Twenty-First Century Fox 2002 Annual Report Download - page 10

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year took its toll. The poor advertising climate
affected several of our businesses as we worked
hard to retain our leadership positions in extremely
competitive markets.
This battle was hard-fought at our newspaper
operations, whose famous mastheads and loyal
readerships make us the world’s leading English-
language publisher. In the U.K., the solid market
leadership of our papers enabled the majority of
them to increase circulation revenues year-over-year;
yet these gains were counteracted by ad revenue
declines. In Australia, our papers’ circulation revenues
also rose; but the downturn in national advertising,
as well as higher newsprint costs, more than offset
those increased revenues. Overall, operating income
at the newspapers fell 12 percent from a year
ago, kept from a steeper decline by our effective
cost-cutting efforts.
The weakened ad market also forced us, in
our second quarter, to substantially write down
the value of our U.S. sports contracts with the
National Football League, Major League Baseball
and NASCAR auto racing. These contracts were
signed in a far more robust economy and advertis-
ing climate, and we had no choice but to take
the write-down to reflect the reduced value of
these contracts.
As we have grown over the past five decades
to a company with more than US$40 billion in
assets, we have had to be entrepreneurial – and
in that process we have had our setbacks. Two
of them came this year.
In February 2002, we wrote down the value
of News Corporation’s investment in Germany’s
KirchMedia just as BSkyB wrote down its investment
in KirchPayTV. Although we believed in the potential
of the German market, and safeguarded that belief
with an option to put BSkyB’s stake back to Kirch,
a series of ill-fated investments on their part – as
well as the decline of their business in an unforgiving
economy – led Kirch to declare bankruptcy in May
and rendered BSkyB’s put option virtually worthless.
We also had to write down the book value of
our investment in Gemstar-TV Guide International
due to Gemstar’s diminished share price. Although
this obviously came as a great disappointment, it
represents no change in our fundamental belief in
the future growth of this asset.
These were difficult but necessary decisions
in a year of difficult operating conditions –
and ultimately, for News Corporation,
a year of real success. As a result of the positive
momentum at nearly all our key businesses, our
Company’s balance sheet is exceptionally strong.
The sale, in October 2001, of our 49.5 percent
stake in Fox Family Worldwide for US$1.7 billion
added US$1.3 billion to our cash reserves. Moreover,
our increased free cash flow for the full year, which
rose to US$1.5 billion, enabled us to pay down debt
while providing us with great stability and flexibility
going forward. This fiscal strength will be all the
more advantageous should our advertising markets,
which have demonstrated a significant improvement
over the past several weeks, continue their return
to health.
Yet more than our balance sheet was bolstered
during the past year: indeed, our Company itself
is operating at full strength and to the best of our
integrated abilities. The span of our international
operations would not be nearly as valuable if it
weren’t for our ability to work together, combining
the strengths of assets across diverse media indus-
tries and the talents of employees across the world.
The people of News Corporation – the creators
and managers of our properties, the staff who
improve our businesses daily and the shareholders
whose support and vision we work to reward –
are certainly our most valuable assets in every
country, every economy and every year. In the past
year those people were united by shared challenges
and shared principles; it is the result of their
hard work that our Company now stands so well-
positioned for future success.
As a result of the positive momentum at nearly all our key businesses,
our Company's balance sheet is exceptionally strong.