortization to income before income tax expense.