News Corp. Filing Concedes Hacking, Economy Concerns

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After Rupert Murdoch last week tried to reassure analysts that News Corp. would continue to prosper next year despite facing both its own scandal and what Wall Street sees as an uncertain economic outlook, the company addressed both challenges more soberly in its annual report, filed Monday.

News Corp. has been roiled in a scandal caused when its London tabloid News of the World hacked into cell phones of various people in the news. The fallout has already led to the closing of the newspaper, the arrests of several former employees and the resignation of others.

In its annual report, News Corp. acknowledges “that U.K. and U.S. regulators and governmental authorities are conducting investigations after allegations of phone hacking and inappropriate payments to police at our former publication, News of the World, and other related matters, including investigations into whether similar conduct may have occurred at the Company’s subsidiaries outside of the U.K.”

The company warns investors that “we are not able to predict the ultimate outcome or cost of the investigations. Violations of law may result in civil, administrative or criminal fines or penalties. It is also possible that these proceedings could damage our reputation and might impair our ability to conduct our business. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could affect the Company’s results of operations and financial condition. ”

At the same time, the annual report notes that the U.S. and the world are in “a period of economic uncertainty.”  As a result, the company cautions, “the pressure on the labor and retail markets and the downturn in consumer confidence weakened the economic climate in certain markets in which the Company does business and has had and may continue to have an adverse effect on the Company’s business, results of operations, financial condition and liquidity.”

If the decline in economic conditions continues, it could have an impact on the company’s businesses, according to the annual report. Specifically, it could “reduce the Company’s advertising and other revenues and negatively impact the performance of its motion pictures and home entertainment releases, television operations, newspapers, books and other consumer products. In addition, these conditions could also impair the ability of those with whom the Company does business to satisfy their obligations to the Company.”

That section of the report concludes: “Although the Company believes that its operating cash flow and current access to capital and credit markets, including the Company’s existing credit facility, will give it the ability to meet its financial needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the global capital and credit markets will not impair the Company’s liquidity or increase its cost of borrowing.”

While much of what’s put in these type of documents is boilerplate designed to protect companies from shareholder lawsuits (”see, we warned you bad stuff could happen”), this discussion of the risk News Corp. and other media companies face from the forces pummeling the stock market seems to be franker than anything expressed by top executives during two weeks of earnings calls.

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