News Corporation F2Q06 (Qtr Ending Dec 31, 2005) Earnings Conference Call Transcript (NWS)

News Corporation Q2 2006 Earnings Conference Call Transcript (NWS)
February 8, 2006

Executives:
K. Rupert Murdoch, Chairman and Chief Operating Officer News Corporation
Peter Chernin, President and Chief Operating Officer, News Corporation
David DeVoe, Senior Executive Vice President, Chief Financial Officer
Gary Ginsberg, Executive Vice President, Investor Relations & Corporate Communications

Analysts:
Spencer Wang, JP Morgan.
Douglas Shapiro, Bank of America Securities.
Doug Mitchelson, Deutsche Bank Securities.
Michael Nathanson, Sanford Bernstein.
Aryeh Bourkoff, UBS.
Jessica Reif Cohen, Merrill Lynch.
Richard Greenfield, Polly Research.
Vijay Javant, Lehman Brothers.
Anthony Noto, Goldman Sachs.
David Roberts, Goldman Sachs.
Alan Gould, Natexis Bleichroeder.
George Coleman, Citigroup.
Jason Helfstein, CIBC World Markets.
Jolanta Masojada, Credit Suisse First Boston.
Alex Pollak ,Macquarie Bank.

Press:
Aileen Landoon, Financial Times
Seth Sutel, the Associated Press
Julia Unguine, The Wall Street Journal
Sean Ahlmer , the Australian Financial
George Thelay, the Hollywood Reporter

Operator:

Gary Ginsberg, please go ahead Sir.

Gary Ginsberg

Thank you Brad. Good afternoon everyone, thanks for joining us today. As usual within the call today are Rupert Murdoch, Chairman and CEO of News Corp., Peter Chernin, President and Chief Operating Officer and Dave DeVoe, our Chief Financial Officer. As usual we begin with the financial review of the quarter from Dave and then Rupert will follow and offer some further perspective on some of our key issues. We’ll then take your questions. And as usual I’ll take questions first from analysts and then from the press as Brad indicated. Given how late it is in the day for those of your on the East Coast, I strongly urge you to limit your questions to just one. First of all let me give you some quick legalese today’s call is of course governed by the safe harbor position on this call we’ll make statements within the meaning of the inaudible securities format of 1995. These forward looking statements involve known and unknown risks on inaudible factors including those described in our public filings with the SEC that could cause actual results that are totally different from those in the forward looking statement. And with all that, Dave, I’ll now turn the call over to you.

David DeVoe

Gary, thank you. Good afternoon. As you have seen by the results in today’s earnings release, we’re pleased with the financial performance of the company for the quarter. We reported operating income in the second quarter of $920 million and this is a 4% decline from last year’s results. However, you should note that during the quarter we recorded a $99 million charge related to expected redundancy costs in connecting with our UK printing plant project. Excluding this charge, operating profit would have been up 7%. This result was lead by the reduced operating offer as SKY Italia and continued growth at our cable and TV segments. Partially offset by reduced profits from our film group. Additionally, this quarter’s operating income was also reduced by $55 million from the combination of both stock based compensation expense and this is required under the new accounting standard and amortization expense related to the purchase of the outstanding shares of FOX last year and last quarter’s internet acquisitions. At our associated entities income of $160 million in the quarter increased $112 million above last year’s level. This is primarily the result from our share of higher DIRECTV and BSkyB earnings. Both BSkyB and DIRECTV have reported their earnings so we refer you to the earnings release for information. Other income in the second quarter was $62 million versus the net charge of $114 million in the prior year. The current year’s quarter primarily reflects the unrealized gain on the change in fair value of our exchangeable debt securities. While a comparable period a year ago reflected an $86 million unrealized loss on the same security as well as a loss on our sale of the Multi-Country platform to DIRECTV. In the quarter, our tax provision reflects the $100 million benefit from the application of the American Jobs Creation Act, which permits repatriation of certain foreign earnings at lower rates. Additionally, our minority interest charge declined by $74 million principally from last year’s purchase of the outstanding shares of the Fox Entertainment Group. As a result of these items, the corporation’s net income for the quarter of continuing operations was $694 million as compared to $386 million last year. Our related earnings per share for the quarter was 21¢ in increase from the 13¢ that was reported last year. You’ll also note that below continuing operations we recorded a $381 million gain in the quarter resulting from the sale of the Times Educational Supplement business in the United Kingdom. As required under GAAP, this gain has been reflected as a gain on disposition of discontinued operations. I would just like to turn to the statements for a little more information. The Film Entertainment segment reported second quarter operating profits of $299 million, which is $108 million below last year’s results. This reduction in earnings was in line with our expectation and principally results from particularly strong home entertainment sales last year from a group of very successful films, most notably, “Day After Tomorrow,