Annual Report 2007
Creating and distributing
top-quality news, sports
and entertainment around
the world.
News Corporation As of June 30, 2007
Filmed Entertainment
United States
Fox Filmed Entertainment
Twentieth Century Fox Film
Corporation
Fox 2000 Pictures
Fox Searchlight Pictures
Fox Atomic
Fox Music
Twentieth Century Fox Home
Entertainment
Twentieth Century Fox Licensing
and Merchandising
Blue Sky Studios
Twentieth Century Fox Television
Fox Television Studios
Twentieth Television
Regency Television 50%
Asia
Balaji Telefilms 26%
Latin America
Canal Fox
Television
United States
FOX Broadcasting Company
MyNetworkTV
Fox Television Stations
WNYW
WWOR
KTTV
KCOP
WFLD
WPWR
WTXF
KDFW
KDFI
WFXT
WTTG
WDCA
WAGA
New York, NY
New York, NY
Los Angeles, CA
Los Angeles, CA
Chicago, IL
Chicago, IL
Philadelphia, PA
Dallas, TX
Dallas, TX
Boston, MA
Washington, DC
Washington, DC
Atlanta, GA
2
Detroit, MI
Houston, TX
Houston, TX
Minneapolis, MN
Minneapolis, MN
Tampa Bay, FL
Phoenix, AZ
Phoenix, AZ
Cleveland, OH
Denver, CO
Orlando, FL
Orlando, FL
St. Louis, MO
Kansas City, MO
Milwaukee, WI
Salt Lake City, UT
Birmingham, AL
Memphis, TN
Greensboro, NC
Austin, TX
Baltimore, MD
Gainesville, FL
WJBK
KRIV
KTXH
KMSP
WFTC
WTVT
KSAZ
KUTP
WJW
KDVR
WRBW
WOFL
KTVI
WDAF
WITI
KSTU
WBRC
WHBQ
WGHP
KTBC
WUTB
WOGX
Asia
STAR
STAR PLUS
STAR ONE
STAR CHINESE CHANNEL
STAR WORLD
STAR UTSAV
VIJAY
XING KONG
STAR CHINESE MOVIES
STAR MOVIES
STAR GOLD
STAR NEWS 26%
STAR ANANDA 26%
STAR MAJHA 26%
CHANNEL [V]
CHANNEL [V] THAILAND 50%
ESPN STAR SPORTS 50%
PHOENIX SATELLITE TELEVISION 18%
ANTV 20%
Latin America
Cine Canal 33%
Telecine 13%
Australia and New Zealand
Premium Movie Partnership 20%
Cable Network Programming
United States
FOX News Channel
Fox Cable Networks
FX
Fox Movie Channel
Fox Regional Sports Networks
(15 owned and operated) (a)
Fox Soccer Channel
SPEED
FSN
Fox Reality
Fox College Sports
Fox International Channels
Big Ten Network 49%
Fox Sports Net Bay Area 40%
Fox Pan American Sports 38%
National Geographic Channel –
International 75%
National Geographic Channel –
Domestic 67%
National Geographic Channel –
Latin America 67%
National Geographic Channel –
Europe 25%
STATS, LLC 50%
Australia
Premier Media Group 50%
Direct Broadcast Satellite
Television
Europe
SKY Italia
Sky Sport
Sky Calcio
Sky Cinema
Sky TG 24
British Sky Broadcasting 39%
Sky News
Sky Sports
Sky Travel
Sky One
Sky Movies
United States
The DIRECTV Group 39%
Asia
TATA SKY 20%
Newspapers
United States
New York Post
Community Newspaper Group
United Kingdom
The Times
The Sunday Times
The Sun
News of the World
thelondonpaper
love it!
Australia
Approximately 145 national, metropoli-
tan, suburban, regional and Sunday
titles, including the following:
The Australian
The Weekend Australian
The Daily Telegraph
The Sunday Telegraph
Herald Sun
Sunday Herald Sun
The Courier-Mail
Sunday Mail (Brisbane)
The Advertiser
Sunday Mail (Adelaide)
The Mercury
mX
Sunday Tasmanian
The Sunday Times
Northern Territory News
Sunday Territorian
Insideout
donna hay
Vogue Australia
GQ Australia
Alpha
Fiji
The Fiji Times
Sunday Times
Papua New Guinea
Post-Courier 63%
Magazines and Inserts
United States and Canada
News America Marketing
In-Store
FSI (SmartSource Magazine)
SmartSource iGroup
News Marketing Canada
The Weekly Standard
Gemstar-TV Guide International 41%
Book Publishing
United States, Canada, Europe,
New Zealand and Australia
HarperCollins Publishers
Other
United States
Fox Mobile Entertainment
Fox Interactive Media
MySpace
IGN Entertainment
RottenTomatoes
AskMen
FoxSports.com
Scout
WhatIfSports
kSolo
Flektor
Fox.com
AmericanIdol.com
Jamba 51%
Europe
NDS 73%
Broadsystem Ventures
Convoys Group
London Property News
News Outdoor Group
News Corp Europe
News Outdoor Group
NCE Television Group
Multimedia Holdings 50%
milkround.com
Propertyfinder.com 58%
Australia and New Zealand
FOXTEL 25%
Sky Network Television Limited 44%
National Rugby League 50%
News Digital Media
Rugby Union
realestate.com.au 58%
Asia
Hathway Cable and Datacom 22%
China Network Systems
Various
(a) Fox Regional Sports Networks are all 100%
owned, except for FSN South and SportSouth,
which are each 93% owned.
The words “expect,” “estimate,” “anticipate,”
“predict,” “believe” and similar expressions and
variations thereof are intended to identify forward-
looking statements. These statements appear in
a number of places in this document and include
statements regarding the intent, belief or current
expectations of News Corporation, its Directors or
its Officers with respect to, among other things,
trends affecting the group’s financial condition or
results of operations. Readers of this document are
cautioned that any such forward-looking statements
are not guarantees of future performance and
involve risks and uncertainties. The Company
does not ordinarily make projections of its future
operating results and undertakes no obligation
to publicly update or revise any forward-looking
statements, whether as a result of new information,
future events or otherwise, except as required by law.
3
Chief Executive Officer’s Letter
A midst a string of successful years for News Corporation, 2007 stands
out. Once again, we achieved double digit growth company-wide, and
in nearly every segment. Established businesses and developing assets
alike turned in strong performances, generating momentum across the
Company. Operating income rose to yet another record – $4.45 billion, up 15 percent
– on revenues of $28.7 billion, a 13 percent gain. Income from continuing operations
grew by 22 percent to $3.4 billion, or $1.08 per share.
This was our Company’s fourth consecutive year of record results: revenues up
13 percent a year on average; operating income growth averaging 17 percent; and
average earnings per share up 37 percent. This is a performance that few – if any –
of our competitors can match over the same period.
Yet impressive as the numbers are, what set this year apart were the strategic moves
we made to better position our Company for the future. We amicably reached an
agreement with Liberty Media that, when completed, will result in the largest-ever
single buyback of News Corp. shares; we announced a review of strategic options
for several non-core assets; and after the fiscal year-end announced one of our most
important strategic acquisitions of the past twenty years – the agreement to purchase
Dow Jones & Company. When completed, these moves will give us the financial and
operational flexibility to seize opportunities as they arise.
Our Company follows a clear strategy. We provide a compelling combination of
information and entertainment for the largest audience around the globe. Few media
companies can claim to match our breadth of offerings, or our global reach. And
when we add Dow Jones to our stable of other news and information businesses, our
leadership will be even more pronounced.
In providing this content, we maintain what we believe is the ideal mixture of
established, developing, and new businesses with significant potential. This balance
serves an important purpose: it guarantees that we always have at least one
generation of assets that can be considered our growth assets.
Rupert Murdoch
Chairman and
Chief Executive Officer
Our established properties – assets like our newspapers, film studios and broadcast
television properties – maintain valuable brands and loyal audiences, while remaining
the foundation upon which we develop and expand all our activities, as well as
generating reliable cash flows to fund our new businesses. The businesses that I call our
developing operations are already delivering profits but still have room for stronger
growth as they continue to further penetrate new markets. Our third-generation assets
– our newest businesses – are just starting their growth cycles and are poised to become
the Company’s future growth drivers.
This “virtuous cycle” has served us well. We have consistently broadened our offerings,
from newspapers to feature film to free television to cable channels to books to pay-
television to many Internet offerings. And we have expanded our reach, from Australia
to the U.K., then to the U.S. to Continental Europe and to East and South Asia.
One of last year’s best examples of this formula at work was our Cable Network
Programming, a segment containing established, developing and new channels.
Nearly every asset in this segment contributed more than its fair share to the bottom
line. Among our established channels, the FOX News Channel showed strong growth
during the year. The ongoing renegotiations of the Channel’s affiliate deals, coupled
with strong advertising sales, drove record operating income and revenue growth. FX,
another of our established channels, remained a leader in basic cable entertainment,
producing double digit operating income and revenue growth. The regional sports
networks, SPEED and National Geographic, also grew briskly during the year. One
particular stand-out was our Fox International Channels, a relatively unheralded
part of our cable group that nonetheless saw its profits grow strongly this year as
it expanded its channel audience to a larger global audience. We will launch the
FOX Business Network (FBN) this October. FBN has already signed deals with three
of the nation’s largest cable operators, providing the channel on day one with more
than 30 million subscribers – the largest launch of any cable channel in history. We
are confident that FBN, under the leadership of Roger Ailes and his talented team,
will be successful.
Over the past two years, we have begun to transform our Company from a traditional
media giant into a digital juggernaut. I’m pleased to say we made substantial progress
toward achieving that goal last fiscal year. Today our Internet portfolio reaches more
N e w s C o R p o R at i o N 2007 Annual Report
than 160 million people globally. MySpace, our most popular site, now ranks first in
the U.S. in total page views and is among the top five worldwide in unique visitors.
And we are extending this success abroad, with sister sites in 17 other countries.
During the past fiscal year, MySpace turned profitable for the first time. We improved
the site’s infrastructure, broadened its offerings, and made a number of small
acquisitions through FIM to better enable us to monetize its enormous traffic. This
year, we should see the benefits of these improvements in the form of increased
revenues and profits.
Two of FIM’s key strategic acquisitions underscore News Corporation’s commitment
to transforming the media landscape. Photobucket, which commands more than
30 percent of the photo website market, is a perfect fit with MySpace, many of whose
millions of users host their pictures on the popular site. Strategic Data Corp. will
help us monetize our massive traffic across all FIM sites. Through SDC’s proprietary
technology, we are able to target ad delivery based on the massive amounts of data
our audience provides through their profiles, comments, media, and more. While
last year’s deal with Google locked in the best text-based search advertising, SDC’s
technology represents the first time any website will have the technical ability
to truly “hyper target” a brand message directly to a consumer.
Furthermore, we announced, along with our partner NBC/Universal, the creation of
the world’s premier professionally produced video website. When launched, it will
make available thousands of hours of premium video content from a dozen networks
and two film studios. With a blue-chip lineup of distribution partners, the site at
launch will reach 96 percent of all monthly U.S. Internet users. With the click of
a mouse, consumers will now have instant access to the largest library of content
ever assembled.
A mong our established businesses, our Filmed Entertainment segment
posted its fourth straight year of record revenues and profits. What clearly
distinguishes our film studio from the rest of Hollywood is the stability of
our senior management team, their consistent good judgment in choosing
films to make, and the business model they have faithfully followed that keeps costs
relatively low while minimizing risk. This past fiscal year, the segment posted record
operating income of $1.2 billion, an increase of 12 percent.
We are still very early in fiscal 2008, but not too early to claim that we should have
another very solid year in film, based largely on the success of our key summer films:
Fantastic Four: Rise of the Silver Surfer, Live Free or Die Hard, and The Simpsons Movie,
each of which are critical and financial successes. Meanwhile, Twentieth Century Fox
TV remains one of Hollywood’s most successful television producers, with hit shows
airing not only on the FOX network (such as 24 and The Simpsons) but also on rivals
like CBS (Shark), NBC (My Name Is Earl) and ABC (Boston Legal).
At the Television segment, the FOX Broadcasting Company was for the third year in
a row the most watched network among the coveted 18-49 demographic. American
Idol remained the most popular show on U.S. television, and hits like 24 and House
continued to draw huge audiences. Unfortunately, results for the Television segment
as a whole were mixed. MyNetworkTV, launched last fall in part as replacement
programming for those stations that had
been airing the now defunct UPN Network,
garnered ratings far below expectations.
We have since reworked the lineup for the
network, placing more emphasis on movies
and reality shows, lowering production costs.
At our Asian television operations, we experienced a slowing of the strong growth
recorded in previous years. We are keeping a strong focus on our businesses at STAR
and expect operating momentum to return in late fiscal 2008.
Todayour Internet portfolio reaches
more than 160 million people globally
SKY Italia achieved significant operating profit growth. This business is now a major
growth driver.
BSkyB, of which our Company owns 39 percent, added some 400,000 net subscribers,
and also two new services: residential broadband and telephony, each of which has
already attracted customers in the hundreds of thousands. The substantial costs of
bringing these services to market largely account for the decreased rates of income
and profit growth, but the business continues to thrive in a very competitive market.
Our print businesses, led by our world-famous newspapers, continued to provide
reliable cash flows. Our own newspapers remain one of the bright spots in an
otherwise troubled industry. While I share the concerns of those who fret about the
future of newspapers, I have never shared their sense of gloom. We recognize
the necessity in these times above all to ensure that our newspapers remain market
leaders – and ours most assuredly are. Investments in new color printing plants
in the U.K. are paying off, lowering costs, increasing the quality of the product and
offering new options for advertisers.
As the digital revolution accelerates, newspapers should be seen as simply one
delivery method for news organizations. Properly executed, great news brands will
expand, not contract.
N e w s C o R p o R at i o N 2007 Annual Report
In our Magazines and Inserts segment, News America Marketing had another
successful year as North America’s largest in-store consumer advertising and
promotion network. News America Marketing delivered brand messages to more
than 200 million shoppers each week last year.
Meanwhile, in Book Publishing, HarperCollins published many fine books but
had a relatively flat year for profits, with operating income slightly down from
the previous year.
We achieved significant strategic milestones in fiscal 2007. We agreed to exchange
Liberty Media’s 16.3 percent stake in News Corporation for our stake in DIRECTV,
three regional sports networks, and approximately $588 million in cash. When this
transaction is completed, which should be later this calendar year, we will have
locked in a tax free gain of roughly 50 percent generated since we acquired our
DIRECTV stake in December 2004, as well as effectively buying back approximately
16.3 percent of our own stock.
We also completed the sale of our stake in SKY Brasil for $302 million and a part
of our investment in Phoenix Satellite Television Holdings for $164 million, adding
cash to our balance sheet. In addition, we decided to sell nine of our smaller local
TV stations and announced that we would explore strategic alternatives for our
holdings in News Outdoor and support Gemstar’s decision to look at its own strategic
alternatives.
There has been an understandable focus on our planned acquisition of
The Wall Street Journal, the world’s pre-eminent business newspaper, but
Dow Jones has a plethora of prestigious brands and a range of content
that will provide us with a remarkable opportunity to take advantage of
the two most profound social and economic trends of our age, globalization and
digitization. We are at a moment in history when there is a confluence of content
and of digital delivery and of increasingly sophisticated micropayment systems,
meaning that the value of analysis and intelligence to a business user can be
far more accurately reflected in the price of that content – that trend is as true
for a businesswoman in Bangalore as it is for an investor in Idaho.
The relative success of WSJ.com in attracting paying customers is evidence that
business readers will purchase need-to-know information, but how much more
influential will Dow Jones content become, for example, if it is linked directly to our
television networks in India, Europe and elsewhere in the world? The partnership
permutations within our Company are limited only by our ambition and creativity,
with each medium able to drive traffic to other platforms and bring content of the
highest quality to ever larger audiences.
We have never made the mistake
of celebrating present success at the expense
Even as we enjoyed financial success last fiscal
year, we did not forget that we also have great
responsibilities to the communities we serve.
In May, News Corporation announced one of
our boldest moves ever when we launched our
industry-leading Global Energy Initiative. Our
aim is to engage our audiences on the issue of climate change, and to transform
the way our Company uses energy. We will get our own house in order by making
our Company carbon neutral by 2010: reducing the amount of energy we use, using
renewable resources and energy wherever possible. By reducing our energy use – in
workplaces, in the production of our content, and in the packing material for our
products, for instance – we will spend less and make our contribution to help protect
the climate.
of future performance
To News Corporation’s 53,000 employees, I close by saying thank you for your hard
work and relentless spirit of innovation. We are where we are today – atop the world
as one of the fastest growing, most exciting, and most successful media companies
– because of your efforts. And to our stockholders, I thank you for your support.
We have never made the mistake of celebrating present success at the expense
of future performance. We remain in relentless pursuit of new markets,
innovations and ideas to fuel our growth this year
and beyond.
N e w s C o R p o R at i o N 2007 Annual Report
s Shortly before the end of fiscal 2007, Twentieth
Century Fox Film released two blockbusters,
Fantastic 4: Rise of the Silver Surfer and Live Free
or Die Hard. Both movies quickly became
two of the top-grossing summer
movies.
s Night at the Museum opened in the number one slot over
the competitive Christmas weekend, eventually grossing more
than $570 million in worldwide box office.
10
Filmed Entertainment
News Corporation’s Filmed Entertainment segment
encompasses both motion picture and television series
production. It includes the legendary Twentieth Century
Fox Film studio, the industry-leading Twentieth Century
Fox Television, and our successful home entertainment
division that creates and distributes DVDs based upon
the vast Fox movie and television libraries.
Fox Filmed Entertainment Group’s movies
achieved critical acclaim, including
12 Academy Award nominations
and three wins, and exceptional
box office performances
in fiscal 2007.
what: Borat: Cultural Learnings of America for
Make Benefit Glorious Nation of Kazakhstan
where: Theaters worldwide, as well as DVD sales
and rentals
when: Opened November 3, 2006 in the U.S.
How:
By enthralling and appalling audiences,
perhaps in equal parts, and in the process
creating one of the funniest movies
in years
who: Adults only
11
s Another critical favorite, the low-budget ensemble
comedy Little Miss Sunshine, achieved $100 million in
worldwide box office and won two Oscars, including
Best Actor in a Supporting Role for Alan Arkin.
s Forest Whitaker’s portrayal of Ugandan dictator
Idi Amin in Last King of Scotland won an Oscar for Best Actor
in a Leading Role, while Notes on a Scandal earned four
Oscar and three Golden Globe nominations.
12
Twentieth Century Fox Television
s Twentieth Century Fox Television (TCFTV) scored several Emmy
Awards this past year, with wins for popular thriller 24,
including Outstanding Drama Series, Outstanding Lead Actor
in a Dramafor Kiefer Sutherland and Outstanding Directing
for a Drama Series for Jon Cassar.
s TCFTV produced other hit series,
including Bones and Prison Break for the FOX
network; My Name Is Earl for NBC; Boston Legal for ABC;
and Shark, How I Met Your Mother and The Unit for CBS.
s TCFTV remains the undisputed leader in prime time animation, with
blockbuster properties The Simpsons, Family Guy, King of the Hill and
American Dad consistently winning their time slots on FOX in young adult
demographics and fueling significant home entertainment, licensing
and merchandising extensions.
Twentieth Century Fox Home Entertainment
s Twentieth Century Fox Home Entertainment (TCFHE) continued to lead
the industry in innovative marketing and partnerships with retailers.
TCFHE partnered with the world’s biggest retailer, Wal-Mart, to track
and reduce the amount of energy used in the production, manufacture
and distribution of DVDs.
s Twentieth Century Fox Home Entertainment had an array
of successful DVD launches, including Ice Age: The Meltdown,
The Devil Wears Prada, Night at the Museum
and X-Men: The Last Stand.
13
Television
s
News Corporation’s Television segment has operations
in North America and Asia, delivering news, sports and
entertainment to hundreds of millions of viewers.
Operations in the United States include FOX Broadcasting
Company and the 35 stations in our Fox Television Stations
group. Throughout Asia, STAR network broadcasts
more than 60 channels in
10 languages, attracting
more than 100 million
viewers every day.
FOX Broadcasting Company
s FOX won its third straight broadcast season among Adults 18-49, with three of the top
five programs (American Idol-Wednesday, American Idol-Tuesday and House). FOX has been
number one on Saturday night among Adults 18-49 for nine years, the longest current
nightly win streak on any network.
11
s FOX was the only major network to increase its total number of
viewers in the 2006-2007 season. The network was first among
Teenagers for the seventh season in a row and first among
Adults 18-34 for the fifth straight season.
s American Idol ranked first among the 2006-2007 season regular
prime time programs across key demographics, including
Adults 18-49, Adults 18-34, Teenagers and Total Viewers.
s House was the only scripted series to rank
in the top five programs across three key
demographics: Adults 18-49, Adults 18-34
and Teenagers.
s Bones ratings soared after its pairing with
American Idol.
s The debut of Are You Smarter Than a 5th
Grader? was the highest-rated series launch
in eight years among Total Viewers.
s 24 was the number one program
on Monday night at 9:00pm
with Men 18-49 and
Men 25-54.
1
s The 13th season of the NFL on FOX attracted an average audience
of 16.6 million viewers, FOX Sports’ largest draw since 1995 and the
network’s biggest one-year gain ever.
1
Fox Television Stations
s Fox Television Stations (FTS) capped a strong broadcast season with
its FOX-branded stations ranking first in Adults 18-49 in FOX prime
time, beating our nearest competitor by 22 percent.
s FTS added more than 30 hours of local news programming per
week in fiscal 2007, with morning news showing particular
strength. In May 2007, the 5-9am news block beat all affiliate
competitors in all key adult demographics.
s The stations launched popular first-run programming,
including The Morning Show with Mike & Juliet, produced by
Twentieth Television, and made a significant renewal that will
keep The Tyra Banks Show on FTS through Fall 2009.
s FTS also acquired rights to House, FOX Broadcasting
Company’s critical and commercial success, for weekend
syndication in all markets beginning Fall 2008.
1
what: Kaun Banega Crorepati
where: STAR PLUS in India
when: Monday through Thursday at 9pm
How:
Who doesn’t want to be a millionaire? The
hit show gets the rapt attention of Indians
who share a dream held by people around
the world
who:
An average 18 million viewers each night,
making it one of the most popular television
shows in India
STAR
s STAR PLUS remained the number
one cable channel in India, attracting nearly
65 million viewers every week.
s In April 2007, STAR announced a joint venture with Balaji Telefilms
to launch several South Indian regional language channels that would expand
its general entertainment services beyond Hindi-speaking markets.
s STAR’s news joint venture, MCCS, launched its third news channel, Marathi-language STAR MAJHA,
which quickly established itself as the top Marathi news channel in India.
s Tata Sky, STAR’s DTH joint venture in India, launched in August 2006 and by the end of fiscal 2007
offered more than 120 channels and interactive services.
1
FOX News Channel
s In fiscal 2007, FOX News Channel (FNC)
outpaced CNN and MSNBC combined in day
and prime time viewership. In basic cable,
FNC ranked sixth in prime time viewers.
s FNC had the top five business programs in
cable news based on Total Viewers. In October
2007, the Company will launch the FOX
Business Network, a 24-hour channel that
will be available to more than 30 million
cable and satellite subscribers.
Cable Network Programming
The breadth of our Cable Network Programming
segment ensures that audiences have 24-hour access
to some of the most sophisticated, entertaining and
informative shows on television.
From our industry-leading FOX News Channel
to Emmy award-winning original drama series on
FX to the nation’s largest collection of regional sports
networks, our cable programming was a favorite
among tens of millions of viewers.
The Company’s roster of networks also includes the
National Geographic Channel, Fox Reality Channel,
Fox Movie Channel, FUEL TV, Fox Soccer Channel, Fox
Sports en Español, Fox College Sports, SPEED and the
newly launched Big Ten Network.
what: The 10th Anniversary of the FOX News Channel
where: FOX News World Headquarters in Manhattan, NY,
and broadcast to more than 90 million households
around the U.S. and in more than 90 other countries
when: October 7, 2006
How:
who:
Luminaries from the worlds of business, entertain-
ment and politics came together to celebrate
10 years of choice in cable news
An audience of nearly two million on an average
night, making FOX News the most popular cable
news channel for five straight years
s FOXNews.com and FOX News Mobile increased its number of unique users and
routinely attracted millions of viewers to video streams, proving that FNC’s audience
looks for our dynamic programming across multiple platforms.
1
what: Nip/Tuck
where: Tuesdays at 10pm
when: On FX in the U.S., and in 18 other countries
How:
You want cutting edge drama? It doesn’t
get any more provocative than Nip/Tuck,
with drama aimed squarely at adults
who:
4.8 million viewers saw the Season 4
premiere
20
FX
s General entertainment network FX had another
highly successful year, scoring its highest prime time
viewership ever in both Total Viewers and its target audience
of Adults 18-49. The most-viewed months in its history, January
and March 2007, each topped a nightly average of 800,000
Adults 18-49.
s For the third consecutive year, Emmy and Golden Globe Award-winning
Nip/Tuck was the number one ranked series on ad-supported cable, while
The Shield remained one of the most popular shows on basic cable.
Fox International Channels
s Fox’s overseas cable channels continued to grow strongly, with 80 TV
channels reaching more than 170 million subscribers around the world.
Through a combination of stronger ad sales in most regions and eight
additional channels, Fox International Channels is now the largest
multichannel group in Latin America and Italy.
SPEED
s Auto and motorcycle racing network SPEED achieved its fourth
consecutive year of rapid subscriber growth, adding 871,000 households
in May 2007 alone and more than 4 million in fiscal 2007.
Total households now top 71 million.
21
National Geographic Channel
s Our successful joint venture with the National Geographic Society
saw significant increases in ratings, viewership and ad sales.
More than 100 new advertisers chose to promote their products
on the Channel in fiscal 2007.
s National Geographic HD surpassed 6 million HD homes, making
it one of the fastest growing HD networks ever.
FUEL TV
s FUEL TV added Comcast, the largest cable operator in
the U.S., as a distribution partner, reaching 24 million
homes in fiscal 2007.
s FUEL TV had 140 advertising partners, ranging across
all of the key product categories most important to its
target audience of 13-24 year-old males.
22
what:
Sun Sports, official home of the national
championship winning Florida Gators
where: On cable and satellite systems throughout Florida
when: Season-long sports coverage of University of Florida
athletics, including Sunday morning’s Breakfast
with the Gators
How:
Providing non-stop coverage for obsessed fans
of the Gators and other local sports teams
who:
6.3 million homes hungry for coverage as the
Gators made history by winning both the NCAA
football and basketball titles in the same year
FSN
s FSN remained the leading local sports programming
network in the U.S., reaching more than 85 million households.
s Our owned-and-operated regional sports networks reached long-term rights
extensions with nearly a dozen baseball, basketball and ice hockey franchises.
s FSN-branded regional sports networks expanded local coverage throughout the U.S.
with the establishment of FSN Indiana and FSN Wisconsin, and the relaunch of
SportSouth, now the sixth-largest RSN in the country with more than 100 separate
affiliation agreements.
23
Direct Broadcast Satellite Television
News Corporation’s satellite television platforms are among the
most popular in the pay-TV industry. The Company continued
to attract new subscribers in Italy, the U.K., Australia and the
U.S. with exceptional technology,
service and programming.
what: SKY TG24 news channel
when: Non-stop since August 31, 2003
where: In the living rooms and offices of discerning
Italians who have craved an independent,
trustworthy source of television news
How:
Broadcast to 4.2 million SKY Italia subscribers
and to 7 million DTH-equipped homes in
Italy, as well as IPTV services, mobile phones
and live on the Internet
who: 1.2 million viewers daily, on average
SKY Italia
s Wholly owned SKY Italia passed the 4 million subscriber mark in fiscal
2007, gaining access to more than 12 million Italian viewers. SKY Italia
was the third largest direct broadcast satellite television group in Europe,
with the Company’s part-owned BSkyB in the number one position.
SKY Italia offers more than 100 basic and premium channels.
s SKY Italia launched the first and only high definition service in Italy and
expanded its content offerings to include both broadband and mobile
phone platforms.
2
BSkyB
s News Corporation holds approximately 39 percent of BSkyB in the
U.K. Last year, BSkyB introduced innovative products that drove record
customer demand, including Sky+, an integrated digital video recorder
that is now in more than 2 million homes.
s Direct-to-home customers increased 406,000 to more than 8.5 million
subscribers.
s BSkyB became a national player in broadband Internet and telephony
with the launch of its Sky Broadband product, which attracted more than
700,000 customers in less than a year. More than a third of all subscribers
selected more than one product.
DIRECTV
s During fiscal 2007, News Corporation agreed with Liberty Media to swap
News Corporation’s approximately 39 percent interest in DIRECTV, three
of News Corporation’s regional sports networks and $588 million in cash
(subject to adjustment) for all the shares in News Corporation held by Liberty.
The swap is expected to be completed by the end of calendar 2007.
FOXTEL
s FOXTEL is Australia’s leading subscription television provider and its
distribution network went entirely digital in fiscal 2007.
2
s The Times leads the U.K. quality market
in full-rate sales and The Sunday Times had
a 49 percent share of the quality
Sunday market.
what: www.timesonline.co.uk
where: U.K. and worldwide
when: 24/7
How:
Breaking news and analysis from the
219 year-old world-famous The Times
delivered 21st Century-style online and
by mobile telephone
who: 9.6 million unique visitors in June 2007
s Thesun.co.uk and newsoftheworld.co.uk reached more than
9 million online readers globally in June 2007. Both newspapers
launched mobile versions and, in partnership with BSkyB,
won exclusive mobile rights to show Premiere League football
highlights in the U.K.
2
Newspapers
As platforms for our world-famous newspaper brands expand into
successful online and mobile businesses, News Corporation’s more
than 50-year legacy of journalistic excellence remains constant.
We are the world’s leading publisher of English-language
newspapers, each week producing four national mastheads
in the U.K.; approximately 145 national, metropolitan and
suburban newspapers in Australia, Fiji, and Papua New Guinea;
the New York Post in the U.S.; as well as continuously updated
online versions of all our major papers.
News International
s The Sun remained the U.K.’s bestselling daily newspaper, capturing
35 percent of the daily tabloid market – more than its three “red-top”
rivals combined.
s News of the World, the U.K.’s bestselling Sunday paper, reached an average
of more than 8 million readers every Sunday.
s News International launched thelondonpaper, a free newspaper distributed
during the work week in central London.
s In February 2007, News International switched most of its power supply
to electricity generated from renewable sources – the first major newspaper
publisher to do so.
2
News Limited
s News Limited in Australia sold more than 12.9 million
papers each week.
s News Limited’s metropolitan newspapers continued
to outsell their rivals by considerable margins,
with Melbourne’s Herald Sun remaining Australia’s
bestselling weekday paper. The Herald Sun sold 328,000
more copies than its main competitor every weekday
in fiscal 2007 and the Sunday Herald Sun’s circulation
was almost three times that of its chief rival.
s Sydney’s The Daily Telegraph sold nearly 179,000 more
copies each weekday than its top competitor, with The
Sunday Telegraph, Australia’s biggest selling newspaper,
leading the competition by 167,000 copies each week.
s News Limited added 19 new community and commuter
newspapers to its ranks, including free afternoon
commuter newspaper mX, which launched in Brisbane.
s News Limited’s flagship news site, news.com.au,
experienced a 67 percent increase in online readership.
2
New York Post
s The New York Post experienced significant circulation
growth last year, becoming the fifth largest daily
newspaper in the U.S.
s The Post revamped its website, nypost.com,
increasing average unique visitors by
33 percent to 3.1 million and page views
by 75 percent to 65 million.
s News Corporation acquired three groups of local
community newspapers in the New York metropolitan
area, increasing our reach in the world’s media capital.
2
Magazines & Inserts
Connecting with consumers across multiple platforms is a key
part of News Corporation’s business. Our portfolio of consumer
promotion media and trusted magazines gives us incomparable
access to shoppers around the world.
s News America Marketing (NAM) delivers brand messages to more
than 200 million shoppers through an extensive portfolio of
products, including special interest publications and
free-standing inserts in Sunday newspapers
across the U.S. and Canada.
what: SmartSource coupon machines
when: Every time a shopper scans an aisle and sees
the blinking light of the ubiquitous red coupon
dispensers
where: More than 36,000 grocery, drug and mass-
merchandise retailers across the U.S.
How:
Making money for consumer goods companies
while saving money for shoppers. Can you say
“win-win”?
who:
178 million U.S. shoppers per year
30
s News America Marketing increased its retail network last year with new products
such as Shelfvision Video, a first of its kind at-shelf video machine that can be
found in more than 36,000 stores.
s Our leading newspaper-distributed publication, Smart Source Magazine, had
a circulation base of more than 69 million consumers in North America.
s Among magazine assets, TV Guide had an average weekly readership
of 20 million and posted strong growth in ad pages last year.
s The Weekly Standard continued its central role in the national public affairs
conversation with increased circulation and website traffic.
s News Limited became one of Australia’s largest magazine publishers in fiscal
2007, acquiring 25 key titles, including Vogue Australia and GQ Australia, that
extended our reach from 800,000 to almost 3.6 million readers.
31
what: The Dangerous Book for Boys
when: Published June 5, 2006 in the U.K. and May 1,
2007 in the U.S., hitting both The Sunday
Times and The New York Times bestsellers lists
immediately after publication
where: Online and in bookstores in 20 countries
How:
Entertaining boys - and boys at heart - with
crucial information from “Essential Gear” for
survival to “Advice About Girls”
who:
1.3 million book fans who have bought the
Dangerous Book so far
s In the U.S., HarperCollins posted an outstanding 128 titles to The New York Times
bestseller lists, including 16 that reached the number one position. Next by
Michael Crichton and The Dangerous Book for Boys by Conn Iggulden and Hal
Iggulden, as well as Oprah’s Book Club selection The Measure of a Man by Sidney
Poitier and Marley and Me by John Grogan all produced blockbuster sales.
32
Book Publishing
HarperCollins, News Corporation’s global book publishing division,
achieved impressive results across its imprints in the U.S., the U.K.,
Canada and Australasia. With several new titles each selling more
than one million copies in fiscal 2007 and a rich library of treasured
classics, HarperCollins once again showed why it is one of the
world’s leading book publishers.
s For the sixth year in a row, HarperCollins Children’s Books had the greatest
number of New York Times bestsellers of any publishing company, including
the number one children’s book of last year, A Series of Unfortunate Events,
#13: The End by Lemony Snicket, which sold more than 1.8 million copies.
s For the fourth consecutive year, Zondervan was named Supplier of the
Year by the Christian Booksellers Association. Its fastest-selling new Bible,
Inspired by…The Bible Experience, was awarded Audiobook of the Year by
the Audio Publishers Association.
s HarperCollins UK had a record-breaking 61 Sunday Times bestsellers last
year, with 14 titles reaching number one, including The Children of Hurin
by J.R.R. Tolkien and More Than a Game by John Major.
s In May 2007, HarperCollins UK announced its commitment to switch
to 100 percent renewable energy; print all of its Fourth Estate titles on
100 percent recycled paper; and become, by the end of calendar 2007,
the world’s first major carbon neutral publisher.
33
what: www.myspace.com
where: Online around the world, with localized sites in
18 countries
when: Launched in January 2004, acquired by News
Corporation in September 2005.
How:
By making social networking a social phenomenon
in the U.S. and worldwide
who:
If you have to ask, you need to become a member
– today! Join 115 million monthly users, including
more than 70 million in the U.S. who spend more
than 200 minutes each month on the site, making
new friends and keeping old ones
s In fiscal 2007, nearly one in four Americans visited
www.myspace.com each month.
3
Other
News Corporation’s Other segment contains a range of operations,
including the Company’s 73 percent-owned NDS and Fox Interactive
Media (FIM), which houses most of the Company’s U.S.-based web
properties and is ranked as the most viewed network, reaching more
than 160 million people worldwide each month.
s With a focus on monetization, FIM struck a landmark
$900 million agreement with Google in August 2006, bringing
high-powered search functionality and valuable text-based
advertising to all FIM sites.
s FIM aquired Strategic Data Corporation to enhance advertising
delivery to viewers and Flektor to offer consumer media tools
to all FIM sites.
s IGN.com was the leading games information portal on the
Internet with Males 18-34 in fiscal 2007.
s FOXSports.com continued to be a leader in the online sports
world, with time spent on the site by visitors increasing
16 percent over the prior year.
s Jamba, News Corporation’s 51 percent-owned mobile
entertainment provider, distributed content via more than
100 carriers to millions of cell phone users worldwide.
3
News Digital Media
s News Limited’s online operations in Australia were centralized under a new
group, News Digital Media, which quickly established itself as the country’s fastest
growing digital publisher. Online readers increased by 57 percent to more than
6.8 million unique visitors.
s FOXSPORTS.com.au, CareerOne.com.au, local search directory truelocal.com.au,
and CARSguide.com.au all experienced substantial gains in audience share.
NDS
s NDS, a leading supplier of pay-TV technology, enjoyed another year of growth
as dozens of pay-TV operators, with more than 75 million subscribers, depended
on NDS VideoGuard® CA and the group’s digital rights management technology
to secure branded services and digital content.
s NDS XTV Digital Video Recorder technology was used in 7.3 million set-top boxes
and was selected by 12 leading platforms worldwide in fiscal 2007.
s MediaHighway® middleware, an NDS product that extends the life of set-top
boxes, enables iTV applications and lets operators deliver consistent branding,
was deployed in more than 61 million set-top boxes by the end of fiscal 2007.
3
NEWS CORPORATION
FORM 10-K
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Selected Financial Data
The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Financial Statements and Supplementary Data” and the other financial information
included elsewhere herein.
For the years ended June 30,
Statement of Operations Data:
Revenues
Operating income
Income from continuing operations
Net income
Basic income from continuing operations per share:(4)(5)
Class A
Class B
Diluted income from continuing operations per share:(4)(5)
Class A
Class B
Basic earnings per share:(4)(5)
Class A
Class B
Diluted earnings per share:(4)(5)
Class A
Class B
Cash dividend per share:(4)(5)(6)
Class A
Class B
As of June 30,
Balance Sheet Data:
Cash and cash equivalents
Total assets
Borrowings and perpetual preference shares(7)
2007(1)
2006(1)
2005(1)
2004(2)
2003(3)
(in millions, except per share data)
$28,655
$25,327
$23,859
$20,802
$17,380
4,452
3,426
3,426
3,868
2,812
2,314
3,564
2,128
2,128
2,931
1,533
1,533
2,380
822
822
$
$
$
$
$
$
$
$
$
$
1.14
0.95
1.14
0.95
1.14
0.95
1.14
0.95
0.12
0.10
$
$
$
$
$
$
$
$
$
$
0.92
0.77
0.92
0.77
0.76
0.63
0.76
0.63
0.13
0.13
$
$
$
$
$
$
$
$
$
$
0.74
0.62
0.73
0.61
0.74
0.62
0.73
0.61
0.10
0.04
$
$
$
$
$
$
$
$
$
$
0.58
0.49
0.58
0.48
0.58
0.49
0.58
0.48
0.10
0.04
$
$
$
$
$
$
$
$
$
$
0.33
0.28
0.33
0.28
0.33
0.28
0.33
0.28
0.09
0.04
2007
2006
2005
2004
2003
(in millions)
$ 7,654
$ 5,783
$ 6,470
$ 4,051
$ 4,477
62,343
12,502
56,649
11,427
54,692
10,999
48,343
10,509
42,149
10,003
(1) See Notes 2, 3, 6 and 8 to the Consolidated Financial Statements of News Corporation for information with respect to significant
acquisitions, disposals, changes in accounting and other transactions during fiscal 2007, 2006 and 2005.
(2) Fiscal 2004 results include the sale of the Los Angeles Dodgers, Dodger Stadium and the team’s training facilities in Vero Beach,
Florida.
(3) Fiscal 2003 results include the Company’s acquisition of WPWR-TV for approximately $425 million. Fiscal 2003 results also
include the Company’s acquisition of 80% of Telepiu, S.p.A. (“Telepiu”) for approximately $874 million. Telepiu was merged
with Stream S.p.A., (“Stream”) and the combined platform was renamed SKY Italia. As a result of the acquisition, commencing
April 30, 2003, the Company ceased to equity account its share of Stream’s results.
(4) Basic and diluted earnings from continuing operations per share, basic and diluted earnings per share and cash dividend per
share reflect per share amounts based on the adjusted share amounts to reflect the November 12, 2004 one-for-two share
exchange in the reincorporation of News Corporation.
NEWS CORPORATION 2007 Annual Report
37
NEWS CORPORATION
FORM 10-K
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Selected Financial Data (continued)
(5) Class A common stock, par value $0.01 per share (“Class A Common Stock”) carry rights to a greater dividend than the
Company’s Class B common stock, par value $0.01 per share (“Class B Common Stock”) through fiscal 2007. As such, net
income available to the Company’s stockholders is allocated between the Class A Common Stock and Class B Common Stock.
The allocation between these classes of common stock was based upon the two-class method. See Notes 2 and 20 to the Con-
solidated Financial Statements of News Corporation for further discussion. Subsequent to the final fiscal 2007 dividend payment,
shares of Class A Common Stock will cease to carry any rights to a greater dividend than shares of Class B Common
Stock. Earnings per share based on the total weighted average shares outstanding (Class A Common Stock and Class B Common
Stock combined) are as follows:
For the years ended June 30,
Diluted earnings per share
2007
2006
2005(a)
2004
2003
$1.08
$0.72
$0.69
$0.54
$0.31
(a) In March 2005, the Company’s acquisition of the interest of Fox Entertainment Group, Inc. (“FEG”) that it did not already
own was completed and a total of 357 million shares of Class A Common Stock were issued as consideration.
(6) The Company’s Board of Directors (the “Board”) currently declares an interim and final dividend each fiscal year. The final divi-
dend is determined by the Board subsequent to the fiscal year end. The total dividends declared related to fiscal 2007 results
were $0.12 per share of Class A Common Stock and $0.10 per share of Class B Common Stock. The total dividends declared
related to fiscal 2006 results were $0.12 per share of Class A Common Stock and $0.10 per share of Class B Common Stock.
(7) Each fiscal year presented prior to June 30, 2005 includes $345 million of perpetual preference shares outstanding, which were
redeemed at par by the Company in November 2004.
38
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
This document contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Secu-
rities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. The
words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify
forward-looking statements. These statements appear in a number of places in this document and include statements regarding the
intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affect-
ing the Company’s financial condition or results of operations. The readers of this document are cautioned that any forward-looking
statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks,
uncertainties and other factors is set forth under the heading “Risk Factors” in Item 1A of the Annual Report on Form 10-K. The
Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims
any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company
with the Securities and Exchange Commission (the “SEC”). This section should be read together with the audited consolidated
financial statements of the Company and related notes set forth elsewhere in this Annual Report.
Reorganization
Effective November 12, 2004, the Company changed its corporate domicile from Australia to the United States and its reporting
currency from the Australian dollar to the U.S. dollar (“the Reorganization”). As a result, the Company’s accompanying consolidated
financial statements are stated in U.S. dollars as opposed to Australian dollars, which was the currency the Company previously used
to present its financial statements, and have been prepared in accordance with U.S. generally accepted accounting principles, or
GAAP.
In the Reorganization, all outstanding The News Corporation Limited (“TNCL”) ordinary shares and preferred limited voting
ordinary shares were cancelled and shares of Class A common stock, par value $0.01 per share (“Class A Common Stock”) and Class
B common stock, par value $0.01 per share (“Class B Common Stock”) were issued in exchange, respectively, on a one-for-two
share basis. The financial statements have been presented as if the one-for-two share exchange took place on July 1, 2004.
Introduction
Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding
of the Company’s financial condition, changes in financial condition and results of operations. This discussion is organized as fol-
lows:
(cid:129) Overview of the Company’s Business–This section provides a general description of the Company’s businesses, as well as
developments that have occurred either during fiscal 2007 or early fiscal 2008 that the Company believes are important in
understanding its results of operations and financial condition or to disclose known trends.
(cid:129) Results of Operations–This section provides an analysis of the Company’s results of operations for the three fiscal years ended
June 30, 2007. This analysis is presented on both a consolidated and a segment basis. In addition, a brief description is pro-
vided of significant transactions and events that have an impact on the comparability of the results being analyzed.
(cid:129) Liquidity and Capital Resources–This section provides an analysis of the Company’s cash flows for the three fiscal years ended
June 30, 2007, as well as a discussion of the Company’s outstanding debt and commitments, both firm and contingent, that
existed as of June 30, 2007. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity
available to fund the Company’s future commitments and obligations, as well as a discussion of other financing arrange-
ments.
(cid:129) Critical Accounting Policies–This section discusses accounting policies considered important to the Company’s financial con-
dition and results of operations, and which require significant judgment and estimates on the part of management in applica-
tion. In addition, Note 2 to the accompanying consolidated financial statements summarizes the Company’s significant
accounting policies, including the critical accounting policy discussion found in this section.
Overview of the Company’s Business
The Company is a diversified entertainment company, which manages and reports its businesses in eight segments:
(cid:129) Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pic-
tures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of
television programming worldwide.
(cid:129) Television, which principally consists of the operation of 35 full power broadcast television stations, including nine duopolies,
in the United States (of these stations, 25 are affiliated with the FOX network and ten are affiliated with the MyNetworkTV
network), the broadcasting of network programming in the United States and the development, production and broadcasting
of television programming in Asia.
(cid:129) Cable Network Programming, which principally consists of the licensing and production of programming distributed through
cable television systems and direct broadcast satellite (“DBS”) operators primarily in the United States.
(cid:129) Direct Broadcast Satellite Television, which principally consists of the distribution of premium programming services via satel-
lite and broadband directly to subscribers in Italy.
(cid:129) Magazines and Inserts, which principally consists of the publication of free-standing inserts, which are promotional booklets
containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the provision
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
of in-store marketing products and services, primarily to consumer packaged goods manufacturers, in the United States and
Canada.
(cid:129) Newspapers, which principally consists of the publication of four national newspapers in the United Kingdom, the publication
of approximately 145 newspapers in Australia and the publication of a mass circulation, metropolitan morning newspaper in
the United States.
(cid:129) Book Publishing, which principally consists of the publication of English language books throughout the world.
(cid:129) Other, which includes NDS Group Plc (“NDS”), a company engaged in the business of supplying open end-to-end digital
technology and services to digital pay-television platform operators and content providers; News Outdoor Group (“News
Outdoor”), an advertising business which offers display advertising primarily in outdoor locations throughout Russia and East-
ern Europe; and Fox Interactive Media (“FIM”), which operates the Company’s Internet activities.
Filmed Entertainment
The Filmed Entertainment segment derives revenue from the production and distribution of feature motion pictures and television
series. In general, motion pictures produced or acquired for distribution by the Company are exhibited in U.S. and foreign theaters,
followed by DVDs, pay-per-view television, premium subscription television, network television and basic cable and syndicated tele-
vision exploitation. Television series initially produced for the networks and first-run syndication are generally licensed to domestic
and international markets concurrently and subsequently released in seasonal DVD box sets. More successful series are later syndi-
cated in domestic markets. The length of the revenue cycle for television series will vary depending on the number of seasons a ser-
ies remains in active production and, therefore, may cause fluctuations in operating results. License fees received for television
exhibition (including international and U.S. premium television and basic cable television) are recorded as revenue in the period that
licensed films or programs are available for such exhibition, which may cause substantial fluctuations in operating results.
The revenues and operating results of the Filmed Entertainment segment are significantly affected by the timing of the Compa-
ny’s theatrical and home entertainment releases, the number of its original and returning television series that are aired by television
networks and the number of its television series in off-network syndication. Theatrical and home entertainment release dates are
determined by several factors, including timing of vacation and holiday periods and competition in the marketplace. The dis-
tribution windows for the release of motion pictures theatrically and in various home entertainment formats have been compressing
and may continue to change in the future. A reduction in timing between theatrical and home entertainment releases could
adversely affect the revenues and operating results of this segment.
The Company enters into arrangements with third parties to co-produce many of its theatrical productions. These arrange-
ments, which are referred to as co-financing arrangements, take various forms. The parties to these arrangements include studio and
non-studio entities, both domestic and foreign. In several of these agreements, other parties control certain distribution rights. The
Filmed Entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the
film, as the investor assumes full risk for that portion of the film asset acquired in these transactions. The substance of these
arrangements is that the third-party investors own an interest in the film and, therefore, receive a participation based on the third-
party investor’s interest in the profits or losses incurred on the film. Consistent with the requirements of Statement of Position 00-2,
“Accounting by Producers or Distributors of Films” (“SOP 00-2”), the estimate of the third-party investor’s interest in profits or losses
incurred on the film is determined by reference to the ratio of actual revenue earned to date in relation to total estimated ultimate
revenues.
Operating costs incurred by the Filmed Entertainment segment include: exploitation costs, primarily theatrical prints and adver-
tising and home entertainment marketing and manufacturing costs; amortization of capitalized production, overhead and interest
costs; and participations and talent residuals. Selling, general and administrative expenses include salaries, employee benefits, rent
and other routine overhead.
The Company competes with other major studios, such as Disney, Paramount, Sony, Universal, Warner Bros., and independent
film producers in the production and distribution of motion pictures and DVDs. As a producer and distributor of television
programming, the Company competes with studios, television production groups and independent producers and syndicators, such
as Disney, Sony, NBC Universal, Warner Bros. and Paramount Television, to sell programming both domestically and internationally.
The Company also competes to obtain creative talent and story properties which are essential to the success of the Company’s
filmed entertainment businesses.
Television and Cable Network Programming
The Company’s U.S. television operations primarily consist of the FOX Broadcasting Company (“FOX”), MyNetworkTV, Inc.
(“MyNetworkTV”) and the 35 television stations owned by the Company. The Company’s international television operations consist
primarily of STAR Group Limited (“STAR”).
The U.S. television broadcast environment is highly competitive and the primary methods of competition are the development
and acquisition of popular programming. Program success is measured by ratings, which are an indication of market acceptance,
with the top rated programs commanding the highest advertising prices. FOX and MyNetworkTV compete for audience, advertising
revenues and programming with other broadcast networks, such as CBS, ABC, NBC and The CW, independent television stations,
cable program services, as well as other media, including DBS services, DVDs, video games, print and the Internet. In addition, FOX
and MyNetworkTV compete with the other broadcast networks to secure affiliations with independently owned television stations in
markets across the country.
40
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The television stations owned by the Company compete for programming, audiences and advertising revenues with other tele-
vision stations and cable networks in their respective coverage areas and, in some cases, with respect to programming, with other
station groups, and in the case of advertising revenues, with other local and national media. The competitive position of the tele-
vision stations owned by the Company is largely influenced by the strength of FOX and MyNetworkTV, and, in particular, the prime-
time viewership of the respective network, as well as the quality of the syndicated programs and local news programs in time
periods not programmed by FOX and MyNetworkTV.
In Asia, STAR’s channels are primarily distributed to local cable operators or other pay-television platform operators for dis-
tribution to their subscribers. STAR derives its revenue from the sale of advertising time and affiliate fees from these pay-television
platform operators.
The Company’s U.S. cable network operations primarily consist of the Fox News Channel (“Fox News”), the FX Network (“FX”)
and the Regional Sports Networks (“RSNs”). The Company’s international cable networks consist of the Fox International Channels
(“FIC”) with operations primarily in Latin America and Europe.
Generally, the Company’s cable networks, which target various demographics, derive a majority of their revenues from monthly
affiliate fees received from cable television systems and DBS operators based on the number of its subscribers. Affiliate fee revenues
are net of the amortization of cable distribution investments (capitalized fees paid to a cable operator or DBS operator to facilitate
the launch of a cable network). The Company defers the cable distribution investments and amortizes the amounts on a straight-line
basis over the contract period. Cable television and DBS are currently the predominant means of distribution of the Company’s
program services in the United States. Internationally, distribution technology varies region by region.
The Company’s cable networks compete for carriage on cable television systems, DBS systems and other distribution systems
with other program services, as well as other uses of bandwidth, such as retransmission of free over-the-air broadcast networks, tel-
ephony and data transmission. A primary focus of competition is for distribution of the Company’s cable network channels that are
not already distributed by particular cable television or DBS systems. For such program services, distributors make decisions on the
use of bandwidth based on various considerations, including amounts paid by programmers for launches, subscription fees payable
by distributors and appeal to the distributors’ subscribers.
The most significant operating expenses of the Television segment and the Cable Network Programming segment are the
acquisition and production expenses related to programming and the production and technical expenses related to operating the
technical facilities of the broadcaster or cable network. Other expenses include promotional expenses related to improving the
market visibility and awareness of the broadcaster or cable network and its programming. Additional expenses include sales
commissions paid to the in-house advertising sales force, as well as salaries, employee benefits, rent and other routine overhead
expenses.
The Company has several multi-year sports rights agreements, including contracts with the National Football League (“NFL”)
through fiscal 2012, contracts with the National Association of Stock Car Auto Racing (“NASCAR”) for certain races and exclusive
rights for certain ancillary content through calendar year 2014, a contract with Major League Baseball (“MLB”) through calendar
year 2013 and a contract for the Bowl Championship Series (“BCS”) through fiscal year 2010. These contracts provide the Company
with the broadcast rights to certain national sporting events during their respective terms. The costs of these sports contracts are
charged to expense based on the ratio of each period’s operating profit to estimated total operating profit for the remaining term of
the contract.
The profitability of these long-term national sports contracts is based on the Company’s best estimates at June 30, 2007 of
directly attributable revenues and costs; such estimates may change in the future and such changes may be significant. Should
revenues decline from estimates applied at June 30, 2007, a loss may be recorded. Should revenues improve as compared to esti-
mated revenues, the Company may have an improved operating profit related to the contract, which may be recognized over the
estimated remaining contract term.
While the Company seeks to ensure compliance with federal indecency laws and related Federal Communications Commission
(“FCC”) regulations, the definition of “indecency” is subject to interpretation and there can be no assurance that the Company will
not broadcast programming that is ultimately determined by the FCC to violate the prohibition against indecency. Such program-
ming could subject the Company to regulatory review or investigation, fines, adverse publicity or other sanctions, including the loss
of station licenses.
Direct Broadcast Satellite Television
The DBS segment’s operations consist of SKY Italia, which provides basic and premium programming services via satellite and broad-
band directly to subscribers in Italy. SKY Italia derives revenues principally from subscriber fees. The Company believes that the qual-
ity and variety of video, audio and interactive programming, quality of picture, access to service, customer service and price are the
key elements for gaining and maintaining market share. SKY Italia’s competition includes companies that offer video, audio, inter-
active programming, telephony, data and other information and entertainment services, including broadband Internet providers,
digital terrestrial transmission (“DTT”) services, wireless companies and companies that are developing new media technologies.
In fiscal 2005, competitive DTT services in Italy expanded to include pay-per-view offering of soccer games previously available
exclusively on the SKY Italia platform. The Company is currently prohibited from providing a pay DTT service under regulations of
the European Commission. In addition, the Italian government previously offered a subsidy on the purchase of DTT decoders.
SKY Italia’s most significant operating expenses are those related to the acquisition of entertainment, movie and sports
programming and subscribers and the production and technical expenses related to operating the technical facilities. Operating
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
expenses related to sports programming are generally recognized over the course of the related sport season, which may cause fluc-
tuations in the operating results of this segment.
Magazines and Inserts
The Magazine and Inserts segment derives revenues from the sale of advertising space in free-standing inserts, in-store marketing
products and services, promotional advertising, subscriptions and production fees. Adverse changes in general market conditions for
advertising may affect revenues. Operating expenses for the Magazine and Inserts segment include paper costs, promotional, print-
ing, retail commissions, distribution expenses and production costs. Selling, general and administrative expenses include salaries,
employee benefits, rent and other routine overhead.
Newspapers
The Newspapers segment derives revenues from the sale of advertising space and the sale of published newspapers. Adverse
changes in general market conditions for advertising may affect revenues. Circulation revenues can be greatly affected by changes in
competitors’ cover prices and by promotion activities. Operating expenses for the Newspapers segment include costs related to
newsprint, ink, printing costs and editorial content. Selling, general and administrative expenses include salaries, employee benefits,
rent and other routine overhead.
The Newspapers segment’s advertising volume, circulation and the price of newsprint are the key uncertainties whose fluctua-
tions can have a material effect on the Company’s operating results and cash flow. The Company has to anticipate the level of
advertising volume, circulation and newsprint prices in managing its businesses to maximize operating profit during expanding and
contracting economic cycles. Newsprint is a basic commodity and its price is sensitive to the balance of supply and demand. The
Company’s costs and expenses are affected by the cyclical increases and decreases in the price of newsprint. The newspapers pub-
lished by the Company compete for readership and advertising with local and national newspapers and also compete with tele-
vision, radio, Internet and other media alternatives in their respective locales. Competition for newspaper circulation is based on the
news and editorial content of the newspaper, service, cover price and, from time to time, various promotions. The success of the
newspapers published by the Company in competing with other newspapers and media for advertising depends upon advertisers’
judgments as to the most effective use of their advertising budgets. Competition for advertising among newspapers is based upon
circulation levels, readership levels, reader demographics, advertising rates and advertiser results. Such judgments are based on fac-
tors such as cost, availability of alternative media, circulation and quality of readership demographics.
In recent years, the newspaper industry has experienced difficulty increasing circulation volume and revenues. This is due to,
among other factors, increased competition from new media formats and sources, and shifting preferences among some consumers
to receive all or a portion of their news from sources other than a newspaper. The Company believes that competition from new
media formats and sources and shifting consumer preferences will continue to pose challenges within the newspaper industry.
Book Publishing
The Book Publishing segment derives revenues from the sale of general and children’s books in the United States and internationally.
The revenues and operating results of the Book Publishing segment are significantly affected by the timing of the Company’s
releases and the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand
in the summer months and during the end-of-year holiday season. Each book is a separate and distinct product, and its financial
success depends upon many factors, including public acceptance.
Major new title releases represent a significant portion of the Company’s sales throughout the fiscal year. Consumer books are
generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the
Company is subject to global trends and local economic conditions.
Operating expenses for the Book Publishing segment include costs related to paper, printing, authors’ royalties, editorial, art
and design expenses. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent
and other routine overhead.
The book publishing business operates in a highly competitive market and has been affected by consolidation trends. This
market continues to change in response to technological innovations and other factors. Recent years have brought a number of
significant mergers among the leading book publishers. There have also been a number of mergers completed in the distribution
channel. The Company must compete with other publishers such as Random House, Penguin Group, Simon & Schuster and Hach-
ette Livre, for the rights to works by well-known authors and public personalities. Although the Company currently has strong posi-
tions in each of its book publishing markets, further consolidation in the industry could place the Company at a competitive
disadvantage with respect to scale and resources.
Other
NDS
NDS supplies open end-to-end digital technology and services to digital pay-television platform operators and content providers.
NDS technologies include conditional access and microprocessor security, broadcast stream management, set-top box and resi-
dential gateway middleware, electronic program guides, digital video recording technologies and interactive infrastructure and
applications. NDS provides technologies and services supporting standard definition and high definition televisions and a variety of
industry, Internet and Internet protocol standards. NDS’ software systems, consultancy and systems integration services are focused
42
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
on providing platform operators and content providers with technology to help them profit from the secure distribution of digital
information and entertainment to consumer devices which incorporate various technologies supplied by NDS.
News Outdoor
The Company sells, through its News Outdoor businesses, outdoor advertising space on various media, primarily in Russia and East-
ern Europe.
FIM
The Company sells, through its FIM division, advertising, sponsorships and subscription services on the Company’s various Internet
properties. The Company’s Internet properties include the social networking site MySpace.com, IGN.com, AmericanIdol.com,
Scout.com and Foxsports.com. The Company also has a distribution agreement with Microsoft’s MSN for Foxsports.com.
Other Business Developments
In August 2006, the Company announced that its FIM division entered into a multi-year search technology and services agreement
with Google, Inc. (“Google”), pursuant to which Google is the exclusive search and keyword-targeted advertising sales provider for
a majority of FIM’s web properties. Under the terms of the agreement, Google is obligated to make guaranteed minimum revenue
share payments to FIM of $900 million, of which the $50 million that was due was paid as of June 30, 2007. These guaranteed
minimum revenue share payments, which are based on FIM’s achievement of certain traffic and other commitments, are expected
to be made through the second quarter of calendar 2010.
On December 22, 2006, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Lib-
erty Media Corporation (“Liberty”). Under the terms of the Share Exchange Agreement, Liberty will exchange its entire interest in
the Company’s common stock (approximately 325 million shares of Class A Common Stock and 188 million shares of Class B
Common Stock) for 100% of a News Corporation subsidiary (“Splitco”), whose holdings will consist of an approximately 39% inter-
est (approximately 470 million shares) in The DIRECTV Group, Inc. (“DIRECTV”) constituting the Company’s entire interest in
DIRECTV, three of the Company’s RSNs (FSN Northwest, FSN Pittsburgh and FSN Rocky Mountain (the “Three RSNs”)) and
$588 million in cash, subject to adjustment. The transaction contemplated by the Share Exchange Agreement was approved by the
Class B common stockholders on April 3, 2007, but remains subject to customary closing conditions, including, among other things,
regulatory approvals, the receipt of a ruling from the Internal Revenue Service and the absence of a material adverse effect on Split-
co. If these conditions are satisfied, the transaction is expected to be completed in the fourth quarter of calendar 2007. The Com-
pany will enter into a non-competition agreement with DIRECTV and non-competition agreements with each of the Three RSNs, in
each case, restricting its right to compete for a period of four years with DIRECTV and the Three RSNs in the respective regions in
which such entities are operating on the date the Share Exchange Agreement is consummated.
In January 2007, the Company and VeriSign, Inc. (“VeriSign”) formed a joint venture to provide entertainment content for
mobile devices. The Company paid approximately $190 million for a controlling interest in VeriSign’s wholly-owned subsidiary,
Jamba, which was combined with certain of the Company’s Fox Mobile Entertainment assets. The results of the joint venture have
been included in the Company’s consolidated results of operations since January 2007. The Company and VeriSign have various call
and put rights related to VeriSign’s ownership interest including VeriSign’s right to put its share of the joint venture to the Company
for $150 million and $350 million, in fiscal 2010 and 2012, respectively.
In June 2007, the Company announced its plan to sell nine of its FOX-affiliated television stations. No agreement has yet been
entered into with respect to the sale of any of these stations.
In June 2007, the Company announced that it intends to explore strategic options for News Outdoor in connection with News
Outdoor’s continued development plans. The strategic options include, but are not limited to, exploring the opportunity to expand
News Outdoor’s existing shareholder group through new strategic and private equity partners. No agreement has yet been entered
into with respect to any transaction.
In July 2007, Gemstar-TV Guide International, Inc. (“Gemstar-TV Guide”) announced that its board of directors authorized
Gemstar-TV Guide and its advisors to explore strategic alternatives intended to maximize stockholder value, which may include a
sale of the company. The Company currently holds an approximate 41% interest in Gemstar-TV Guide. For more information on
Gemstar–TV Guide, please see its reports filed with the SEC.
On July 31, 2007, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Dow Jones &
Company (“Dow Jones”), pursuant to which the Company will acquire Dow Jones in a transaction valued at approximately $5.6 bil-
lion. Under the terms of the Merger Agreement, Dow Jones Stockholders will be entitled to receive $60 in cash for each share of
Dow Jones stock they own, and up to 250 holders of record and not more than 10% of the shares of Dow Jones may elect to have
their shares of Dow Jones converted into a number of units of a newly formed subsidiary of the Company (each unit of which will be
exchangeable for one share of the Company’s Class A Common Stock in accordance with the terms and conditions of such sub-
sidiary’s operating agreement). The Merger Agreement is subject to customary closing conditions, including, among other things,
adoption of the Merger Agreement by the affirmative vote of Dow Jones stockholders holding a majority of the voting power of
Dow Jones’ outstanding common stock and Class B common stock voting together, the execution of an editorial agreement, the
establishment by the Company of a special committee as contemplated under such editorial agreement and regulatory approvals.
The transaction is expected to be completed in the fourth quarter of calendar 2007. The Company believes that this acquisition will
position it as a leader in the financial news and information market and will enhance its ability to adapt to future challenges and
opportunities within the Company’s Newspapers segment and across the Company’s other related business segments.
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations
Results of Operations–Fiscal 2007 versus Fiscal 2006
The following table sets forth the Company’s operating results for fiscal 2007 as compared to fiscal 2006.
For the years ended June 30,
Revenues
Expenses:
Operating
Selling, general and administrative
Depreciation and amortization
Other operating charges
Total operating income
Interest expense, net
Equity earnings of affiliates
Other, net
Income from continuing operations before income tax expense and
minority interest in subsidiaries
Income tax expense
Minority interest in subsidiaries, net of tax
Income from continuing operations
Gain on disposition of discontinued operations, net of tax
Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax
2007
2006
Change
% Change
($ millions)
$28,655
$25,327
$3,328
13%
18,645
4,655
879
24
4,452
(524)
1,019
359
5,306
(1,814)
(66)
3,426
—
3,426
—
16,593
3,982
775
109
3,868
(545)
888
194
4,405
(1,526)
(67)
2,812
515
3,327
2,052
673
104
(85)
584
21
131
165
901
(288)
1
614
(515)
99
(1,013)
1,013
12%
17%
13%
(78)%
15%
(4)%
15%
85%
20%
19%
(1)%
22%
**
3%
**
48%
24%
Net income
$ 3,426
$ 2,314
$1,112
Diluted earnings per share from continuing operations(1)
$
1.08
$
0.87
$ 0.21
** not meaningful
(1) Represents earnings per share based on the total weighted average shares outstanding (Class A Common Stock and Class B
Common Stock combined) for the fiscal years ended June 30, 2007 and 2006. Class A Common Stock carry rights to a greater
dividend than Class B Common Stock through fiscal 2007. As such, net income available to the Company’s stockholders is allo-
cated between the Class A Common Stock and Class B Common Stock. Subsequent to the final fiscal 2007 dividend payment,
shares of Class A Common Stock will cease to carry any rights to a greater dividend than shares of Class B Common Stock. See
Note 20 to the Consolidated Financial Statements of News Corporation.
Overview–The Company’s revenues in fiscal 2007 increased 13% as compared to fiscal 2006. The increase was primarily due to
revenue increases at the Cable Network Programming, Filmed Entertainment, DBS, Newspapers, Television and Other segments.
Operating expenses for the fiscal year end June 30, 2007 increased 12% from fiscal 2006, primarily due to higher sports pro-
gramming rights at the DBS, Cable Network Programming, Television and Other segments. The increase in operating expenses was
also due to higher amortization of production and participation costs and higher home entertainment manufacturing and marketing
expenses at the Filmed Entertainment segment.
Selling, general and administrative expenses increased 17% in the fiscal year ended June 30, 2007 as compared to fiscal 2006,
primarily due to increased personnel costs, higher costs relating to Internet activities and incremental costs resulting from acquis-
itions. Depreciation and Amortization for fiscal 2007 increased 13% as compared to fiscal 2006, primarily resulting from acquisitions
and additional plant and equipment placed into service.
Operating income increased 15% for the fiscal year ending June 30, 2007 as compared to fiscal 2006, primarily due to
increased Operating income at the Cable Networks Programming, DBS, Newspapers and Filmed Entertainment segments.
During the fiscal year ended June 30, 2007, the weakening of the U.S. dollar resulted in an increase of approximately 2% in
both revenues and Operating income as compared to fiscal 2006.
Interest expense, net–Interest expense, net for the fiscal year ended June 30, 2007 decreased $21 million as compared to fiscal
2006, primarily due to an increase in interest income resulting from higher cash balances during the period. The increase in interest
44
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
income was partially offset by increased interest expense primarily due to the issuance of $1,150 million in 6.4% Senior Notes due
2035 in December 2005 and $1,000 million in 6.15% Senior Notes due 2037 in March 2007.
Equity earnings of affiliates–Net earnings from equity affiliates increased $131 million for the fiscal year ended June 30, 2007 as
compared to fiscal 2006. Fiscal 2007 reflects increased contributions from DIRECTV, resulting from subscriber growth and higher
pricing, as well as lower expenses resulting from DIRECTV’s set-top receiver lease program. These improvements were offset by the
absence of equity earnings from Innova S. de R.L. de C.V. (“Innova”) sold in February 2006 and Sky Brasil Servicos Ltda (“Sky
Brasil”) sold in August 2006 and increased costs at British Sky Broadcasting Group plc (“BSkyB”) associated with the launch of
broadband.
For the years ended June 30,
The Company’s share of equity earnings of affiliates principally consists of:
British Sky Broadcasting Group plc
The DIRECTV Group, Inc.
Other DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity earnings of affiliates
Other, net–
For the years ended June 30,
Gain on sale of Sky Brasil(a)
Gain on sale of Phoenix Satellite Television Holdings Limited(a)
Termination of participation rights agreement(b)
Gain on sale of Innova(a)
Gain on sale of China Netcom Group Corporation(a)
Change in fair value of exchangeable securities(c)
Other
Total Other, net
2007
2006
Change
% Change
($ millions)
$ 336
$369
$ (33)
489
19
98
77
246
108
68
97
243
(89)
30
(20)
$1,019
$888
$131
(9)%
99%
(82)%
44%
(21)%
15%
2007
2006
(in millions)
$ 261
$ —
136
97
—
—
(126)
(9)
—
—
206
52
(76)
12
$ 359
$194
(a) See Note 6 to the Consolidated Financial Statements of News Corporation.
(b) See Note 3 to the Consolidated Financial Statements of News Corporation.
(c) The Company has certain outstanding exchangeable debt securities which contain embedded derivatives. Pursuant to Statement
of Financial Accounting Standards (“SFAS”) SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 133”), these embedded derivatives are not designated as hedges and, as such, changes in their fair value are recog-
nized in Other, net. A significant variance in the price of the underlying stock could have a material impact on the operating
results of the Company. See Note 10 to the Consolidated Financial Statements of News Corporation.
Income tax expense–The effective tax rate for the fiscal year ended June 30, 2007 was 34% as compared to the effective tax rate for
the fiscal year ended June 30, 2006 of 35% and a statutory rate of 35%. The lower effective rate for fiscal year ended June 30, 2007
was due to the realization of deferred tax assets on which valuation allowances had previously been recorded and the resolution of
domestic and foreign income tax matters. During the fiscal year ended June 30, 2007, the occurrence of certain capital gain trans-
actions and ordinary taxable income resulted in the utilization of existing capital loss carryforwards and net operating losses on
which valuation allowances had been previously recorded.
Gain on disposition of discontinued operations, net of tax–During fiscal 2006, the Company sold its TSL Education Ltd. division
(“TSL”), which primarily included The Times Educational Supplement publication in the United Kingdom, for cash consideration of
approximately $395 million. In connection with this transaction, the Company recorded a gain of $381 million, net of tax of $0.
Also in fiscal 2006, the Company sold Sky Radio Limited (“Sky Radio”), a commercial radio station group in the Netherlands and
Germany, for cash consideration of approximately $215 million. In connection with this transaction, the Company recorded a gain
of approximately $134 million, net of tax of $0. Both of these transactions are included in gain on disposition of discontinued oper-
ations in the consolidated statement of operations for the fiscal year ended June 30, 2006.
There was no provision for income taxes related to these transactions as any tax due was offset by a release of a valuation allow-
ance that was applied to an existing deferred tax asset established for capital losses, which, because of the sale of TSL and Sky Radio,
was utilized.
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cumulative effect of accounting change, net of tax–Effective July 1, 2005, the Company adopted Emerging Issues Task Force (“EITF”)
Topic No. D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill” (“EITF D-108”). EITF D-108 requires
companies who have applied the residual value method in the valuation of acquired identifiable intangibles for purchase accounting
and impairment testing to use a direct value method. As a result of the adoption, the Company recorded a charge of $1.6 billion
($1 billion net of tax, or ($0.33) per diluted share of Class A Common Stock and ($0.28) per diluted share of Class B Common
Stock), to reduce the intangible balances attributable to its television stations’ FCC licenses. This charge has been reflected as a
cumulative effect of accounting change, net of tax in the consolidated statement of operations for the fiscal year ended June 30,
2006.
Net income–Net income increased $1,112 million for fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to
the absence of the Cumulative effect of accounting change recognized in fiscal 2006 and increases in Operating income, Equity
earnings from affiliates and Other, net. The increase in net income was partially offset by the effect of the gains on sale of TSL and
Sky Radio that were recorded during fiscal 2006, with no corresponding gains in fiscal 2007.
Segment Analysis:
The following table sets forth the Company’s revenues and operating income by segment, for fiscal 2007 as compared to fiscal
2006.
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total revenues
Operating income (loss):
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total operating income
** not meaningful
2007
2006
Change
% Change
($ millions)
$ 6,734
$ 6,199
$ 535
5,705
3,902
3,076
1,119
4,486
1,347
2,286
5,334
3,358
2,542
1,090
4,095
1,312
1,397
371
544
534
29
391
35
889
$28,655
$25,327
$3,328
$ 1,225
$ 1,092
$ 133
962
1,090
221
335
653
159
1,032
864
39
307
517
167
(193)
(150)
(70)
226
182
28
136
(8)
(43)
$ 4,452
$ 3,868
$ 584
9%
7%
16%
21%
3%
10%
3%
64%
13%
12%
(7)%
26%
**
9%
26%
(5)%
29%
15%
Filmed Entertainment (23% and 25% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, revenues at the Filmed Entertainment segment increased $535 million, or 9%, as
compared to fiscal 2006. This increase was primarily due to an increase in worldwide home entertainment, pay television and free
television revenues, partially offset by a decrease in worldwide theatrical revenues. The increase in home entertainment revenues for
fiscal 2007 was primarily due to the worldwide release of previously strong theatrical titles, primarily driven by Ice Age: The Melt-
down, Night at the Museum, X-Men: The Last Stand, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakh-
stan, The Devil Wears Prada and Eragon. Fiscal 2006 worldwide home entertainment releases included Fantastic Four, Walk the Line,
Robots, Kingdom of Heaven and Hide & Seek. Home entertainment revenues generated from the sale and distribution of film and tele-
vision titles in fiscal 2007 were 78% and 22%, respectively, of total home entertainment revenues. The increases in worldwide pay
television and free television revenues were primarily due to a stronger film lineup and more feature films available during fiscal
2007 and stronger revenues from the returning primetime series Prison Break, Family Guy and My Name Is Earl. Fiscal 2007 world-
46
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
wide theatrical revenues were driven by the worldwide release of Night at the Museum, Eragon, Borat: Cultural Learnings of America
for Make Benefit Glorious Nation of Kazakhstan, The Devil Wears Prada and Fantastic Four: Rise of the Silver Surfer. Fiscal 2006 theatrical
releases included Ice Age: The Meltdown, X-Men: The Last Stand, Fantastic Four, Walk the Line, Big Momma’s House 2 and Cheaper by
the Dozen 2.
Operating income at the Filmed Entertainment segment for the fiscal year ended 2007 increased $133 million, or 12%, as
compared to fiscal 2006. The improvement was primarily due to the revenue increases noted above, which were partially offset by
higher releasing costs and higher amortization of production and participation costs directly associated with the increase in revenues
noted above.
Television (20% and 21% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, Television segment revenues increased $371 million, or 7%, as compared to fiscal
2006. The Television segment reported a decrease in Operating income for the fiscal year ended June 30, 2007 of $70 million, or
7%, from fiscal 2006.
Revenues at the U.S. television operations increased for the fiscal year ended June 30, 2007 as compared to fiscal 2006. The
increase was primarily due to the broadcasts of the BCS and NASCAR’s Daytona 500 with no comparable events in fiscal 2006 and
higher FOX prime-time advertising revenue due to higher pricing and additional commercial inventory sold. Also contributing to the
increased advertising revenues was higher political advertising at the Company’s television stations due to the November 2006 elec-
tions. The increase in revenue was partially offset by revenue decreases at the Company-owned MyNetworkTV affiliated stations.
Operating income at the Company’s U.S. television operations for the fiscal year ended June 30, 2007 decreased from fiscal 2006.
The decrease in Operating income was a result of expenses associated with the first full year of MyNetworkTV which was launched
in September 2006, higher sports programming costs related to the BCS, Daytona 500 and the new NFL contracts, partially offset
by the increase in revenues noted above.
Revenues for the fiscal year ended June 30, 2007 at the Company’s international television operations increased over fiscal
2006. The increase was primarily due to higher advertising revenues in India and higher subscription revenues. Operating income
for the Company’s international television operations decreased for the fiscal year ended June 30, 2007 as compared to fiscal 2006,
primarily due to higher programming costs.
Cable Network Programming (13% of the Company’s consolidated revenues in fiscal 2007 and 2006)
For the fiscal year ended June 30, 2007, revenues at the Cable Network Programming segment increased $544 million, or 16%,
as compared to fiscal 2006. The increase was driven by higher net affiliate and advertising revenues at the RSNs and FIC, as well as
increased net affiliate revenues at Fox News and FX.
The RSNs’ revenues increased 12% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to advertis-
ing and net affiliate revenue increases. The increase in advertising revenues was primarily due to additional revenues from the
increased number of MLB and National Basketball Association (“NBA”) games broadcasted. The increase in net affiliate revenues was
primarily due to higher average rates per subscriber and a higher number of subscribers, including those from the acquisition of
SportSouth in May 2006.
Fox News’ revenues increased 19% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to net affili-
ate and advertising revenue increases. Net affiliate revenues increased for the fiscal year ended June 30, 2007, as a result of increases
in average rates per subscriber and lower cable distribution amortization as compared to fiscal 2006. Advertising revenues for the
fiscal year ended June 30, 2007 increased as compared to fiscal 2006 due to higher pricing and higher volume. In addition, revenue
from licensing fees contributed to the increase in fiscal 2007. As of June 30, 2007, Fox News reached approximately 92 million Niel-
sen households.
FX’s revenues increased 4% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to an increase in
net affiliate revenues. Net affiliate revenues increased as compared to fiscal 2006, primarily due to an increase in the average rate
per subscriber and in the number of subscribers. As of June 30, 2007, FX reached approximately 92 million Nielsen households.
Revenues at the Company’s international cable channels increased 65% for the fiscal year ended June 30, 2007 as compared to
fiscal 2006. The increases were due to the consolidation of NGC Network International LLC (“NGC International”) and NGC Net-
work Latin America LLC (“NGC Latin America”) beginning January 1, 2007, as well as improved advertising sales and subscriber
growth at the other FIC channels.
The Cable Network Programming segment Operating income increased $226 million, or 26%, for the fiscal year ended June 30,
2007, as compared to fiscal 2006. This improvement in Operating income was primarily driven by the revenue increases noted
above, partially offset by higher sports rights amortization mainly due to additional games, higher entertainment programming for
new shows and incremental expenses from the consolidation of NGC International and NGC Latin America.
Direct Broadcast Satellite Television (11% and 10% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, SKY Italia’s revenues increased $534 million, or 21%, as compared to fiscal 2006. This
revenue growth was primarily driven by an increase in subscribers over fiscal 2006. During fiscal 2007, SKY Italia added approx-
imately 368,000 net subscribers, which resulted in SKY Italia’s subscriber base totaling almost 4.2 million at June 30, 2007. The total
churn for the fiscal year ended June 30, 2007 was approximately 423,000 on an average subscriber base of approximately 4.0 mil-
lion, as compared to churn of approximately 314,000 subscribers on an average subscriber base of approximately 3.6 million in fis-
cal 2006. Subscriber churn for the period represents the number of SKY Italia subscribers whose service was disconnected during the
period.
NEWS CORPORATION 2007 Annual Report
47
NEWS CORPORATION
FORM 10-K
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24-Aug-2007 18:40 EST
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
SKY Italia’s average revenue per subscriber (“ARPU”) for the fiscal year ended June 30, 2007 was approximately €44 and was
consistent with that of fiscal 2006. SKY Italia calculates ARPU by dividing total subscriber-related revenues for the period by the
average subscribers for the period and dividing that amount by the number of months in the period. Subscriber-related revenues are
comprised of total subscription revenue, pay-per-view revenue and equipment rental revenue for the period. Average subscribers are
calculated for the respective periods by adding the beginning and ending subscribers for the period and dividing by two.
Subscriber acquisition costs per subscriber (“SAC”) were approximately €260 in fiscal 2007, which was consistent with that of
fiscal 2006, primarily due to an increase in commissions being offset by lower average installation costs. SAC is calculated by divid-
ing total subscriber acquisition costs for a period by the number of gross SKY Italia subscribers during the period. Subscriber acquis-
ition costs include the cost of the commissions paid to retailers and other distributors, the cost of equipment sold directly by SKY
Italia to subscribers and the costs related to installation and acquisition advertising, net of any upfront activation fee. SKY Italia
excludes the value of equipment capitalized under SKY Italia’s equipment lease program, as well as payments and the value of
returned equipment related to disconnected lease program subscribers from subscriber acquisition costs.
For the fiscal year ended June 30, 2007, Operating income at SKY Italia improved by $182 million as compared to fiscal 2006.
The improvement in fiscal 2007 was primarily due to the revenue increases noted above, partially offset by higher programming
costs due to the increased subscriber base, as well as higher sports rights amortization.
During the fiscal year ended June 30, 2007, the weakening of the U.S. dollar resulted in an increase of approximately 7% in
both revenues and Operating income as compared to fiscal 2006.
Magazines and Inserts (4% of the Company’s consolidated revenues in fiscal 2007 and 2006)
For the fiscal year ended June 30, 2007, revenues at the Magazines and Inserts segment increased $29 million, or 3%, as com-
pared to fiscal 2006. The increase in revenues primarily resulted from an increase in volume of in-store marketing and free-standing
insert products, partially offset by lower rates for these products.
Operating income for the fiscal year ended June 30, 2007 increased $28 million, or 9%, as compared to fiscal 2006. The
increase was primarily due to the revenue increases noted above, as well as lower printing costs.
Newspapers (16% of the Company’s consolidated revenues in fiscal years 2007 and 2006)
For the fiscal year ended June 30, 2007, revenues at the Newspaper segment increased $391 million, or 10%, as compared to
fiscal 2006. Operating income increased $136 million, or 26%, for the fiscal year ended June 30, 2007 as compared to fiscal 2006.
The weakening of the U.S. dollar resulted in increases of approximately 7% in both revenues and Operating income for the fiscal
year ended June 30, 2007 as compared to fiscal 2006.
For the fiscal year ended June 30, 2007, U.K. newspapers’ revenues increased 9% as compared to fiscal 2006, primarily due to
favorable foreign exchange movements and higher Internet revenues which were partially offset by lower circulation and advertising
revenues. Operating income increased for the fiscal year ended June 30, 2007, as compared to fiscal 2006, primarily due to a higher
redundancy provision in fiscal 2006. During the fiscal year ended June 30, 2006, the Company recorded a redundancy provision of
approximately $109 million as compared with a $24 million provision recorded during fiscal 2007. The increase in Operating
income was also a result of lower production costs due to decreased circulation and lower promotional costs, partially offset by
higher operating costs associated with the launch of a free London newspaper, increased investment in Internet businesses and
higher newsprint costs.
For the fiscal year ended June 30, 2007, Australian newspapers’ revenues increased 10% as compared to fiscal 2006, primarily
due to favorable foreign exchange movements, an increase in advertising revenues and incremental revenue from the acquisition of
the Federal Publishing Company’s group of companies in April 2007. Operating income increased 3% as compared to fiscal 2006,
primarily due to the impact of favorable exchange rate movements, partially offset by higher employee and newsprint costs.
Book Publishing (5% of the Company’s consolidated revenues in fiscal years 2007 and 2006)
For the fiscal year ended June 30, 2007, revenues at the Book Publishing segment increased by $35 million, or 3%, from fiscal
2006, primarily due to strong sales on key titles, including The Dangerous Book For Boys by Conn and Hal Iggulden, The Reagan Dia-
ries by Ronald Reagan, The Children of Hurin by J.R.R. Tolkien and The Measure of a Man by Sidney Poitier, partially offset by lower
revenues from the successful children’s title The Chronicles of Narnia by C.S. Lewis in the corresponding period of fiscal 2006. During
the fiscal year ended June 30, 2007, HarperCollins had 128 titles on The New York Times Bestseller lists with 16 titles reaching the
number one position.
Operating income for the fiscal year ended June 30, 2007 decreased $8 million, or 5%, as compared to fiscal 2006. The
decrease was primarily due to lower sales of the highly profitable The Chronicles of Narnia which were included in fiscal 2006.
Other (8% and 6% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, revenues at the Other operating segment increased $889 million, or 64%, as compared
to fiscal 2006. The increase was primarily driven by an increase in the number of active users and higher advertising revenues from
FIM’s Internet sites. The revenue increase was also driven by incremental revenues from acquisitions by FIM in October 2005 and
from the Jamba joint venture which was formed in January 2007. Also contributing to the revenue increase was Global Cricket
Corporation’s sale of the broadcast and sponsorship rights of the International Cricket Council (“ICC”) Cricket World Cup with no
comparable event in fiscal 2006.
48
NEWS CORPORATION
FORM 10-K
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27-Aug-2007 20:46 EST
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Operating results for the fiscal year ended June 30, 2007, decreased $43 million as compared to fiscal 2006, primarily due to a
loss on the ICC Cricket World Cup which can be attributable to a shortfall in advertising and sponsorship revenue. This under-
performance was due to the early elimination of two of the more popular teams from the competition, which resulted in matches
among less well-known teams, significantly reducing the Company’s advertising and sponsorship revenues. Also contributing to the
decrease was higher employee costs and higher costs related to Internet initiatives. The decrease in operating results was partially
offset by improved Operating income at FIM, primarily due to the revenue increases noted above.
Results of Operations–Fiscal 2006 versus Fiscal 2005
The following table sets forth the Company’s operating results for fiscal 2006 as compared to fiscal 2005.
For the years ended June 30,
Revenues
Expenses:
Operating
Selling, general and administrative
Depreciation and amortization
Other operating charges
Total operating income
Interest expense, net
Equity earnings of affiliates
Other, net
Income from continuing operations before income tax expense and
minority interest in subsidiaries
Income tax expense
Minority interest in subsidiaries, net of tax
Income from continuing operations
Gain on disposition of discontinued operations, net of tax
Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax
2006
2005
Change
% Change
($ millions)
$25,327
$23,859
$ 1,468
6%
16,593
3,982
775
109
15,901
3,697
648
49
3,868
3,564
(545)
888
194
4,405
(1,526)
(67)
2,812
515
3,327
(1,013)
(536)
355
178
3,561
(1,220)
(213)
2,128
—
2,128
—
692
285
127
60
304
(9)
533
16
844
(306)
146
684
515
1,199
(1,013)
4%
8%
20%
**
9%
2%
**
9%
24%
25%
(69)%
32%
**
56%
**
9%
26%
Net income
$ 2,314
$ 2,128
$
186
Diluted earnings per share from continuing operations(1)
$
0.87
$
0.69
$ 0.18
** not meaningful
(1) Represents earnings per share based on the total weighted average shares outstanding (Class A Common Stock and Class B
Common Stock combined) for the fiscal years ended June 30, 2006 and 2005. Class A Common Stock carry rights to a greater
dividend than Class B Common Stock through fiscal 2007. As such, net income available to the Company’s stockholders is allo-
cated between the Class A Common Stock and Class B Common Stock. See Note 20 to the Consolidated Financial Statements of
News Corporation.
Overview–The Company’s revenues in fiscal 2006 increased 6% as compared to fiscal 2005. The increase was primarily due to rev-
enue increases at the Cable Network Programming, Filmed Entertainment, DBS and Other segments.
Operating expenses for the fiscal year ended June 30, 2006 increased approximately 4% from fiscal 2005, primarily due to
increased expenses at the Cable Network Programming segment and acquisitions made by the Newspaper segment and FIM during
fiscal 2005 and 2006. The increased operating expenses at the Cable Network Programming segment were due to the acquisition in
April 2005 of the Florida and Ohio RSNs and Fox Sports Net, a national sports program service, and higher programming costs at
the remaining RSNs and the FX. In addition, operating results include the consolidation of Queensland Press Pty Ltd (“QPL”), which
was acquired in November 2004, within the Newspapers segment and the impact of the Internet businesses acquired by the Com-
pany in fiscal 2006, collectively referred to as the “FIM acquisitions.” These increases were partially offset by reduced operating
expenses at the Filmed Entertainment and Television segments. The operating expense reduction at the Filmed Entertainment
segment was due to reduced amortization of production and participation costs. The decrease in operating expenses at the Tele-
vision segment was mainly due to the absence of programming costs for the NFL’s Super Bowl and NASCAR’s Daytona 500 that
were broadcast in fiscal 2005.
NEWS CORPORATION 2007 Annual Report
49
NEWS CORPORATION
FORM 10-K
RR Donnelley ProFile
NYMFBUAC152165
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28-Aug-2007 17:08 EST
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Selling, general and administrative expenses increased approximately 8% for the fiscal year ended June 30, 2006 from fiscal
2005, primarily due to the consolidation of the Florida and Ohio RSNs, Fox Sports Net and QPL. In addition, the impact of acquis-
itions at FIM also contributed to the increase in selling, general and administrative expenses during the fiscal year ended June 30,
2006. Depreciation and amortization expense increased approximately 20% during the fiscal year ended June 30, 2006, when
compared to fiscal 2005, primarily due to the amortization of intangible assets acquired on the purchase of the minority interest in
the FEG in March 2005, as well as incremental expenses resulting from the FIM acquisitions. Accelerated depreciation recognized on
printing plant assets in the United Kingdom also contributed to the increase.
During the fiscal year ended June 30, 2006, Operating income increased 9% from fiscal 2005, primarily due to the revenue
increases noted above. The Operating income increase was offset by a $109 million redundancy provision recorded as an other
operating charge during fiscal 2006. The redundancy provision, recorded at the Newspapers segment, was related to certain U.K.
employees as a result of the Company committing to a reduction in workforce, associated with the development of new printing
plants in the United Kingdom.
Interest expense, net–Interest expense, net increased $9 million for the fiscal year ended June 30, 2006 as compared to fiscal 2005.
This increase is primarily due to interest on the Company’s issuance of $1.0 billion in 6.2% Senior Notes due 2034 and $750 million
in 5.3% Senior Notes due 2014 in December 2004 and $1.15 billion in 6.4% Senior Notes due 2035 in December 2005. The
increase in interest expense was partially offset by higher interest income.
Equity earnings of affiliates–Net earnings from affiliates for the fiscal year ended June 30, 2006 increased $533 million as compared
to fiscal 2005. The improvement for fiscal 2006 was due to an increased contribution from DIRECTV on subscriber growth and
increased pricing. DIRECTV’s results also reflect lower expenses associated with a new set-top receiver lease program, as well as the
absence of charges recognized in fiscal 2005 related to the SPACEWAY program and PanAmSat.
For the years ended June 30,
The Company’s share of equity earnings of affiliates principally consists of:
British Sky Broadcasting Group plc
The DIRECTV Group, Inc.
Other DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity earnings of affiliates
** not meaningful
Other, net–
For the years ended June 30,
Loss on sale of Regional Programming Partners(a)
Gain on sale of Innova(b)
Gain on sale of China Netcom Group Corporation(b)
Loss on sale of Sky Multi-Country Partners(b)
Gain on sale of Rogers Sportsnet(b)
Change in fair value of exchangeable securities(c)
Other
Total Other, net
2006
2005
Change
% Change
($ millions)
$369
$ 374
246
108
68
97
(186)
81
46
40
$ (5)
432
27
22
57
$888
$ 355
$533
(1)%
**
33%
48%
**
**
2006
2005
(in millions)
$ —
$ (85)
206
52
—
—
(76)
12
—
—
(55)
39
246
33
$194
$178
(a) See Note 3 to the Consolidated Financial Statements of News Corporation.
(b) See Note 6 to the Consolidated Financial Statements of News Corporation.
(c) The Company has certain outstanding exchangeable debt securities which contain embedded derivatives. Pursuant to SFAS
No. 133, these embedded derivatives are not designated as hedges and, as such, changes in their fair value are recognized in
Other, net. A significant variance in the price of the underlying stock could have a material impact on the operating results of
the Company. See Note 10 to the Consolidated Financial Statements of News Corporation.
50
NEWS CORPORATION
FORM 10-K
RR Donnelley ProFile
NYMFBUAC152165
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Income tax expense–The effective tax rate for the fiscal year ended June 30, 2006 was 35%. The effective tax rate for fiscal 2006
reflects the positive impact of the Company’s application of the American Jobs Creation Act of 2004 (“AJCA”). The Company
reflected a tax benefit of approximately $126 million in the fiscal year ended June 30, 2006, primarily resulting from the reduction
of prior deferred tax accruals relating to the repatriation of foreign earnings at the lower rate of 5.25% under the AJCA.
The effective tax rate for fiscal 2006 was slightly higher than the effective tax rate for fiscal 2005 of 34%, primarily due to the
impact of the resolution of foreign income tax audits in fiscal 2005, offset by the impact of the AJCA noted above.
Minority interest in subsidiaries, net of tax–Minority interest expense improved by $146 million for the fiscal year ended June 30,
2006 as compared to the fiscal year ended June 30, 2005. The improvement was primarily due to the acquisition of minority shares
of FEG in fiscal 2005.
Gain on disposition of discontinued operations, net of tax–In October 2005, the Company sold TSL for cash consideration of approx-
imately $395 million and recorded a gain on disposition of discontinued operations of approximately $381 million. In April 2006,
the Company sold Sky Radio for cash consideration of approximately $215 million and recorded a gain on disposition of dis-
continued operations of approximately $134 million. (See Results of Operations—Fiscal 2007 versus Fiscal 2006 for further
information on Gain on disposition of discontinued operations, net of tax)
Cumulative effect of accounting change, net of tax–Effective July 1, 2005, the Company adopted EITF D-108. As a result of this
adoption, the Company recorded a charge of $1.6 billion ($1 billion net of tax) to reduce the intangible balances attributable to its
television stations’ FCC licenses. (See Results of Operations—Fiscal 2007 versus Fiscal 2006 for further information on Cumulative
effect of accounting change, net of tax)
Net income–Net income increased $186 million for the fiscal year ended June 30, 2006 as compared to fiscal 2005. The increase was
primarily due to increases in Operating income, Equity earnings from affiliates, Other income, the Gain on the disposition of dis-
continued operations, as well as lower minority interest expense, partially offset by the Cumulative effect of accounting change.
Segment Analysis:
The following table sets forth the Company’s revenues and operating income by segment, for fiscal 2006 as compared to fiscal
2005.
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total revenues
Operating income (loss):
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
2006
2005
Change
% Change
($ millions)
$ 6,199
$ 5,919
$ 280
5,334
3,358
2,542
1,090
4,095
1,312
1,397
5,338
2,688
2,313
1,068
4,083
1,327
1,123
(4)
670
229
22
12
(15)
274
$25,327
$23,859
$1,468
$ 1,092
$ 1,058
$
1,032
864
39
307
517
167
952
702
(173)
298
740
164
(150)
(177)
34
80
162
212
9
(223)
3
27
5%
—
25%
10%
2%
—
(1)%
24%
6%
3%
8%
23%
**
3%
(30)%
2%
(15)%
9%
Total operating income
$ 3,868
$ 3,564
$ 304
** not meaningful
NEWS CORPORATION 2007 Annual Report
51
NEWS CORPORATION
FORM 10-K
RR Donnelley ProFile
CHMPRFRS5
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24-Aug-2007 18:41 EST
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Filmed Entertainment (25% of the Company’s consolidated revenues in fiscal 2006 and 2005)
For the fiscal year ended June 30, 2006, revenues at the Filmed Entertainment segment increased $280 million, or 5%, as
compared to fiscal 2005. This increase was primarily due to an increase in worldwide theatrical, pay television and free television
revenues, partially offset by a decrease in worldwide home entertainment revenues. Theatrical revenues increased primarily due to
improved performance and an increase in the number of releases, driven by successful titles including Ice Age: The Meltdown, X-Men:
The Last Stand, Fantastic Four, Walk the Line, Big Momma’s House 2 and Cheaper by the Dozen 2. Fiscal 2005 theatrical releases
included I, Robot, Alien vs. Predator, Robots, Hide & Seek and Sideways. The increases in worldwide pay television and free television
revenues were primarily due to a stronger film lineup, more feature films available during fiscal 2006 and stronger revenues from the
returning primetime series 24 and new primetime series Prison Break and My Name Is Earl. Fiscal 2006 worldwide home entertain-
ment revenues were driven by the worldwide release of Fantastic Four, Walk the Line, Robots, Kingdom of Heaven and Hide & Seek.
Fiscal 2005 included the worldwide home entertainment release of The Day After Tomorrow, I, Robot, Alien vs. Predator, Garfield,
Dodgeball, Man on Fire, Napoleon Dynamite, the Star Wars Trilogy and the distribution fees earned for The Passion of the Christ. The
film home entertainment decreases were slightly offset by home entertainment revenue from television titles, including Family Guy
and 24. Home entertainment revenues generated from the sale and distribution of film and television titles in fiscal 2006 were 76%
and 24%, respectively, of total home entertainment revenues.
Operating income at the Filmed Entertainment segment for fiscal 2006 increased $34 million, or 3%, as compared to fiscal
2005. This improvement was due to the revenue changes noted above and lower home entertainment marketing and manufactur-
ing costs, partially offset by higher theatrical marketing costs directly associated with the increased number of releases.
Television (21% and 22% of the Company’s consolidated revenues in fiscal 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, Television segment revenue was consistent with fiscal 2005. The Television segment
reported an increase in Operating income for the fiscal year ended June 30, 2006 of $80 million, or 8%, from fiscal 2005.
Revenues at the Company’s U.S. television operations decreased 1% for the fiscal year ended June 30, 2006 as compared to
fiscal 2005. The decrease was primarily due to the broadcast of the Super Bowl and Daytona 500 in fiscal 2005, with no comparable
events in fiscal 2006. Partially offsetting these decreases was an increase in primetime net advertising revenue as a result of higher
primetime ratings, pricing and continued growth in local news programming versus fiscal 2005. Operating income at the Compa-
ny’s U.S. television operations for the fiscal year ended June 30, 2006 increased approximately 11% from fiscal 2005. The increase
was mainly due to the absence of programming costs for the Super Bowl and Daytona 500 that were broadcast in fiscal 2005, parti-
ally offset by the decreased revenues noted above and by higher programming costs for returning shows, local news expansions,
music license fees and new sports programming on the non-FOX affiliated stations.
Revenues for the fiscal year ended June 30, 2006 at the Company’s international television operations increased over fiscal
2005. The increase was primarily driven by higher advertising and subscription revenues. Operating income for the Company’s
international television operations increased for the fiscal year ended June 30, 2006 over fiscal 2005, primarily driven by increased
revenues, as noted above, which were partially offset by increased programming costs associated with the launch of new program-
ming.
Cable Network Programming (13% and 11% of the Company’s consolidated revenues in fiscal 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, revenues for the Cable Network Programming segment increased $670 million, or
25%, as compared to fiscal 2005. These increases were driven by higher net affiliate and advertising revenues at the RSNs and FX, as
well as increased advertising revenue at Fox News.
FX’s revenues increased 14% for the fiscal year ended June 30, 2006 as compared to fiscal 2005, primarily due to advertising
and net affiliate revenue increases. Advertising revenues increased in fiscal 2006 primarily due to higher pricing and higher ratings as
compared to fiscal 2005. For the fiscal year ended June 30, 2006, net affiliate revenues increased as compared to fiscal 2005, reflect-
ing an increase in average rates per subscriber and DBS subscribers. As of June 30, 2006, FX reached approximately 89 million Niel-
sen households.
The RSNs’ revenues increased 30% for the fiscal year ended June 30, 2006 as compared to fiscal 2005, primarily due to advertis-
ing and net affiliate revenue increases. The increase in advertising revenues was primarily due to the acquisition of the Florida and
Ohio RSNs in April 2005. Also contributing to the increase in advertising revenues was the resumption of NHL games in the second
quarter of fiscal 2006 after the cancellation of the 2004-05 NHL season. In addition, there was an increase in overall advertising pric-
ing in fiscal 2006 as compared to fiscal 2005. Net affiliate revenues increased for the fiscal year ended June 30, 2006 as compared to
fiscal 2005. This increase was primarily due to the consolidation of the Florida and Ohio RSNs, the absence of fiscal 2005 allowances
related to the cancellation of the 2004-05 NHL season, an increase in DBS subscribers and higher average rates per subscriber.
For the fiscal year ended June 30, 2006, Fox News’ revenues increased 13% as compared to fiscal 2005, primarily due to adver-
tising and affiliate revenue increases. Advertising revenues for the fiscal year ended June 30, 2006 increased as compared to fiscal
2005 due to higher pricing and higher volume. Net affiliate revenues increased for the fiscal year ended June 30, 2006, as a result of
increases in subscribers and average rates per subscriber from fiscal 2005. As of June 30, 2006, Fox News reached approximately
89 million Nielsen households.
The Cable Network Programming segment Operating income increased $162 million, or 23%, for the fiscal year ended June 30,
2006 as compared to fiscal 2005. This improvement was primarily driven by the revenue increases noted above, partially offset by
higher programming expenses. Programming expenses increased primarily due to the consolidation of the Florida and Ohio RSNs
and Fox Sports Net in April 2005 and the programming costs associated with the resumption of NHL games after the cancellation of
52
NEWS CORPORATION
FORM 10-K
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
the 2004-05 season. Also contributing to this increase were newly acquired series and more original programming at FX. In addi-
tion, marketing expenses increased at FX due to increased promotion costs for its new original series, as well as returning shows in
fiscal 2006.
Direct Broadcast Satellite Television (10% of the Company’s consolidated revenues in fiscal 2006 and 2005 )
For the fiscal year ended June 30, 2006, SKY Italia revenues increased $229 million, or 10%, as compared to fiscal 2005. This
revenue growth was primarily driven by an increase in subscribers over fiscal 2005. During fiscal 2006, SKY Italia added approx-
imately 513,000 net subscribers, which resulted in SKY Italia’s subscriber base totaling more than 3.8 million at June 30, 2006. The
total churn for the fiscal year ended June 30, 2006 was approximately 314,000 on an average subscriber base of 3.6 million, as
compared to churn of approximately 270,000 subscribers on an average subscriber base of 3.0 million in fiscal 2005. Subscriber
churn for the period represents the number of SKY Italia subscribers whose service was disconnected during the period.
ARPU for the fiscal year ended June 30, 2006 was over €44. The ARPU for the fiscal year ended June 30, 2006 improved slightly
over fiscal 2005 primarily due to a nearly €2 price increase during the second quarter of fiscal 2006, which was partially offset by
price promotions.
SAC of approximately €260 in fiscal 2006 increased over fiscal 2005 due to changes in the consumer offer that reflected lower
upfront activation fees and increased advertising and marketing costs on a per gross addition basis, although fiscal 2006 marketing
and advertising costs on an aggregate basis remained relatively flat as compared to fiscal 2005.
During the fiscal year ended June 30, 2006, the strengthening of the U.S. dollar resulted in decreases of approximately 4% in
both revenues and operating income as compared to fiscal 2005.
For the fiscal year ended June 30, 2006, operating results at SKY Italia improved by $212 million as compared to fiscal 2005.
The improvement was primarily due to the revenue increases noted above, partially offset by increased programming costs asso-
ciated with the larger subscriber base, as well as higher spending, which was primarily due to the broadcast of additional movie
titles and new entertainment channels on the basic programming tier.
Magazines and Inserts (4% of the Company’s consolidated revenues in fiscal 2006 and 2005)
For the fiscal year ended June 30, 2006, revenues at the Magazines and Inserts segment increased $22 million, or 2%, as com-
pared to fiscal 2005. The increase in fiscal 2006 primarily resulted from an increase in sales of the Company’s in-store marketing
products due to higher demand in supermarkets, partially offset by lower rates for the publication of free-standing inserts.
Operating income for the fiscal year ended June 30, 2006 increased $9 million, or 3%, as compared to fiscal 2005. The increase
was primarily due to volume increases for in-store marketing products, partially offset by the lower rates for the publication of free-
standing inserts, as noted above.
Newspapers (16% and 17% of the Company’s consolidated revenues in fiscal years 2006 and 2005, respectively)
The Newspapers segment revenues were relatively flat as compared to fiscal 2005. Operating income decreased $223 million,
or 30%, for the fiscal year ended June 30, 2006 as compared to fiscal 2005. During the fiscal year ended June 30, 2006, the
strengthening of the U.S. dollar resulted in decreases of approximately 2% in both revenues and operating income as compared to
fiscal 2005.
For the fiscal year ended June 30, 2006, the U.K. newspapers’ revenues decreased 7% as compared to fiscal 2005. The U.K.
newspapers’ advertising revenues decreased from fiscal 2005 as a result of a general weakness in the U.K. advertising market. Adver-
tising revenues were affected by lower mono display and lower classified revenues across all titles. Revenues also decreased due to
the absence of revenue from TSL, which the Company sold in October 2005. The decrease was partially offset by higher color dis-
play revenue on The Sun, The Times and The Sunday Times and increased circulation revenues due to cover price increases across all
titles and higher net circulation on The Times as a result of promotional activities and strong editorial content.
U.K. newspapers’ Operating income decreased 70% for the fiscal year ended June 30, 2006 as compared to fiscal 2005. This
decrease was primarily due to a redundancy provision of $109 million recorded in fiscal 2006 for certain U.K. production employees
as a result of the Company committing to a reduction in workforce expected to occur in fiscal 2007 and 2008. In addition, higher
depreciation expense and other costs associated with the development of the new printing plants in the United Kingdom also con-
tributed to this decrease. The Company expects annualized personnel cost savings of approximately $65 million when the U.K.
workforce reduction is completed. Also contributing to this decrease in operating income was the lower advertising revenue noted
above, the absence of the TSL division noted above, increased costs associated with employees and increased newsprint costs.
For the fiscal year ended June 30, 2006, the Australian newspapers’ revenues increased 9% as compared to fiscal 2005, mainly
due to the consolidation of the results of QPL beginning in November 2004. Also contributing to this increase were improved dis-
play and classified advertising revenues, along with the impact of cover price increases at the major weekend newspapers. The
increase in Operating income of 8% for the fiscal year ended June 30, 2006 as compared to fiscal 2005, was primarily attributable to
the consolidation of QPL beginning in November 2004.
Book Publishing (5% and 6% of the Company’s consolidated revenues in fiscal years 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, revenues at the Book Publishing segment decreased by $15 million, or 1%, from fiscal
2005 as fiscal 2005 included the effect of significant sales of The Purpose Driven Life by Rick Warren. During the fiscal year ended
June 30, 2006, HarperCollins had 109 titles on The New York Times Bestseller List with 14 titles reaching the number one position.
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Notable bestsellers during fiscal 2006 included: Marley and Me by John Grogan, Freakonomics by Steven D. Levitt and Stephen J.
Dubner, The Purpose Driven Life by Rick Warren, YOU: The Owner’s Manual by Michael F. Roizen and Mehmet C. Oz, M.D. and The
Chronicles of Narnia by C. S. Lewis.
Operating income for the Book Publishing segment for the fiscal year ended June 30, 2006 increased by $3 million, or 2%, from
fiscal 2005. The increase in Operating income was primarily due to a higher level of more profitable backlist sales in the General
Books group, when compared to fiscal 2005.
Other (6% and 5% of the Company’s consolidated revenues in fiscal 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, revenues at the Other segment increased $274 million, or 24%, as compared to fiscal
2005. The increase was primarily driven by incremental revenues from the FIM acquisitions. The Operating loss at the Other seg-
ment decreased $27 million, or 15%, for the fiscal year ended June 30, 2006 as compared to fiscal 2005, primarily as a result of fis-
cal 2005 results including costs in connection with the Reorganization partially offset by the inclusion of the fiscal 2006 FIM
operating losses, principally resulting from employee retention expenses and amortization of purchased intangible assets.
Liquidity and Capital Resources
Current Financial Condition
The Company’s principal source of liquidity is internally generated funds; however, the Company has access to the worldwide capi-
tal markets, a $2.25 billion revolving credit facility and various film co-production alternatives to supplement its cash flows. The
availability under the revolving credit facility as of June 30, 2007 was reduced by letters of credit issued which totaled approximately
$121 million. Also, as of June 30, 2007, the Company had consolidated cash and cash equivalents of approximately $7.7 billion. The
Company believes that cash flows from operations will be adequate for the Company to conduct its operations. The Company’s
internally generated funds are highly dependent upon the state of the advertising market and public acceptance of film and tele-
vision products. Any significant decline in the advertising market or the performance of the Company’s films could adversely impact
its cash flows from operations which could require the Company to seek other sources of funds including proceeds from the sale of
certain assets or other alternative sources.
The principal uses of cash that affect the Company’s liquidity position include the following: investments in the production and
distribution of new feature films and television programs; the acquisition of and payments under programming rights for entertain-
ment and sports programming; paper purchases; operational expenditures including employee costs; capital expenditures; interest
expense; income tax payments; investments in associated entities; dividends; acquisitions and stock repurchases.
Sources and Uses of Cash–Fiscal 2007 vs. Fiscal 2006
Net cash provided by operating activities for the fiscal years ended June 30, 2007 and 2006 is as follows (in millions):
Years Ended June 30,
Net cash provided by operating activities
2007
2006
$4,110
$3,257
The increase in net cash provided by operating activities reflects higher operating results and cash collections resulting primarily
from an increased sale of home entertainment product at the Filmed Entertainment segment during the fiscal year ended June 30,
2007. These increases were offset by higher tax payments and higher sports rights. The higher sports rights payments reflect the
renewal of several sports teams’ local rights agreements, the addition of the BCS sports rights and higher international sports rights.
Net cash used in investing activities for the fiscal years ended June 30, 2007 and 2006 is as follows (in millions):
Years Ended June 30,
Net cash used in investing activities
2007
2006
$(2,076)
$(2,060)
Cash used in investing activities during fiscal 2007 was slightly higher than fiscal 2006 due to higher capital expenditures and
increased investments. Partially offsetting this increase was a reduction in the total net cash used for acquisitions and dispositions.
The increase in capital expenditures was primarily due to the Company’s continued investment in new printing plants in the
United Kingdom and an increase in expenditures related to Internet initiatives. The decrease in cash used for acquisitions was
primarily due to the acquisitions of Intermix Media, Inc. (“Intermix”) and IGN Entertainment, Inc. (“IGN”) during fiscal 2006.
The Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses.
Such transactions may be material and may involve cash, the Company’s securities or the assumption of additional indebtedness.
Net cash used in financing activities for the fiscal years ended June 30, 2007 and 2006 is as follows (in millions):
Years Ended June 30,
Net cash used in financing activities
2007
2006
$(273)
$(1,932)
The decrease in net cash used in financing activities was primarily due to a reduction in share repurchases of approximately $733
million. During fiscal 2007, the Company repurchased 57.5 million shares for approximately $1.3 billion, as compared to
54
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
repurchases of 125.3 million shares for approximately $2.0 billion in fiscal 2006. The decrease in net cash used in financing activities
was also due to an increase in net borrowings of $704 million during fiscal 2007.
The total dividends declared related to fiscal 2007 results were $0.12 per share of Class A Common Stock and $0.10 per share
of Class B Common Stock. In August 2007, the Company declared the final dividend on fiscal 2007 results of $0.06 per share for
Class A Common Stock and $0.05 per share for Class B Common Stock. This together with the interim dividend of $0.06 per share
of Class A Common Stock and a dividend of $0.05 per share of Class B Common Stock constitute the total dividend relating to fiscal
2007.
Based on the number of shares outstanding as of June 30, 2007 the total aggregate cash dividends expected to be paid to
stockholders in fiscal 2008 is approximately $365 million.
Sources and Uses of Cash–Fiscal 2006 vs. Fiscal 2005
Net cash provided by operating activities for the fiscal years ended June 30, 2006 and 2005 is as follows (in millions):
Years Ended June 30,
Net cash provided by operating activities
2006
2005
$3,257
$3,371
The decrease in net cash provided by operating activities primarily reflects lower cash collections from worldwide home entertain-
ment product, which was primarily driven by the decrease in worldwide home entertainment revenues at the Filmed Entertainment
segment as compared to fiscal 2005. In addition, also contributing to the decrease was higher sports rights and higher tax pay-
ments during fiscal 2006 as compared to fiscal 2005.
Net cash used in investing activities for the fiscal years ended June 30, 2006 and 2005 is as follows (in millions):
Years Ended June 30,
Net cash used in investing activities
2006
2005
$(2,060)
$(303)
Cash used in investing activities during fiscal 2006 was higher than the cash used in investing activities during fiscal 2005. The
increase was primarily due to the acquisitions of Intermix, IGN and a RSN during fiscal 2006. The cash used in investing activities
during fiscal 2006 was partially offset by proceeds received from the disposition of discontinued operations as the Company sold its
TSL division for approximately $395 million in cash consideration in October 2005 and its Sky Radio division for approximately $215
million in cash consideration in April 2006. The cash received from the sale of Innova and China Netcom Group Corporation during
fiscal 2006 and cash received in advance on the sale of Sky Brasil to DIRECTV and the sale of other non-strategic investments during
fiscal 2005 also partially offset the cash used in investing activities.
Net cash used in financing activities for the fiscal years ended June 30, 2006 and 2005 is as follows (in millions):
Years Ended June 30,
Net cash used in financing activities
2006
2005
$(1,932)
$(681)
Net cash used in financing activities during fiscal 2006 increased from net cash used in financing activities in fiscal 2005, primarily
due to the stock repurchase program. The increase was partially offset by an increase in borrowings net of repayments during fiscal
2006 as compared to fiscal 2005.
The total dividends declared related to fiscal 2006 results were $0.12 per share of Class A Common Stock and $0.10 per share
of Class B Common Stock. In August 2006, the Company declared the final dividend on fiscal 2006 results of $0.06 per share for
Class A Common Stock and $0.05 per share for Class B Common Stock. This together with the interim dividend of $0.06 per share
of Class A Common Stock and a dividend of $0.05 per share of Class B Common Stock constitute the total dividend relating to fiscal
2006.
Issuances of Shares For Acquisitions
Transaction
Fiscal 2006
Queensland Press(a)
Fiscal 2005
Fox Entertainment Group(a)
Queensland Press(a)
(a) See Note 3 to the Consolidated Financial Statements of News Corporation.
NEWS CORPORATION 2007 Annual Report
Approximate
amount of
issuance
Number of
Class A
shares
(in millions)
Number of
Class B
shares
$
33
2
$14,293
$ 6,359
1,988
61
—
—
308
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Debt Instruments and Guarantees
Debt Instruments(1)
Years ended June 30,
Borrowings
Notes due 2037
Notes due 2035
Notes due 2034
Notes due 2014
All other
Total borrowings
Repayments of borrowings
Liquid Yield Option™ Notes
New Millennium(2)
Cruden Group assumed debt(3)
Preferred Perpetual Shares(4)
All other
Total repayment of borrowings
2007
2006
2005
(in millions)
$1,000
$ —
$ —
—
—
—
196
1,133
—
—
26
—
995
748
98
$1,196
$1,159
$ 1,841
$ —
$ (831)
$ —
—
—
—
—
—
—
(198)
(34)
(659)
(654)
(345)
(452)
$ (198)
$ (865)
$(2,110)
(1) See Note 9 to the Consolidated Financial Statements of News Corporation for information with respect to borrowings.
(2) The Company had historically funded its film production by borrowing under a commercial paper facility (“New Millennium”)
but in May 2004, the Company ceased utilizing this facility. In fiscal 2005, the Company repaid the outstanding balance of $659
million on the New Millennium facility.
(3) See Note 3 to the Consolidated Financial Statements of News Corporation for information with respect to the acquisition of the
Cruden Group of companies.
(4) The Company redeemed $345 million of perpetual preference shares outstanding at par in November 2004.
LYONs
In February 2001, the Company issued Liquid Yield OptionTM Notes (“LYONs”) which pay no interest and have an aggregate princi-
pal amount at maturity of $1,515 million representing a yield of 3.5% per annum on the issue price. The holders may exchange the
notes at any time into Class A Common Stock or, at the option of the Company, the cash equivalent thereof at a fixed exchange
rate of 24.2966 shares of Class A Common Stock per $1,000 note. The LYONs are redeemable at the option of the holders on
February 28, 2011 and February 28, 2016 at a price of $706.82 and $840.73, respectively. The Company, at its election, may satisfy
the redemption amounts in cash, Class A Common Stock or any combination thereof. The Company can redeem the notes in cash
at any time at specified redemption amounts.
On February 28, 2006, 92% of the LYONs were redeemed for cash at the specified redemption amount of $594.25 per LYON.
Accordingly, the Company paid an aggregate of approximately $831 million to the holders of the LYONs that had exercised this
redemption option. The pro-rata portion of unamortized deferred financing costs relating to the redeemed LYONs approximating
$13 million was recognized and included in Other, net in the consolidated statement of operations for the fiscal year ended June 30,
2006.
Ratings of the Public Debt
The table below summarizes the Company’s credit ratings as of June 30, 2007.
Rating Agency
Moody’s
S&P
Senior Debt
Outlook
Baa 2
BBB
Stable
*
*
In December 2006, as a result of the announcement of the signing of the Share Exchange Agreement, Standard & Poors placed
its ratings of the Company on CreditWatch with positive implications. (See Note 3 to the Consolidated Financial Statements of
News Corporation for further discussion of the Share Exchange Agreement.)
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Revolving Credit Agreement
On May 23, 2007, News America Incorporated (“NAI”), a subsidiary of the Company, terminated its existing $1.75 billion Revolving
Credit Agreement (the “Prior Credit Agreement”) and entered into a new Credit Agreement (the “New Credit Agreement”), among
NAI as Borrower, the Company as Parent Guarantor, the lenders named therein (the “Lenders”), Citibank, N.A. as Administrative
Agent and JPMorgan Chase Bank, N.A. as Syndication Agent. The New Credit Agreement consists of a $2.25 billion five-year
unsecured revolving credit facility with a sublimit of $600 million available for the issuance of letters of credit. Borrowings are in U.S.
dollars only, while letters of credit are issuable in U.S. Dollars or Euros. The significant terms of the New Credit Agreement include,
among others, the requirement that the Company maintain specific leverage ratios and limitations on secured indebtedness. The
Company will pay a facility fee of 0.10% regardless of facility usage. The Company will pay interest of a margin over LIBOR for bor-
rowings and a letter of credit fee of 0.30%. The Company is subject to additional fees of 0.05% if borrowings under the facility
exceed 50% of the committed facility. The interest and fees are based on the Company’s current debt rating. Under the New Credit
Agreement, NAI may request an increase in the amount of the credit facility up to a maximum amount of $2.5 billion. The New
Credit Agreement is available for the general corporate purposes of NAI, the Company and its subsidiaries. The maturity date is in
May 2012, however, NAI may request that the Lenders’ commitments be renewed for up to two additional one year periods. At
June 30, 2007, letters of credit representing approximately $121 million were issued under the New Credit Agreement.
Commitments and Guarantees
The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments.
These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The
following table summarizes the Company’s material firm commitments as of June 30, 2007.
As of June 30, 2007
Contracts for capital expenditure
Land and buildings
Plant and machinery
Operating leases(a)
Land and buildings
Plant and machinery
Other commitments
Borrowings
Exchangeable securities
News America Marketing(b)
Sports programming rights(c)
Entertainment programming rights
Other commitments and contractual obligations(d)
Payments Due by Period
Total
1 year
2-3 years
4-5 years
(in millions)
After 5
years
$
75
373
3,078
935
10,871
1,631
428
17,092
3,631
2,263
$
68
$
353
259
203
355
—
94
2,908
1,566
674
7
20
453
256
430
1,502
166
4,855
1,395
418
$ —
$ —
—
386
165
107
—
102
—
1,980
311
9,979
129
66
3,990
5,339
433
314
237
857
Total commitments, borrowings and contractual obligations
$40,377
$6,480
$9,502
$5,497
$18,898
The Company also has certain contractual arrangements in relation to certain investees that would require the Company to make
payments or provide funding if certain circumstances occur (“contingent guarantees”). The Company does not expect that these
contingent guarantees will result in any material amounts being paid by the Company in the foreseeable future. The timing of the
amounts presented in the table below reflect when the maximum contingent guarantees will expire and does not indicate that the
Company expects to incur an obligation to make payments during that time frame.
As of June 30, 2007
Contingent guarantees:
Programming rights(e)
Affiliate borrowings(f)
Other
Total
Amounts
Committed
Amount of Guarantees Expiration Per Period
1 year
2-3 years
4-5 years
(in millions)
After 5
years
$523
$ 21
$ 73
$135
$294
65
19
65
19
—
—
—
—
—
—
$607
$105
$ 73
$135
$294
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(a) The Company leases transponders, office facilities, warehouse facilities, equipment and microwave transmitters used to carry
broadcast signals. These leases, which are classified as operating leases, expire at certain dates through fiscal 2090. In addition,
the Company leases various printing plants, which leases expire at various dates through fiscal 2095.
(b) News America Marketing (“NAMG”), a leading provider of in-store marketing products and services primarily to consumer
packaged goods manufacturers, enters into agreements with retailers to occupy space for the display of point of sale advertising.
(c) The Company’s contract with MLB gives the Company rights to telecast certain regular season and post season games, as well as
exclusive rights to telecast MLB’s World Series and All-Star Game for a seven-year term through the 2013 MLB season.
Under the Company’s contract with NFL, remaining future minimum payments for program rights to broadcast certain
football games are payable over the remaining term of the contract through fiscal 2012.
The Company’s contracts with NASCAR give the Company rights to broadcast certain races and ancillary content through
calendar year 2014.
Under the Company’s contract with the BCS, remaining future minimum payments for program rights to broadcast the BCS
are payable over the remaining term of the contract through fiscal 2010.
In addition, the Company has certain other local sports broadcasting rights.
(d) The Company is upgrading its printing presses with new automated technology that once fully on line, are expected to lower
production costs and improve newspaper quality including expanded color. As part of this initiative, the Company entered into
several third party printing contracts in the United Kingdom expiring in fiscal 2022.
The Company has an eight year agreement with Nielsen Media Research (“Nielsen”) under which Nielsen provides audience
measurement services for 49 of the Company’s subsidiaries and affiliates.
(e) A joint-venture in which the Company owns a 50% equity interest, entered into an agreement for global programming
rights. Under the terms of the agreement, the Company and the other joint-venture partner have jointly guaranteed the pro-
gramming rights obligation.
(f) The Company has guaranteed a bank loan facility of $65 million (¥7.97 billion) for an affiliate. The facility covers a term loan
which matures in June 2008 and an agreement for an overdraft. The Company would be liable under this guarantee, to the
extent of default by the affiliate.
As of June 30, 2007, the Company was contractually obligated for approximately $242 million and $42 million in the United
Kingdom and Australia, respectively, for new printing plants and related costs. All firm commitments related to these projects are
included in the capital expenditure lines disclosed in the commitments table above.
The table excludes the Company’s pension and other postretirement benefits (“OPEB”) obligations. The Company made volun-
tary contributions of $67 million and $149 million to its pension plans in fiscal 2007 and fiscal 2006, respectively. Future plan con-
tributions are dependent upon actual plan asset returns and interest rates. Assuming that actual plan asset returns are consistent
with the Company’s expected plan return of 7% in fiscal 2008 and beyond, and that interest rates remain constant, the Company
would not be required to make any material contributions to its pension plans to satisfy minimum statutory funding requirements
for the foreseeable future. The Company expects to make voluntary contributions of approximately $60 million to its pension plans
in fiscal 2008. Payments due to participants under the Company’s pension plans are primarily paid out of the underlying trusts.
Payments due under the Company’s OPEB plans are not required to be funded in advance, but are paid as medical costs are
incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under the
Company’s pension plans. The Company expects its OPEB payments to approximate $7 million in fiscal 2008. See Note 16 to the
accompanying Consolidated Financial Statements of News Corporation for further discussion of the Company’s pension and OPEB
plans.
Contingencies
The Company’s wholly-owned subsidiary, News Outdoor owns and operates outdoor advertising companies and also owns approx-
imately 73% of Media Support Services Limited (“MSS”), an outdoor advertising company in Russia. The minority stockholders of
MSS had the right to sell a portion of their interests to News Outdoor during the first quarter of fiscal 2007 and exercised those
rights. In certain limited circumstances, the minority stockholders of MSS have the right to sell, and News Outdoor has the right to
purchase, the remaining minority interests at fair market value. The Company believes that the exercise of these sale rights, if any,
will not have a material effect on its consolidated financial condition, future results of operations or liquidity. In June 2007, the
Company announced that it intends to explore strategic options for News Outdoor in connection with News Outdoor’s continued
development plans. These strategic options include, but are not limited to, exploring the opportunity to expand News Outdoor’s
existing shareholder group through new strategic and private equity partners.
Other than previously disclosed in the notes to these consolidated financial statements, the Company is party to several pur-
chase and sale arrangements which become exercisable over the next ten years by the Company or the counter-party to the agree-
ment. In the next twelve months, none of these arrangements that become exercisable are material. Purchase arrangements that are
exercisable by the counter-party to the agreement, and that are outside the sole control of the Company are accounted for in
accordance with EITF No. D-98 “Classification and Measurement of Redeemable Securities”. Accordingly, the fair values of such
purchase arrangements are classified in Minority interest liabilities.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending
litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the
Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax
matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
Related Party Transactions
Immediately prior to and as part of the Reorganization, the Company acquired from certain trusts, the beneficiaries of which include
Mr. K.R. Murdoch, members of his family and certain charities (“the Murdoch Trusts”), the 58% shareholding in QPL which was not
already owned by the Company’s predecessor through the acquisition of the Cruden Group of companies (“the Cruden/QPL
Transaction”). The principal assets of the Cruden Group were shares of News Corporation and a 58% interest in QPL. QPL owns a
publishing business which includes two metropolitan and eight regional newspapers in Queensland, Australia, as well as shares in
News Corporation. Following this transaction, Mr. K.R. Murdoch and the Murdoch Trusts owned approximately 29.5% of the
Company’s Class B Common Stock.
Critical Accounting Policies
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results, and if it requires
significant judgment and estimates on the part of management in its application. The development and selection of these critical
accounting policies have been determined by management of the Company and the related disclosures have been reviewed with
the Audit Committee of the Board. For a summary of all of the Company’s significant accounting policies, see Note 2 to the accom-
panying Consolidated Financial Statements of News Corporation.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make esti-
mates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying dis-
closures. Although these estimates are based on management’s best knowledge of current events and actions that the Company
may undertake in the future, actual results may differ from the estimates.
Revenue Recognition
Filmed Entertainment–Revenues from distribution of feature films are recognized in accordance with SOP 00-2. Revenues from the
theatrical distribution of motion pictures are recognized as they are exhibited and revenues from home video and DVD sales, net of
a reserve for estimated returns, together with related costs, are recognized on the date that video and DVD units are made widely
available for sale by retailers and all Company-imposed restrictions on the sale of video and DVD units have expired. Revenues from
television distribution are recognized when the motion picture or television program is made available to the licensee for broadcast.
Management bases its estimates of ultimate revenue for each film on the historical performance of similar films, incorporating
factors such as the past box office record of the lead actors and actresses, the genre of the film, pre-release market research
(including test market screenings) and the expected number of theaters in which the film will be released. Management updates
such estimates based on information available on the actual results of each film through its life cycle.
License agreements for the telecast of theatrical and television product in the broadcast network, syndicated television and
cable television markets are routinely entered into in advance of their available date for telecast. Cash received and amounts billed in
connection with such contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred
revenue generally relates to contracts for the licensing of theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period
for telecast under the terms of the related licensing agreement.
Television, Cable Network Programming and Direct Broadcast Satellite–Advertising revenue is recognized as the commercials are
aired, net of agency commissions. Subscriber fees received from subscribers, cable systems and DBS operators are recognized as
revenue in the period that services are provided, net of amortization of cable distribution investments. The Company defers the
cable distribution investments and amortizes the amounts on a straight-line basis over the contract period.
Filmed Entertainment and Television Programming Costs
Accounting for the production and distribution of motion pictures and television programming is in accordance with SOP 00-2,
which requires management’s judgment as it relates to total revenues to be received and costs to be incurred throughout the life of
each program or its license period. These judgments are used to determine the amortization of capitalized filmed entertainment and
television programming costs, the expensing of participation and residual costs associated with revenues earned and any fair value
adjustments.
In accordance with SOP 00-2, the Company amortizes filmed entertainment and television programming costs using the
individual-film-forecast method. Under the individual-film-forecast method, such programming costs are amortized for each film or
television program in the ratio that current period actual revenue for such title bears to management’s estimated remaining
unrecognized ultimate revenue as of the beginning of the current fiscal year to be recognized over approximately a six year period
or operating profits to be realized from all media and markets for such title. Management bases its estimates of ultimate revenue for
each film on factors such as historical performance of similar films, the star power of the lead actors and actresses and once released
actual results of each film. For each television program, management bases its estimates of ultimate revenue on the performance of
the television programming in the initial markets, the existence of future firm commitments to sell additional episodes of the pro-
gram and the past performance of similar television programs. Management regularly reviews, and revises when necessary, its total
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write down of the asset
to fair value.
The costs of national sports contracts at FOX and for international sports rights agreements are charged to expense based on
the ratio of each period’s operating profit to estimated total remaining operating profit of the contract. Estimates of total operating
profit can change and accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future
could be material.
The costs of local and regional sports contracts, which are for a specified number of events, are amortized on an event-by-event
basis. Those costs, which are for a specified season, are amortized over the season on a straight-line basis, and if applicable, a por-
tion of the cost is allocated to rebroadcasts.
Original cable programming is amortized on an accelerated basis. Management regularly reviews, and revises when necessary,
its total revenue estimates on a contract basis, which may result in a change in the rate of amortization and/or a write down of the
asset to fair value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated on a straight-line method over the estimated useful lives of
such assets. Changes in circumstances such as technological advances, changes to the Company’s business model or capital strategy
could result in the actual useful lives differing from the Company’s estimates. In those cases where the Company determines that
the useful life of buildings and equipment should be shortened, the Company would depreciate the asset over its revised remaining
useful life thereby increasing depreciation expense.
Intangible Assets
The Company has a significant amount of intangible assets, including goodwill, FCC licenses, and other copyright products and
trademarks. Intangible assets acquired in business combinations are recorded at their estimated fair market value at the date of
acquisition. Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair values assigned to
its tangible and identifiable intangible net assets and is assigned to one or more reporting units for purposes of testing for impair-
ment. The judgments made in determining the estimated fair value assigned to each class of intangible assets acquired, their report-
ing unit, as well as their useful lives can significantly impact net income.
The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of acquisitions is
allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the
estimated fair values of the tangible net assets acquired is recorded as intangibles. Amounts recorded as goodwill are assigned to
one or more reporting units. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment
and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and
outflows, discount rates, asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill
thereto requires judgment involving the aggregation of business units with similar economic characteristics and the identification of
existing business units that benefit from the acquired goodwill.
Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment in
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company’s impairment review is based on, among
other methods, a discounted cash flow approach that requires significant management judgments. Impairment occurs when the
carrying value of the reporting unit exceeds the discounted present value of the cash flows for that reporting unit. An impairment
charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which
represents the estimated fair value of the asset. The Company uses its judgment in assessing whether assets may have become
impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change
or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired.
For all of its television station acquisitions through June 30, 2005, the Company utilized the “residual” method to estimate the
fair value of the stations’ FCC licenses. Effective July 1, 2005, the Company adopted EITF D-108. EITF D-108 requires companies
who have applied the residual value method in the valuation of acquired identifiable intangibles for purchase accounting and
impairment testing to now use a direct valuation method. The direct valuation method used for FCC licenses requires, among other
inputs, the use of published industry data that are based on subjective judgments about future advertising revenues in the markets
where the Company owns television stations. This method also involves the use of management’s judgment in estimating an
appropriate discount rate reflecting the risk of a market participant in the U.S. broadcast industry. The resulting fair values for FCC
licenses are sensitive to these long-term assumptions and any variations to such assumptions could result in an impairment to exist-
ing carrying values in future periods and such impairment could be material.
Income Taxes
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions in which it operates. The Company com-
putes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in
which it earns income. Significant judgment is required in determining the Company’s annual provision for income taxes and in
evaluating its tax positions. The Company establishes reserves for tax-related uncertainties based on evaluations of the probability of
whether additional taxes and related interest and penalties will be due. The Company adjusts these reserves based on changing facts
and circumstances and it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter. The
Company believes that its reserves reflect the probable outcome of known tax matters.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be real-
ized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax
planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in
future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along
with a corresponding increase or charge to income.
Employee Costs
In June 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to
recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize changes in that funded status in the fiscal year in which the
changes occur through comprehensive income. (See Note 16 to the Consolidated Financial Statements of News Corporation)
The following table summarizes the incremental effects of the initial adoption of SFAS No. 158 on the Company’s consolidated
balance sheet as of June 30, 2007:
Intangible assets
Other non-current assets
Total assets
Other liabilities
Deferred income taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
Before
application of
SFAS No.158
SFAS No. 158
adjustment
(in millions)
After
application of
SFAS No. 158
$11,710
$
(7)
$11,703
1,096
62,624
3,301
5,999
33,121
62,624
(274)
(281)
18
(100)
(199)
(281)
822
62,343
3,319
5,899
32,922
62,343
The Company maintains defined benefit pension plans covering a majority of its employees and retirees. For financial reporting
purposes, net periodic pension expense (income) is calculated based upon a number of actuarial assumptions, including a discount
rate for plan obligations and an expected rate of return on plan assets. The Company considers current market conditions, including
changes in investment returns and interest rates, in making these assumptions. In developing the expected long-term rate of return,
the Company considered the pension portfolio’s past average rate of returns, and future return expectations of the various asset
classes. The expected long-term rate of return is based on an asset allocation assumption of 60% equities, 37% fixed-income secu-
rities and 3% in all other investments.
The discount rate reflects the market rate for high-quality fixed-income investments on the Company’s annual measurement
date of June 30 and is subject to change each year. The discount rate assumptions used to account for pension and other
postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined
based on a cash flow matching technique whereby a hypothetical portfolio of high quality debt securities was constructed that
mirrors the specific benefit obligations for each of the Company’s primary plans where appropriate.
The key assumptions used in developing the Company’s fiscal 2007, 2006 and 2005 net periodic pension expense (income) for
its plans consists of the following:
Discount rate used to determine net periodic benefit cost
Assets:
Expected rate of return
Expected return
Actual return
Gain
One year actual return
Five year actual return
2007
2006
2005
($ in millions)
5.9%
5.1%
5.7%
7.0%
7.5%
7.5%
$ 135
$ 232
$ 97
$ 122
$ 186
$ 64
$ 111
$ 160
$ 49
12.3%
11.1%
10.8%
9.0%
4.7%
1.7%
The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the
United States, the United Kingdom and Australia as of the measurement date. The Company will utilize a weighted average discount
rate of 6.0% in calculating the fiscal 2008 net periodic pension expense for its plans. The Company will continue to use a weighted
NEWS CORPORATION 2007 Annual Report
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
average long-term rate of return of 7% for fiscal 2008 based principally on a combination of asset mix and historical experience of
actual plan returns. The net losses on the Company’s pension plans were $301 million at June 30, 2007, a decrease from $348 mil-
lion at June 30, 2006. This decrease of $47 million was due primarily to an actual plan asset return of 12% in fiscal 2007, which was
higher than the expected rate of return of 7%, and loss amortization in fiscal 2007. The net losses at June 30, 2006 were primarily a
result of economic conditions and the strengthening of the mortality assumptions. Economic conditions impacting the plan were
the lower interest rate environment for high-quality fixed income debt instruments over the past five years and the downturn in the
equity markets in the earlier part of this decade. These deferred losses are being systematically recognized in future net periodic
pension expense in accordance with SFAS No. 87, “Employers Accounting for Pensions” (“SFAS No. 87”). Unrecognized losses in
excess of 10% of the greater of the market-related value of plan assets or the plans projected benefit obligation are recognized over
the average future service of the plan participants.
The Company made contributions of $67 million, $149 million and $236 million to its pension plans in fiscal 2007, 2006 and
2005, respectively. These were primarily voluntary contributions made to improve the funded status of the plans which were
impacted by a declining interest rate environment, as well as the downturn of the equity markets earlier in this decade. Future plan
contributions are dependent upon actual plan asset returns and interest rate movements. Assuming that actual plan returns are
consistent with the Company’s expected plan returns in fiscal 2008 and beyond, and that interest rates remain constant, the Com-
pany would not be required to make any statutory contributions to its primary U.S. pension plans for the foreseeable future.
Changes in net periodic pension expense may occur in the future due to changes in the Company’s expected rate of return on
plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company’s pen-
sion obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:
Changes in Assumption
0.25 percentage point decrease in discount
Impact on Annual
Pension Expense
Impact on PBO
rate
Increase $12 million
Increase $87 million
0.25 percentage point increase in discount
rate
Decrease $12 million
Decrease $87 million
0.25 percentage point decrease in expected
rate of return on assets
Increase $6 million
0.25 percentage point increase in expected
rate of return on assets
Decrease $6 million
—
—
Net periodic pension expense for the Company’s pension plans is expected to be approximately $80 million in fiscal 2008 which is
consistent with fiscal 2007.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements of News Corporation for discussion of recent accounting pronouncements.
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Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to several types of market risk: changes in foreign currency exchange rates, interest rates and stock
prices. The Company neither holds nor issues financial instruments for trading purposes.
The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk,
interest rate risk and stock price risk. It makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair
value that can occur from changes in market conditions.
Foreign Currency Exchange Rates
The Company conducts operations in four principal currencies: the U.S. dollar, the British pound sterling, the Euro and the Austral-
ian dollar. These currencies operate as the functional currency for the Company’s U.S., European (including the United Kingdom)
and Australian operations, respectively. Cash is managed centrally within each of the three regions with net earnings reinvested
locally and working capital requirements met from existing liquid funds. To the extent such funds are not sufficient to meet working
capital requirements, drawdowns in the appropriate local currency are available from intercompany borrowings. Since earnings of
the Company’s Australian and European (including the United Kingdom) operations are expected to be reinvested in those busi-
nesses indefinitely, the Company does not hedge its investment in the net assets of those foreign operations.
At June 30, 2007, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an
aggregate fair value of $201 million (including the Company’s non-U.S. dollar-denominated fixed rate debt). The potential increase
in the fair values of these instruments resulting from a 10% adverse change in quoted foreign currency exchange rates would be
approximately $25 million at June 30, 2007.
Interest Rates
The Company’s current financing arrangements and facilities include $12.5 billion of outstanding debt with fixed interest and the
New Credit Agreement, which carries variable interest. Fixed and variable rate debts are impacted differently by changes in interest
rates. A change in the interest rate or yield of fixed rate debt will only impact the fair market value of such debt, while a change in
the interest rate of variable debt will impact interest expense as well as the amount of cash required to service such debt. As of
June 30, 2007, substantially all of the Company’s financial instruments with exposure to interest rate risk was denominated in U.S.
dollars and had an aggregate fair market value of $13.2 billion. The potential change in fair value for these financial instruments
from an adverse 10% change in quoted interest rates across all maturities, often referred to as a parallel shift in the yield curve,
would be approximately $643 million at June 30, 2007.
Stock Prices
The Company has common stock investments in several publicly traded companies that are subject to market price volatility. These
investments principally represent the Company’s equity affiliates and have an aggregate fair value of approximately $21,608 million
as of June 30, 2007. A hypothetical decrease in the market price of these investments of 10% would result in a fair value of approx-
imately $19,447 million. Such a hypothetical decrease would result in a decrease in comprehensive income of approximately $23
million, as any changes in fair value of the Company’s equity affiliates are not recognized unless deemed other-than-temporary, as
these investments are accounted for under the equity method.
In accordance with SFAS No. 133, the Company has recorded the conversion feature embedded in its exchangeable debentures
in other liabilities. At June 30, 2007, the fair value of this conversion feature is $352 million and is sensitive to movements in the
share price of one of the Company’s publicly traded equity affiliates. A significant variance in the price of the underlying stock could
have a material impact on the operating results of the Company. A 10% increase in the price of the underlying shares, holding other
factors constant, would increase the fair value of the call option by approximately $115 million.
NEWS CORPORATION 2007 Annual Report
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News Corporation
Index to Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial
Statements
Consolidated Statements of Operations for the fiscal years ended June 30,
2007, 2006 and 2005
Consolidated Balance Sheets as of June 30, 2007 and 2006
Consolidated Statements of Cash Flows for the fiscal years ended June 30,
2007, 2006 and 2005
Consolidated Statements of Stockholders’ Equity and Other Comprehensive
Income (Loss) for the fiscal years ended June 30, 2007, 2006 and 2005
Notes to the Consolidated Financial Statements
Page
65
66
67
68
69
70
71
72
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Management’s Report on Internal Control Over Financial Reporting
Management of News Corporation is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. News Corporation’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Internal control over financial reporting includes those policies and procedures that:
(cid:129) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of News Corporation;
(cid:129) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America;
(cid:129) provide reasonable assurance that receipts and expenditures of News Corporation are being made only in accordance with
authorization of management and directors of News Corporation; and
(cid:129) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets
that could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions
taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or
detect misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance
with respect to financial statement preparation. Also, the effectiveness of internal control over financial reporting was made as of a
specific date. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of News Corporation’s internal control over financial reporting as of June 30, 2007.
Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control–
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assess-
ment included an evaluation of the design of News Corporation’s internal control over financial reporting and testing of the opera-
tional effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit
Committee of News Corporation’s Board of Directors.
Based on this assessment, management determined that, as of June 30, 2007, News Corporation maintained effective internal
control over financial reporting.
Ernst & Young LLP, the independent registered public accounting firm who audited and reported on the consolidated financial
statements of News Corporation included in this report, has issued an attestation report on management’s assessment of internal
control over financial reporting.
NEWS CORPORATION 2007 Annual Report
65
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
To the Stockholders and Board of Directors of News Corporation:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over
Financial Reporting, that News Corporation maintained effective internal control over financial reporting as of June 30, 2007, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). News Corporation’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over finan-
cial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reli-
ability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial state-
ments in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that News Corporation maintained effective internal control over financial reporting
as of June 30, 2007 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, News Corporation
maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on the COSO cri-
teria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of News Corporation as of June 30, 2007 and 2006, and the related consolidated statements of oper-
ations, cash flows, and stockholders’ equity and other comprehensive income (loss) for each of the three years in the period ended
June 30, 2007 of News Corporation, and our report dated August 23, 2007 expressed an unqualified opinion thereon.
New York, New York
August 23, 2007
66
Report of Independent Registered Public Accounting Firm on Financial Statements
To the Stockholders and Board of Directors of News Corporation:
We have audited the accompanying consolidated balance sheets of News Corporation as of June 30, 2007 and 2006, and the
related consolidated statements of operations, cash flows, and stockholders’ equity and other comprehensive income (loss) for each
of the three years in the period ended June 30, 2007. These financial statements are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial posi-
tion of News Corporation at June 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended June 30, 2007 in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its methods of accounting for stock based compensa-
tion and the valuation of certain acquired identifiable intangible assets, effective July 1, 2005, and pension and other post-retirement
obligations, effective June 30, 2007.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of News Corporation’s internal control over financial reporting as of June 30, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated August 23, 2007 expressed an unqualified opinion thereon.
New York, New York
August 23, 2007
NEWS CORPORATION 2007 Annual Report
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N E W S C O R P O R A T I O N
Consolidated Statements of Operations
(in millions, except per share amounts)
For the years ended June 30,
Revenues
Expenses:
Operating
Selling, general and administrative
Depreciation and amortization
Other operating charges
Operating income
Other income (expense):
Interest expense, net
Equity earnings of affiliates
Other, net
Income from continuing operations before income tax expense and minority interest in
subsidiaries
Income tax expense
Minority interest in subsidiaries, net of tax
Income from continuing operations
Gain on disposition of discontinued operations, net of tax
Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax
Net income
Basic earnings per share:
Income from continuing operations
Class A
Class B
Net Income
Class A
Class B
Diluted earnings per share:
Income from continuing operations
Class A
Class B
Net Income
Class A
Class B
2007
2006
2005
$28,655
$25,327
$23,859
18,645
4,655
879
24
16,593
3,982
775
109
15,901
3,697
648
49
4,452
3,868
3,564
(524)
1,019
359
5,306
(1,814)
(66)
3,426
—
3,426
—
(545)
888
194
4,405
(1,526)
(67)
2,812
515
3,327
(1,013)
(536)
355
178
3,561
(1,220)
(213)
2,128
—
2,128
—
$ 3,426
$ 2,314
$ 2,128
$
$
$
$
$
$
$
$
1.14
0.95
1.14
0.95
1.14
0.95
1.14
0.95
$
$
$
$
$
$
$
$
0.92
0.77
0.76
0.63
0.92
0.77
0.76
0.63
$
$
$
$
$
$
$
$
0.74
0.62
0.74
0.62
0.73
0.61
0.73
0.61
The accompanying notes are an integral part of these audited consolidated financial statements.
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Consolidated Balance Sheets
(in millions, except share and per share amounts)
As of June 30,
Assets:
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other
Total current assets
Non-current assets:
Receivables
Investments
Inventories, net
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
Total non-current assets
Total assets
Liabilities and Stockholders’ Equity:
Current liabilities:
Borrowings
Accounts payable, accrued expenses and other current liabilities
Participations, residuals and royalties payable
Program rights payable
Deferred revenue
Total current liabilities
Non-current liabilities:
Borrowings
Other liabilities
Deferred income taxes
Minority interest in subsidiaries
Commitments and contingencies
Stockholders’ Equity:
Class A common stock(1)
Class B common stock(2)
Additional paid-in capital
Retained earnings and accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
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2007
2006
$ 7,654
5,842
2,039
371
$ 5,783
5,150
1,840
350
15,906
13,123
437
11,413
2,626
5,617
11,703
13,819
822
46,437
593
10,601
2,410
4,755
11,446
12,548
1,173
43,526
$62,343
$56,649
$
355
4,545
1,185
940
469
7,494
12,147
3,319
5,899
562
21
10
27,333
5,558
32,922
$
42
4,047
1,007
801
476
6,373
11,385
3,536
5,200
281
22
10
28,153
1,689
29,874
$62,343
$56,649
(1) Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 2,139,585,571 shares and 2,169,184,961
shares issued and outstanding, net of 1,777,593,698 and 1,777,837,008 treasury shares at par at June 30, 2007 and 2006,
respectively.
(2) Class B common stock, $0.01 par value per share, 3,000,000,000 shares authorized, 986,520,953 shares and 986,530,368
shares issued and outstanding, net of 313,721,702 treasury shares at par at June 30, 2007 and 2006, respectively.
The accompanying notes are an integral part of these audited consolidated financial statements.
NEWS CORPORATION 2007 Annual Report
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Consolidated Statements of Cash Flows
(in millions)
For the years ended June 30,
Operating activities:
Net income
Gain on disposition of discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Income from continuing operations
Adjustments to reconcile income from continuing operations to cash provided by
operating activities:
Depreciation and amortization
Amortization of cable distribution investments
Equity earnings of affiliates
Cash distributions received from affiliates
Other, net
Minority interest in subsidiaries, net of tax
Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets
Inventories, net
Accounts payable and other liabilities
Net cash provided by operating activities
Investing activities:
Property, plant and equipment, net of acquisitions
Acquisitions, net of cash acquired
Investments in equity affiliates
Other investments
Proceeds from sale of investments and other non-current assets
Proceeds from disposition of discontinued operations
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Cash on deposit
Issuance of shares
Repurchase of shares
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange movement of opening cash balance
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2007
2006
2005
$ 3,426
$ 2,314
$ 2,128
—
—
3,426
879
77
(1,019)
255
(359)
66
(169)
(360)
1,314
4,110
(515)
1,013
2,812
775
103
(888)
233
(194)
67
(765)
(508)
1,622
3,257
(1,308)
(1,059)
(976)
(1,989)
(121)
(328)
740
—
(89)
(28)
412
610
(2,076)
(2,060)
—
—
2,128
648
117
(355)
138
(178)
213
7
206
447
3,371
(901)
(69)
(106)
(27)
800
—
(303)
1,196
(198)
—
392
1,159
1,841
(865)
(2,110)
—
232
(1,294)
(2,027)
(369)
(273)
1,761
5,783
110
(431)
(1,932)
(735)
6,470
48
275
88
(535)
(240)
(681)
2,387
4,051
32
Cash and cash equivalents, end of year
$ 7,654
$ 5,783
$ 6,470
The accompanying notes are an integral part of these audited consolidated financial statements.
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N E W S C O R P O R A T I O N
Consolidated Statements of Stockholders’ Equity and
Other Comprehensive Income (Loss)
(in millions)
For the years ended June 30,
Class A common stock:
Balance, beginning of year
Acquisitions
Shares issued
Treasury shares
Shares repurchased
Balance, end of year
Class B common stock:
Balance, beginning of year
Acquisitions
Shares issued
Treasury shares
Shares repurchased
Balance, end of year
Additional Paid-In Capital:
Balance, beginning of year
Acquisitions
Issuance of shares
Repurchase of shares
Treasury shares
Dividends declared
Other
Balance, end of year
Retained Earnings (Accumulated Deficit):
Balance, beginning of year
Net income
Dividends declared
Change in value of minority put arrangements and other
Balance, end of year
Accumulated Other Comprehensive Income (Loss):
Balance, beginning of year
Adoption of Statement of Financial Accounting Standards
Statement No. 158, net of tax
Other comprehensive income (loss), net of income tax
expense of $(1) million, $(124) million and $(46) million
Balance, end of year
Retained Earnings (accumulated deficit) and accumulated
other comprehensive income (loss), end of year
Total Stockholders’ Equity
Comprehensive Income (Loss):
Net income
Other comprehensive income (loss), net of tax:
Unrealized holding (losses) gains on securities
Minimum pension liability adjustment
Foreign currency translation adjustments
Total other comprehensive income (loss), net of tax
Total comprehensive income
2007
2006
2005
Shares
Amount
Shares
Amount
Shares
Amount
$
2,169
—
28
—
(58)
2,139
987
—
—
—
—
987
$
$
22
—
—
—
(1)
21
10
—
—
—
—
10
2,237
2
50
(38)
(82)
2,169
1,030
—
—
—
(43)
987
22
—
1
—
(1)
22
10
—
—
—
—
10
1,935
2,049
8
(1,740)
(15)
2,237
1,050
308
1
(314)
(15)
1,030
19
20
—
(17)
—
22
11
3
—
(3)
(1)
10
28,153
—
394
(1,293)
—
—
79
27,333
1,609
3,426
(362)
(60)
4,613
80
(199)
1,064
945
30,044
33
750
(2,026)
(592)
(239)
183
28,153
(527)
2,314
(178)
—
1,609
(172)
—
252
80
5,558
$32,922
1,689
$29,874
23,636
20,629
76
(535)
(13,528)
(255)
21
30,044
(2,655)
2,128
—
—
(527)
(136)
—
(36)
(172)
(699)
$ 29,377
3,426
2,314
2,128
121
73
870
1,064
$ 4,490
(64)
167
149
252
(94)
(34)
92
(36)
$ 2,566
$ 2,092
The accompanying notes are an integral part of these audited consolidated financial statements.
NEWS CORPORATION 2007 Annual Report
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements
Note 1 Description of Business
On November 12, 2004, a new Delaware corporation named News Corporation (for periods after November 12, 2004, the
“Company”) became, through a wholly-owned subsidiary named News Australia Holdings Pty Ltd (“News Australia Holdings”), the
parent of News Holdings Inc. (formerly known as The News Corporation Limited), an Australian corporation (“TNCL” or for periods
prior to November 12, 2004, the “Company”). These transactions are collectively referred to as the “Reorganization.”
In the Reorganization, all outstanding TNCL ordinary shares and preferred limited voting ordinary shares were cancelled and
shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”), and Class B common stock,
par value $0.01 per share (“Class B Common Stock”), were issued in exchange on a one-for-two share basis. The consolidated
financial statements have been presented as if the one-for-two share exchange took place on July 1, 2004.
On November 12, 2004, as part of the Reorganization, News Corporation acquired from the A.E. Harris Trust (the “Harris
Trust”) the approximate 58% shareholding in Queensland Press Pty Limited (“QPL”) not already owned by TNCL through the
acquisition of the Cruden Group of companies. The principal assets of the Cruden Group were the shareholding in QPL and shares
of TNCL. (See Note 3—Acquisitions, Disposals and Other Transactions)
News Corporation and its subsidiaries (together, “News Corporation” or the “Company”) is a Delaware corporation,
incorporated in 2004 (See Note 3—Acquisitions, Disposals and Other Transactions). News Corporation is a diversified entertainment
company, which manages and reports its businesses in eight segments: Filmed Entertainment, which principally consists of the
production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertain-
ment media worldwide, and the production of television programming worldwide Television, which principally consists of the oper-
ation of broadcast television stations in the United States; the broadcasting of network programming in the United States through
the Fox Broadcasting Company (“FOX”) and MyNetworkTV, Inc. (“MyNetworkTV”); and the development, production and broad-
casting of television programming in Asia through Star Group Limited (“STAR”); Cable Network Programming, which principally
consists of the production and licensing of programming distributed through cable television systems and direct broadcast satellite
(“DBS”) operators primarily in the United States; Direct Broadcast Satellite Television, which principally consists of the distribution of
premium programming services via satellite and broadband directly to subscribers in Italy through SKY Italia; Magazines and Inserts,
which principally consists of the publication of free-standing inserts, which are promotional booklets containing consumer offers
distributed through insertion in local Sunday newspapers in the United States, and providing in-store marketing products and serv-
ices, primarily to consumer packaged goods manufacturers in the United States and Canada; Newspapers, which principally consists
of the publication of four national newspapers in the United Kingdom, the publication of approximately 145 newspapers in Austral-
ia, and the publication of a mass circulation, metropolitan morning newspaper in the United States; Book Publishing, which princi-
pally consists of the publication of English language books throughout the world through HarperCollins; and Other, which includes
NDS Group plc (“NDS”), which is engaged in the business of supplying digital technology and services, enabling and supporting
digital pay-television platform operators and content providers; News Outdoor Group (“News Outdoor”), an advertising business
which offers display advertising primarily in outdoor locations throughout Russia and Eastern Europe; and Fox Interactive Media
(“FIM”), which operates the Company’s Internet activities.
Note 2 Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of all majority-owned and controlled subsidiaries. In addition, the Com-
pany evaluates its relationships with other entities to identify whether they are variable interest entities as defined by Financial
Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 46R, “Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51” (“FIN 46R”), and to assess whether it is the primary beneficiary of such entities. If the determination is made that the
Company is the primary beneficiary, then that entity is consolidated in accordance with FIN 46R.
All significant intercompany accounts and transactions have been eliminated in consolidation, including the intercompany por-
tion of transactions with equity method investees.
Certain fiscal 2006 and fiscal 2005 amounts have been reclassified to conform to the fiscal 2007 presentation.
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30th. Fiscal 2007 ended on July 1, 2007
and was comprised of 52 weeks. Fiscal 2006 ended on July 2, 2006 and was comprised of 52 weeks and fiscal 2005 ended on July 3,
2005 and was comprised of 53 weeks. For convenience purposes, the Company continues to date its financial statements as of
June 30th.
Use of estimates
The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles in
the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts that are reported in
the consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.
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Notes to the Consolidated Financial Statements (continued)
Concentration of credit risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of
insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial
institutions of reputable credit and therefore bear minimal credit risk.
Inventories
Filmed Entertainment Costs:
In accordance with Statement of Position (“SOP”) No. 00-2, “Accounting by Producers or Distributors of Films” (“SOP 00-2”),
Filmed entertainment costs include capitalized production costs, overhead and capitalized interest costs, net of any amounts
received from outside investors. These costs, as well as participations and talent residuals, are recognized as operating expenses on
an individual film or network series basis in the ratio that the current fiscal year’s gross revenues bear to management’s estimate of
total remaining ultimate gross revenues. Television production costs incurred in excess of the amount of revenue contracted for each
episode in the initial market are expensed as incurred on an episode by episode basis. Estimates for initial syndication and basic
cable revenues are not included in the estimated lifetime revenues of network series until such sales are probable. Television pro-
duction costs incurred subsequent to the establishment of secondary markets are capitalized and amortized. Marketing costs and
development costs under term deals are charged as operating expenses as incurred. Development costs for projects not produced
are written-off at the earlier of the time the decision is taken not to develop the story or after three years.
Filmed entertainment costs are stated at the lower of unamortized cost or estimated fair value on an individual motion picture
or television product basis. Revenue forecasts for both motion pictures and television products are continually reviewed by
management and revised when warranted by changing conditions. When estimates of total revenues and other events or changes in
circumstances indicate that a motion picture or television production has a fair value that is less than its unamortized cost, a loss is
recognized currently for the amount by which the unamortized cost exceeds the film or television production’s fair value.
Programming Costs:
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 63, “Financial Reporting by Broadcasters,” costs
incurred in acquiring program rights or producing programs for the Television, DBS and Cable Network Programming segments are
capitalized and amortized over the license period or projected useful life of the programming. Program rights and the related
liabilities are recorded at the gross amount of the liabilities when the license period has begun, the cost of the program is determi-
nable and the program is accepted and available for airing. Television broadcast network and original cable programming are amor-
tized on an accelerated basis. The Company has single and multi-year contracts for broadcast rights of programs and sporting
events. At the inception of these contracts and at each subsequent reporting date, the Company evaluates the recoverability of the
costs associated therewith, using aggregate estimated advertising revenues directly associated with the program material and
related expenses. Where an evaluation indicates that a multi-year contract will result in an ultimate loss, additional amortization is
provided to currently recognize that loss. The costs of national sports contracts at FOX and for international sports rights agree-
ments are charged to expense based on the ratio of each period’s operating profits to estimated total remaining operating profit of
the contract. Estimates of total operating profit can change and accordingly, are reviewed periodically and amortization is adjusted
as necessary. Such changes in the future could be material.
The costs of local and regional sports contracts, which are for a specified number of events, are amortized on an event-by-event
basis. Those costs, which are for a specified season, are amortized over the season on a straight-line basis and if applicable, a portion
of the cost is allocated to rebroadcasts.
Inventories for other divisions are valued at the lower of cost or net realizable value. Cost is primarily determined by the first in
first out average cost method or by specific identification.
Equity method investments
Investments in and advances to equity or joint ventures in which the Company has a substantial ownership interest of approximately
20% to 50% and exercises significant influence, or for which the Company owns more than 50% but does not control policy deci-
sions, are accounted for by the equity method. The difference between the Company’s investment and its share of the fair value of
the underlying net assets of the investee is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the bal-
ance is attributed to goodwill. The Company follows SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),
which requires that equity method finite-lived intangibles be amortized over their estimated useful life while indefinite-lived
intangibles and goodwill are not amortized.
Equity method investments are reviewed for impairment on a quarterly basis by initially comparing their fair value to their
respective carrying amounts each quarter. The Company determines the fair value of its public company investments by reference to
their publicly traded stock price. With respect to private company investments, the Company makes its estimate of fair value by
considering other available information, including recent investee equity transactions, discounted cash flow analyses, estimates
based on comparable public company operating multiples and, in certain situations, balance sheet liquidation values. If the fair value
of the investment has dropped below the carrying amount, management considers several factors when determining whether an
other-than-temporary decline in market value has occurred, including the length of the time and extent to which the market value
has been below cost, the financial condition and near-term prospects of the issuer, the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value and other factors
influencing the fair market value, such as general market conditions.
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Notes to the Consolidated Financial Statements (continued)
Other investments
Investments in which there is no significant influence (generally less than a 20% ownership interest) are accounted for under the
cost method of accounting, unless they have readily determinable fair values. The Company reports investments with readily deter-
minable fair values at fair value based on quoted market prices. Investment securities with readily determinable fair values are des-
ignated as available for sale with unrealized gains and losses included in accumulated other comprehensive income (loss), net of
applicable taxes and other adjustments. The Company regularly reviews available for sale investment securities for other-than-
temporary impairment based on criteria that include the extent to which the investment’s carrying value exceeds its related market
value, the duration of the market decline, the Company’s ability to hold until recovery and the financial strength and specific pros-
pects of the issuer of the security. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and
losses are accounted for on the specific identification method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over an estimated useful
life of two to 50 years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or
the life of the lease. Costs associated with the repair and maintenance of property are expensed as incurred. Changes in circum-
stances, such as technological advances, changes to the Company’s business model or capital strategy, could result in the actual
useful lives differing from the Company’s estimates. In those cases where the Company determines that the useful life of buildings
and equipment should be shortened, the Company would depreciate the asset over its revised remaining useful life thereby increas-
ing depreciation expense.
Goodwill and intangible assets
The Company has a significant amount of intangible assets, including goodwill, film and television libraries, Federal Communications
Commission (“FCC”) licenses, newspaper mastheads, distribution networks, publishing rights and other copyright products and
trademarks. Goodwill is recorded as the difference between the cost of acquiring entities and amounts assigned to their tangible and
identifiable intangible net assets. In accordance with SFAS No. 142, the Company’s goodwill and indefinite-lived intangible assets,
which primarily consist of FCC licenses, are no longer amortized but are tested annually for impairment or earlier if events occur or
circumstances change that would more likely than not reduce the fair value below its carrying amount. Intangible assets with finite
lives, are generally amortized using the straight-line method over their estimated useful lives, which generally range from three to 20
years and are reviewed for impairment at least annually. SFAS No. 142 requires the Company to perform an annual impairment
assessment of its goodwill and indefinite-lived intangible assets. This impairment assessment compares the fair value of these
intangible assets to their carrying value. The Company determined that the goodwill and indefinite-lived intangible assets included
in the consolidated balance sheets were not impaired.
Effective July 1, 2005, the Company adopted Emerging Issues Task Force (“EITF”) No. D-108 “Use of the Residual Method to
Value Acquired Assets Other Than Goodwill” (“EITF D-108”). (See Note 8—Goodwill and Intangible Assets)
Impairment of long-lived and intangible assets
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the Company periodically review the
carrying amounts of its property, plant and equipment and its finite-lived intangible assets to determine whether current events or
circumstances indicate that such carrying amounts may not be recoverable. If the carrying amount of the asset is greater than the
expected undiscounted cash flows to be generated by such asset, an impairment adjustment is to be recognized. Such adjustment is
measured by the amount that the carrying value of such assets exceeds their fair value. The Company generally measures fair value
by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.
Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary sig-
nificantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair
value less costs to sell. The Company determined that the long-lived and intangible assets included in the consolidated balance
sheets were not impaired.
Financial instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, cost investments and long-term
borrowings, approximate fair value. The fair value of financial instruments is generally determined by reference to market values
resulting from trading on a national securities exchange or in an over-the-counter market. Derivative instruments embedded in
other contracts, such as exchangeable securities, are separated into their host and derivative financial instrument components. The
derivative component is recorded at its estimated fair value in the consolidated balance sheet with changes in estimated fair value
recorded in Other, net in the consolidated statement of operations.
Guarantees
The Company follows FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing certain guarantees.
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Notes to the Consolidated Financial Statements (continued)
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service
has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the
appropriate accounting treatment.
Filmed Entertainment:
Revenues are recognized in accordance with SOP 00-2. Revenues from the distribution of motion pictures are recognized as they are
exhibited, and revenues from home entertainment sales, net of a reserve for estimated returns, are recognized on the date that DVD
units are made available for sale by retailers and all Company-imposed restrictions on the sale of DVD units have expired.
License agreements for the telecast of theatrical and television product in the broadcast network, syndicated television and
cable television markets are routinely entered into in advance of their available date for telecast. Cash received and amounts billed in
connection with such contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred
revenue generally relates to contracts for the licensing of theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period
for telecast under the terms of the related licensing agreement.
Television, Cable Network Programming and DBS:
Advertising revenue is recognized as the commercials are aired. Subscriber fees received from cable systems and DBS operators for
cable network programming are recognized as revenue in the period services are provided. DBS subscription and pay-per-view rev-
enues are recognized when programming is broadcast to subscribers, while fees for equipment rental are recognized as revenue on
a straight-line basis over the contract period.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to a cable or DBS operator to
facilitate the launch of a cable network) against revenue in accordance with EITF No. 01-09, “Accounting for the Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor’s Products.” The Company defers the cable distribution investments
and amortizes the amounts on a straight-line basis over the contract period.
Newspapers, Magazine Inserts and Book Publishing
Advertising revenue from newspapers, inserts and magazines is recognized when the advertisements are published. Revenues earned
from book publishing and from newspaper circulation are recognized upon passing of control to the buyer.
Sales returns
Consistent with industry practice, certain of the Company’s products, such as home entertainment products, books and news-
papers, are sold with the right of return. The Company records, as a reduction of revenue, the estimated impact of such returns. In
determining the estimate of product sales that will be returned, management analyzes historical returns, current economic trends
and changes in customer demand and acceptance of the Company’s product. Based on this information, management reserves a
percentage of each dollar of product sales that provide the customer with the right of return.
Subscriber acquisition costs
Subscriber acquisition costs in the DBS segment primarily consist of amounts paid for third-party customer acquisitions, which con-
sist of the cost of commissions paid to authorized retailers and dealers for subscribers added through their respective distribution
channels and the cost of hardware and installation subsidies for subscribers. All costs, including hardware, installation and commis-
sions, are expensed upon activation. However, where legal ownership is retained in the equipment, the cost of the equipment is
capitalized and depreciated over the useful life. Additional components of subscriber acquisition costs include the cost of print, radio
and television advertising, which are expensed as incurred.
Advertising expenses
The Company expenses advertising costs as incurred, including advertising expenses for theatrical and television product in accord-
ance with SOP 00-2. Advertising expenses recognized for the fiscal years ended June 30, 2007, 2006, and 2005 totaled $2.4 billion,
$2.3 billion and $2.2 billion, respectively.
Translation of foreign currencies
Income and expense accounts of foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method
whereby trading results are converted at the average rate of exchange for the period and assets and liabilities are converted at the
closing rates on the period end date. The resulting translation adjustments are accumulated as a component of accumulated other
comprehensive income (loss). Gains and losses from foreign currency transactions are included in income for the period.
The Company enters into limited forward foreign exchange contracts with the objective of protecting the Company against
future adverse foreign exchange fluctuations. Exchange gains or losses on these contracts are included in net income (loss), except
where they relate to specific commitments, whereby they are deferred until the commitment to sell or purchase is satisfied.
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Notes to the Consolidated Financial Statements (continued)
Capitalization of interest
Interest cost on funds invested in major projects, primarily theatrical productions, with substantial development and construction
phases are capitalized until production or operations commence. Once production or operations commence, the interest costs are
expensed as incurred. Capitalized interest is amortized over future periods on a basis consistent with that of the project to which it
relates. Total interest capitalized was $24 million, $28 million and $31 million, for the fiscal years ended June 30, 2007, 2006 and
2005, respectively. Amortization of capitalized interest for the fiscal years ended June 30, 2007, 2006 and 2005 was $34 million,
$44 million and $48 million, respectively.
Income taxes
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109
requires an asset and liability approach for financial accounting and reporting for income taxes. Under the asset and liability
approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are established where
management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Deferred
taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries to the extent amounts are expected
to be reinvested indefinitely.
Earnings per share
Net income available to the Company’s common stockholders is allocated between the Company’s two classes of common stock,
Class A Common Stock and Class B Common Stock. The allocation between classes is based upon the two-class method. Under the
two-class method, earnings per share for each class of common stock is allocated according to dividends declared and participation
rights in undistributed earnings. (See Note 20–Earnings Per Share for the calculation of basic and diluted earnings per share under
the two-class method.)
Basic earnings per share for Class A and Class B Common Stock is calculated by dividing net income or loss, less dividends on
perpetual preference shares, by the weighted average number of shares of Class A and Class B Common Stock outstanding. Diluted
earnings per share for Class A and Class B Common Stock is calculated similarly, except that the calculation includes the dilutive
effect of the assumed issuance of shares issuable under the Company’s equity-based compensation plans and the dilutive effect of
convertible securities.
Comprehensive income (loss)
The Company follows SFAS No. 130, “Reporting Comprehensive Income,” for the reporting and display of comprehensive income.
For the years ended June 30,
Accumulated other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities:
Balance, beginning of year
Fiscal year activity
Balance, end of year
Pension liability adjustments:
Balance, beginning of year
Adoption of SFAS No. 158
Fiscal year activity
Balance, end of year
Foreign currency translation adjustments:
Balance, beginning of year
Fiscal year activity
Balance, end of year
Total accumulated other comprehensive income (loss), net of tax
2007
2006
2005
(in millions)
$
19
$ 83
$ 177
121
140
(79)
(199)
73
(205)
(64)
19
(94)
83
(246)
(212)
—
167
—
(34)
(79)
(246)
140
870
1,010
(9)
(101)
149
140
92
(9)
$ 945
$ 80
$(172)
Equity based compensation
The Company accounts for share based payments in accordance with SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123R”). SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the consolidated
financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment
arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-
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Notes to the Consolidated Financial Statements (continued)
based payment transactions with employees. The Company adopted SFAS 123R in July 2005 using a modified prospective applica-
tion, as permitted under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application, the Com-
pany is required to record compensation expense for all share-based awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding at the date of adoption.
Pension and other postretirement benefits
In June 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans–an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to
recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize changes in that funded status in the fiscal year in which the
changes occur through comprehensive income. (See Note 16–Pensions and Other Postretirement Benefits)
The following table summarizes the incremental effects of the initial adoption of SFAS No. 158 on the Company’s consolidated
balance sheet as of June 30, 2007:
Intangible assets
Other non-current assets
Total assets
Other liabilities
Deferred income taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
Before
application of
SFAS No. 158
SFAS
No. 158
adjustment
(in millions)
After
application of
SFAS No. 158
$11,710
$
(7)
$11,703
1,096
62,624
3,301
5,999
33,121
62,624
(274)
(281)
18
(100)
(199)
(281)
822
62,343
3,319
5,899
32,922
62,343
Derivatives
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), requires every derivative instru-
ment (including certain derivative instruments embedded in other contracts) to be recorded on the balance sheet at fair value as
either an asset or a liability. SFAS No. 133 also requires that changes in the fair value of recorded derivatives be recognized currently
in earnings unless specific hedge accounting criteria are met.
The Company uses financial instruments designated as cash flow hedges to hedge its limited exposures to foreign currency
exchange risks associated with the costs for producing films abroad. All cash flow hedges are recorded at fair value on the con-
solidated balance sheet. As of June 30, 2007 and 2006, the notional amount of foreign exchange forward contracts with foreign
currency risk was $107.8 million and $39.0 million, respectively, and the net unrealized gain was approximately $2.5 million and
$0.4 million, respectively. The potential loss in fair value for such financial instruments for a 10% adverse change in quoted foreign
currency exchange rates would be approximately $10.8 million and $0.5 million, respectively. The effective changes in fair value of
derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) with foreign currency
translation adjustments. Amounts are reclassified from accumulated other comprehensive income (loss) when the underlying
hedged item is recognized in earnings. If derivatives are not designated as hedges, changes in fair value are recorded in earnings.
(See Note 10–Exchangeable Securities.)
Recent accounting pronouncements
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109,
Accounting for Income Taxes” (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions. FIN 48
clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company adopted FIN 48 as of July 1, 2007, as required. The Company does not anticipate that the
adoption of FIN 48 will have a material effect on the Company’s future results of operation and financial condition.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), providing a framework to
improve the comparability and consistency of fair value measurements in applying GAAP. SFAS No. 157 also expands the disclosures
regarding fair value measurement. SFAS No. 157 will become effective for the Company beginning in fiscal 2009. The Company is
currently evaluating what effects the adoption of SFAS No. 157 will have on the Company’s future results of operations and financial
condition.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities–Including
an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 allows companies to choose to measure many finan-
cial instruments and certain other items at fair value. SFAS No. 159 will become effective for the Company beginning in fiscal 2009.
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Notes to the Consolidated Financial Statements (continued)
The Company is currently evaluating what effects the adoption of SFAS No. 159 will have on the Company’s future results of oper-
ations and financial condition.
Note 3 Acquisitions, Disposals and Other Transactions
Fiscal 2007 Transactions
Acquisitions
In November 2006, the Company, together with a local Turkish partner, acquired TGRT (now called “FOX TV”), a national general
interest free-to-air broadcast television station in Turkey. The Company acquired its interest for approximately $103 million in cash
plus acquisition related costs.
In December 2006, NDS, an indirect majority-owned subsidiary of the Company, acquired Jungo Limited (“Jungo”), a devel-
oper and supplier of software for residential gateway devices, for approximately $91 million. Additional consideration of up to $17
million may be payable in cash, contingent upon Jungo achieving certain revenue and profitability targets in the year ending
December 31, 2007.
In January 2007, the Company and VeriSign, Inc. (“VeriSign”) formed a joint venture to provide entertainment content for
mobile devices. The Company paid approximately $190 million for a controlling interest in VeriSign’s wholly-owned subsidiary,
Jamba, which was combined with certain of the Company’s Fox Mobile Entertainment assets. The results of the joint venture have
been included in the Company’s consolidated results of operations since January 2007. The Company and VeriSign have various call
and put rights related to VeriSign’s ownership interest, including VeriSign’s right to put its interest in the joint venture to the Com-
pany for $150 million and $350 million, in fiscal 2010 and fiscal 2012, respectively.
In March 2007, the Company acquired Strategic Data Corporation (“SDC”), a developer of technology that allows websites to
target advertisements to specific audiences. The Company acquired SDC for a total purchase price of $50 million, of which $40 mil-
lion was in cash and $10 million in deferred consideration. The Company may be required to pay up to an additional $310 million
through fiscal 2010 contingent upon SDC achieving specified advertising rate growth in future periods.
In April 2007, the Company completed its acquisition of Federal Publishing Company’s (“FPC”) magazines, newspapers and
online properties in Australia from F Hannan Pty Limited for approximately $393 million.
In accordance with SFAS No. 142, the excess purchase price that has been allocated or has been preliminarily allocated to
goodwill is not being amortized for all of the acquisitions noted above. Where the allocation of the excess purchase price is not final,
the amount allocated to goodwill is subject to changes upon completion of final valuations of certain assets and liabilities. A future
reduction in goodwill for additional value to be assigned to identifiable finite-lived intangible assets or tangible assets could reduce
future earnings as a result of additional amortization. For every $10 million reduction in goodwill for additional value to be assigned
to identifiable finite-lived intangible assets or tangible assets, Depreciation and amortization expense would increase by approx-
imately $1 million per fiscal year, representing amortization expense assuming an average useful life of ten years.
The aforementioned acquisitions were all accounted for in accordance with SFAS No. 141, “Business Combinations” (“SFAS
141”).
Share Exchange Agreement
On December 22, 2006, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Liberty
Media Corporation (“Liberty”). Under the terms of the Share Exchange Agreement, Liberty will exchange its entire interest in the
Company’s common stock (approximately 325 million shares of Class A Common Stock and 188 million shares of Class B Common
Stock) for 100% of a News Corporation subsidiary (“Splitco”), whose holdings will consist of an approximately 39% interest
(approximately 470 million shares) in The DIRECTV Group, Inc. (“DIRECTV”) constituting the Company’s entire interest in DIRECTV,
three of the Company’s Regional Sports Networks (FSN Northwest, FSN Pittsburgh and FSN Rocky Mountain (the “Three RSNs”))
and $588 million in cash, subject to adjustment. The transaction contemplated by the Share Exchange Agreement was approved by
the Company’s Class B stockholders on April 3, 2007 but remains subject to customary closing conditions, including, among other
things, regulatory approvals, the receipt of a ruling from the Internal Revenue Service and the absence of a material adverse effect
on Splitco. If these conditions are satisfied, the transaction is expected to be completed in the fourth quarter of calendar 2007. The
Company will enter into a non-competition agreement with DIRECTV and non-competition agreements with each of the Three
RSNs, in each case, restricting its right to compete for a period of four years with DIRECTV and the Three RSNs in the respective
regions in which such entities are operating on the date the Share Exchange Agreement is consummated.
Other Transactions
In August 2006, the Company announced that its FIM division entered into a multi-year search technology and services agreement
with Google, Inc. (“Google”), pursuant to which Google is the exclusive search and keyword-targeted advertising sales provider for
a majority of FIM’s web properties. Under the terms of the agreement, Google is obligated to make guaranteed minimum revenue
share payments to FIM of $900 million, of which the $50 million that was due was paid as of June 30, 2007. These guaranteed
minimum revenue share payments, which are based on FIM’s achievement of certain traffic and other commitments, are expected
to be made through the second quarter of calendar 2010.
The Company previously entered into an agreement with a direct response marketing company that provided the Company
with participation rights if the direct response marketing company is ever sold or consummates certain other strategic transactions.
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Notes to the Consolidated Financial Statements (continued)
In December 2006, the Company entered into an agreement to terminate the participation rights for $100 million, of which $50
million payments were received by the Company in each of December 2006 and March 2007. This transaction closed in March
2007 and the Company recorded a gain of approximately $97 million on this transaction which is included in Other, net in the
consolidated statements of operations. An additional termination payment of $175 million will be made to the Company by the
direct response marketing company if it is sold prior to March 31, 2008.
In fiscal 2007, the Company restructured the ownership interest in one of its majority-owned Regional Sports Networks
(“RSN”). The minority shareholder has a put right related to their respective ownership interest that is currently exercisable and is
outside of the control of the Company. The Company accounts for this put arrangement in accordance with EITF No. D-98
“Classification and Measurement of Redeemable Securities” (“EITF D-98”), and as of June 30, 2007 has included the value of the put
right in minority interest in subsidiaries in the consolidated balance sheet.
Fiscal 2006 Acquisitions
In September 2005, the Company acquired the 25% stake in News Out of Home (“NOOH”) that it did not own for approximately
$175 million in cash. This acquisition increased the Company’s ownership of NOOH to 100%.
In order to increase the Company’s Internet presence, the Company purchased several Internet companies during fiscal 2006
through its FIM division.
In September 2005, the Company acquired all of the outstanding common and preferred stock of Intermix Media, Inc.
(“Intermix”) for approximately $580 million in cash. Under an existing stockholders’ agreement between Intermix, MySpace,
Inc. (“MySpace”), an Internet entertainment company, and certain other stockholders of MySpace, Intermix exercised its option
in July 2005 to acquire the outstanding 47% equity interest of MySpace that it did not already own for approximately $70 mil-
lion in cash. This transaction, which closed in October 2005, increased Intermix’s ownership in MySpace to 100%. In a related
intercompany restructuring, the Company issued approximately 35 million shares of Class A Common Stock, which are consid-
ered treasury shares, to one of its subsidiaries, and, as a result, had no impact on the Company’s outstanding shares.
In September 2005, the Company acquired Scout Media, Inc. (“Scout”), the parent company of Scout.com, the country’s
leading independent online sports network, and Scout Publishing, producer of widely read local sports magazines in the United
States, for approximately $60 million.
In October 2005, the Company acquired IGN Entertainment, Inc., a leading community-based Internet media and services
company for video games and other forms of digital entertainment, for approximately $650 million in cash.
In May 2006, the Company acquired a U.S. regional cable sports and entertainment channel in the southeast region for approx-
imately $375 million. This channel has broadcast rights to the National Hockey League’s Atlanta Thrashers and shares broadcast
rights to Major League Baseball’s (“MLB”) Atlanta Braves and the National Basketball Association’s Atlanta Hawks together with one
of the Company’s existing regional sports networks.
The aforementioned acquisitions were all accounted for in accordance with SFAS No. 141.
Fiscal 2006 Disposals
In October 2005, the Company sold its TSL Education Ltd. division (“TSL”), which included The Times Educational Supplement and
other newspapers, magazines, websites and exhibitions aimed at teachers and education professionals in the United Kingdom for
cash consideration of approximately $395 million. In connection with this transaction, the Company recorded a gain of approx-
imately $381 million, net of tax of $0.
In April 2006, the Company sold Sky Radio Limited (“Sky Radio”), a commercial radio station group in the Netherlands and
Germany for cash consideration of approximately $215 million. In connection with this transaction, the Company recorded a gain of
approximately $134 million, net of tax of $0.
Both of these transactions are included in gain on disposition of discontinued operations in the consolidated statement of oper-
ations for the fiscal year ended June 30, 2006. The net income, assets, liabilities and cash flow attributable to the TSL and Sky Radio
operations are not material to the Company in any of the periods presented and accordingly have not been presented separately.
There was no provision for income taxes related to these transactions as any tax due is offset by a release of a valuation allowance
that was applied to an existing deferred tax asset established for capital losses, which because of the sale of TSL and Sky Radio can
now be utilized.
Fiscal 2005 Transactions
Incorporation in the United States
In April 2004, the Company announced that it would pursue the Reorganization, which would change the Company’s place of
incorporation from Australia to the United States. In August 2004, the Company announced that a special committee of
non-executive Directors and the Board of Directors of the Company had unanimously recommended the proposed Reorganization.
On October 26, 2004, the reorganization was approved by the Company’s stockholders and option holders and on November 3,
2004, the Federal Court of Australia also approved the Reorganization.
On November 12, 2004, the Reorganization was accomplished under Australian law whereby the holders of TNCL’s ordinary
and preferred limited voting ordinary shares, including those ordinary shares and preferred limited voting ordinary shares repre-
sented by American Depositary Receipts (“ADRs”), had their shares cancelled and received in exchange shares of voting and
non-voting common stock of News Corporation at a one-for-two ratio. Reorganization costs expensed during fiscal 2005 amounted
to $49 million and were included in Other operating charges in the Other segment in the consolidated statements of operations.
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Notes to the Consolidated Financial Statements (continued)
In connection with the Reorganization, the Company acquired from the Harris Trust the approximate 58% interest in QPL not
already owned by the Company through the acquisition of the Cruden Group of companies. The principal assets of the Cruden
Group were shares of the Company and a 58% interest in QPL. QPL owns a publishing business which includes two metropolitan
and eight regional newspapers in Queensland, Australia, as well as shares of the Company. The consideration for the acquisition of
the net assets of the Cruden Group, excluding shares of the Company owned directly through the Cruden Group and indirectly
(through QPL) by the Cruden Group, was the issuance of approximately 61 million shares of Class B Common Stock valued at
approximately $1.0 billion and the assumption of approximately $400 million of debt. All of the debt assumed was retired in
November 2004. The excess purchase price over the fair value of the net assets acquired of approximately $1.3 billion has been
allocated to newspaper mastheads and goodwill, which in accordance with SFAS No. 142 are not being amortized. As a result of the
purchase of this interest in QPL, the Company’s ownership interest in QPL increased from 42% to 100% and accordingly on
November 12, 2004, the Company ceased to equity account for QPL. The results of QPL have been included in the Company’s
consolidated statements of operations from November 12, 2004, the date of acquisition.
As a result of the Reorganization, News Corporation became the new parent company of TNCL. News Corporation has a pri-
mary listing on the New York Stock Exchange and secondary listings on the Australian Stock Exchange and the London Stock
Exchange.
In exchange for approximately 78 million shares of Class A Common Stock and approximately 247 million shares of Class B
Common Stock owned directly through the Cruden Group and indirectly (through QPL) by the Cruden Group, the Harris Trust
received shares of News Corporation in the same exchange ratio as all other TNCL stockholders in the Reorganization. The shares of
News Corporation non-voting Class A Common Stock that the Harris Trust received were reduced by the number of shares equal in
value to the net debt and certain other net liabilities of the Cruden Group which were assumed by the Company in the transaction.
The shares issued to the Harris Trust were approximately 61 million shares of Class A Common Stock and approximately 247 million
shares of Class B Common Stock with an approximate aggregate value of $6 billion, and the Company assumed approximately
$250 million of net debt and certain other net liabilities of the Cruden Group. All of the debt assumed was retired in November
2004.
The 61 million shares of Class A Common Stock issued to the Harris Trust were based on agreed estimates. The Company
agreed to compensate the Harris Trust for any difference between the estimated amounts and the actual amounts (the “Adjustment
Amount”) after the completion of the Reorganization, and it was subsequently agreed that the Company would issue to the Harris
Trust additional shares of Class A Common Stock of approximately equivalent value to the Adjustment Amount. The Adjustment
Amount owed to the Harris Trust was approximately an additional $33 million. Following approval by stockholders on October 21,
2005, a total of approximately two million additional shares of Class A Common Stock were issued to the Harris Trust on
October 27, 2005, to provide for the difference between the estimated and actual amounts. The number of shares was determined
based on the New York Stock Exchange closing price of the Class A Common Stock on October 25, 2005.
The Company shares acquired through the acquisition of the Cruden Group, as well as the shares which were indirectly owned
by the Company through its 42% ownership interest in QPL prior to the acquisition, are considered treasury shares. The treasury
shares are accounted for using the par value method. The number of shares of Class A Common Stock and Class B Common Stock
related to this transaction that were held in treasury at June 30, 2007 was approximately 109 million and 314 million, respectively.
Immediately following the Reorganization, the Harris Trust owned approximately 29.5% of the voting Class B Common Stock of
News Corporation.
Fox Entertainment Group Acquisition
In March 2005, Fox Acquisition Corp., a direct wholly-owned subsidiary of the Company, completed its offer to the holders of
Class A common stock of Fox Entertainment Group, Inc. (“FEG”) to exchange 2.04 shares of the Company’s Class A Common Stock
for each outstanding share of FEG’s Class A common stock validly tendered and not withdrawn in the exchange offer (the “Offer”).
Shortly thereafter, the Company effected a merger of FEG with and into Fox Acquisition Corp. Each share of FEG Class A common
stock not acquired in the Offer, other than the shares already owned by the Company, was converted in the merger into 2.04 shares
of the Company’s Class A Common Stock. The Company issued approximately 357 million shares of its Class A Common Stock
valued at approximately $6.3 billion in exchange for the outstanding shares of FEG Class A common stock, resulting in an excess
purchase price of approximately $2.9 billion. After the consummation of the Offer and the subsequent merger, Fox Acquisition
Corp. changed its name to “Fox Entertainment Group, Inc.” As a result of the Offer, the Company’s ownership interest in FEG
increased from approximately 82% to 100%. This acquisition of the remaining non-controlling interests in FEG has been accounted
for under the purchase method in accordance with SFAS No. 141.
The Company has allocated the excess purchase price of $2.9 billion to finite-lived intangible assets, indefinite-lived intangibles,
goodwill and deferred tax liabilities which are included in the Filmed Entertainment, Television, Cable Network Programming and
Other segments.
In connection with the Offer and subsequent merger, a wholly-owned subsidiary of the Company tendered the shares of Fox
Class A common stock and Fox Class B common stock that it owned prior to the acquisition to Fox Acquisition Corp. in exchange
for the Company’s Class A Common Stock at the same exchange ratio as was provided in the Offer for shares of Fox Class A com-
mon stock. As a result of the exchange, the wholly-owned subsidiary owns 1,631 million shares of the Company’s Class A Common
Stock, with an approximate value of $8 billion, which are reflected as treasury shares. The treasury shares are accounted for using
the par value method.
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Notes to the Consolidated Financial Statements (continued)
The following unaudited pro forma consolidated results of operations for the fiscal year ended June 30, 2005 assumes that the
acquisitions of FEG and QPL were completed as of July 1, 2004.
For the year ended June 30, 2005
Revenues
Net Income
Earnings per share—basic
Class A
Class B
Earnings per share—diluted
Class A
Class B
(in millions,
except per
share amounts)
$24,020
2,316
0.74
0.62
0.73
0.61
Pro forma data may not be indicative of the results that would have been obtained had these events actually occurred at the
beginning of the periods presented, nor does it intend to be a projection of future results.
Other fiscal 2005 transactions
In September 2004, the Company purchased Telecom Italia S.p.A.’s (“Telecom Italia”) 20% interest in SKY Italia for cash consid-
eration of $108 million, thereby increasing the Company’s ownership interest in SKY Italia to 100%.
In April 2005, the Company and Rainbow Media Holdings (“Rainbow”) exchanged their investments in Regional Programming
Partners (“RPP”). Under the terms of the agreement, the Company exchanged its 40% interest in RPP for Rainbow’s 60% interests in
Fox Sports Net Ohio and Fox Sports Net Florida (formerly included in the RPP business) and Rainbow’s 50% interests in National
Sports Partners and National Advertising Partners increasing the Company’s ownership in these entities to 100%. In addition, the
Company retained its 40% interest in SportsChannel Pacific Associates (“SportsChannel Bay Area”) (also formerly included in the
RPP business) and remitted to RPP the $150 million in promissory notes it received from RPP as a result of RPP’s December 2003
acquisition of the Company’s direct ownership interests in SportsChannel Chicago Associates (“SportsChannel Chicago”) and
SportsChannel Bay Area. The Company accounted for this exchange in accordance with APB Opinion No. 29, “Accounting for
Nonmonetary Transactions” and accordingly the Company recorded the assets received at fair value upon closing. The Company
has recognized a loss of approximately $85 million on this restructuring in Other, net in the accompanying consolidated statement
of operations.
In February 2004, the Company sold the Los Angeles Dodgers (“Dodgers”) and related properties to entities owned by Frank
McCourt (the “McCourt Entities”) for $421 million in consideration. Part of the consideration delivered by the McCourt Entities at
closing was a $125 million note secured by certain real estate in Boston, Massachusetts. In March 2006, the McCourt entities
remitted the real estate to the Company in full satisfaction of the note, including accrued interest of $20 million. This real estate
consisted of approximately 23 acres located in the Seaport District of Boston, Massachusetts. In conjunction with this transfer, the
Company assumed $36 million in debt. The Company recorded the assets and liabilities received at fair value upon closing. No gain
or loss was recognized as the net fair value of the land approximated the value of the note. In September 2006, the Company sold
this property for $202 million in cash. The Company discharged all of the debt on the property at the time of the sale. Upon the
completion of the March 2006 transaction, the Company recorded the assets and liabilities received at fair value and accordingly no
gain or loss was recognized on the sale of the land in September 2006.
Note 4 United Kingdom Redundancy Program
In fiscal 2005, the Company announced its intention to invest in new printing plants in the United Kingdom to take advantage of
technological and market changes. As the new automated technology comes on line, the Company expects lower production costs
and improved newspaper quality, including expanded color.
In conjunction with this project, during fiscal 2006, the Company received formal approval for the construction of the main new
plant which was the last contingency, thereby committing the Company to a redundancy program (the “Program”) for certain
production employees at the Company’s U.K. newspaper operations. The Program is in response to the reduced workforce that will
be required as new printing presses and the new printing facilities eventually come on line. As a result of this Program, the Company
expects to reduce its production workforce by approximately 65%, and as of June 30, 2007, over 700 employees in the United
Kingdom had already voluntarily accepted severance agreements and are expected to leave the Company in fiscal 2008.
In accordance with SFAS No. 88, “Employers’ Accounting for Settlements & Curtailments of Defined Benefit Pension Plans and
for Termination Benefits,” the Company recorded a redundancy provision of approximately $109 million during fiscal 2006 in Other
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Notes to the Consolidated Financial Statements (continued)
operating charges. During the fiscal year ended June 30, 2007, the Company recorded an additional $24 million relating to the
Program, which was comprised of an increase to the original provision amount, accretion and earned retention expenses, in Other
operating charges in the consolidated statements of operations. Payments of approximately $15 million and $6 million were made
against this accrual during the fiscal year ended June 30, 2007 and 2006, respectively. Foreign currency translation adjustments
increased the program liability balance by approximately $10 million and $5 million for the fiscal years ended June 30, 2007 and
2006, respectively. Program liabilities of approximately $127 million were included in other current liabilities in the June 30, 2007
consolidated balance sheet. The Company expects to record an additional provision of approximately $9 million in fiscal 2008 to
record accretion on the redundancy provision and to recognize any retention bonuses earned. A majority of the Program’s costs are
expected to be paid in cash to employees in fiscal 2008.
Note 5 Inventories
As of June 30, 2007, the Company’s inventories were comprised of the following:
As of June 30,
Programming rights
Books, DVDs, paper and other merchandise
Filmed entertainment costs:
Films:
Released (including acquired film libraries)
Completed, not released
In production
In development or preproduction
Television productions:
Released (including acquired libraries)
Completed, not released
In production
In development or preproduction
Total filmed entertainment costs, less accumulated amortization(a)
Total inventories, net
Less: current portion of inventory, net(b)
Total noncurrent inventories, net
2007
2006
(in millions)
$ 2,390
$ 2,147
497
466
557
—
450
82
1,089
487
13
185
4
689
1,778
4,665
588
88
251
59
986
475
27
147
2
651
1,637
4,250
(2,039)
(1,840)
$ 2,626
$ 2,410
(a) Does not include $553 million and $584 million of net intangible film library costs as of June 30, 2007 and 2006, respectively
which are included in intangible assets subject to amortization in the consolidated balance sheet (see Note 8–Goodwill and
Other Intangible Assets for further details).
(b) Current inventory as of June 30, 2007 and June 30, 2006 is comprised of programming rights ($1,578 million and $1,411 mil-
lion, respectively), books, DVDs, paper, and other merchandise.
As of June 30, 2007, the Company estimated that approximately 68% of unamortized filmed entertainment costs from the com-
pleted films are expected to be amortized during fiscal 2008 and approximately 93% of released filmed entertainment costs will be
amortized within the next three fiscal years. During fiscal 2008, the Company expects to pay $1,067 million in accrued participation
liabilities, which are included in participations, residuals and royalties payable on the consolidated balance sheet. At June 30, 2007,
acquired film and television libraries have remaining unamortized film costs of $165 million, which are generally, amortized using
the individual film forecast method generally over a remaining period of approximately three to 14 years.
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Notes to the Consolidated Financial Statements (continued)
Note 6 Investments
As of June 30, 2007, the Company’s investments were comprised of the following:
As of June 30,
Equity method investments:
The DIRECTV Group, Inc.(1)
Ownership
Percentage
2007
2006
(in millions)
DBS operator principally in the U.S.
39%(3)
$ 7,224
$ 6,866
Gemstar-TV Guide International, Inc.(1)
U.S. print and electronic guidance company
British Sky Broadcasting Group plc(1)
U.K. DBS operator
China Network Systems
Sky Network Television Ltd.
Taiwan cable TV operator
New Zealand media company
National Geographic Channel (US)(2)
U.S. cable channel
National Geographic International(5)
International cable channel
Other equity method investments
Other investments
41%
39%(4)
various
44%
67%
various(5)
various
717
1,193
647
1,061
242
314
316
68
703
636
239
239
295
99
679
476
$11,413
$10,601
(1) The market value of the Company’s investment in DIRECTV, Gemstar-TV Guide International, Inc. (“Gemstar-TV Guide”) and
British Sky Broadcasting Group plc (“BSkyB”) was $10,871 million, $861 million and $8,809 million, respectively, as of June 30,
2007.
(2) The Company does not control this entity as it does not hold a majority on its board of directors, is unable to dictate operating
decision-making and it is not a variable interest entity.
(3) The Company’s ownership in DIRECTV increased from approximately 38% at June 30, 2006 to approximately 39% at June 30,
2007 due to DIRECTV’s share buyback program.
(4) The Company’s ownership in BSkyB increased from approximately 38% at June 30, 2006 to approximately 39% at June 30,
2007 due to BSkyB’s share buyback program.
(5) The Company’s ownership percentage in NGC Network (UK) Limited (“NGC UK”) was 25% and 0% as of June 30, 2007 and
June 30, 2006, respectively. Investments held at June 30, 2006 included a 50% ownership interest in NGC Network Interna-
tional LLC (“NGC International”) and a 67% interest in NGC Network Latin America LLC (“NGC Latin America”). Prior to Jan-
uary 1, 2007, NGC International and NGC Latin America were not consolidated as the Company did not hold a majority on their
board of directors, was unable to dictate operating decision-making and they were not variable interest entities. As of January 1,
2007, the results of NGC International and NGC Latin America have been consolidated by the Company. (See Fiscal Year 2007
Acquisitions and Disposals below for further discussion)
The aggregate market value of the Company’s publicly traded investments was approximately $21,608 million and $16,622 million
at June 30, 2007 and June 30, 2006, respectively. During the fiscal year ended June 30, 2007, the Company made mark-to-market
adjustments in fair value for the publicly traded other investments of $188 million which were recorded as an increase in accumu-
lated other comprehensive income.
Equity Earnings of Affiliates
The Company’s share of the income of each of its equity affiliates is as follows:
For the years ended June 30,
British Sky Broadcasting Group plc
The DIRECTV Group, Inc.(a)
Other DBS equity affiliates
Cable channel equity affiliates
Other equity affiliates
Total equity earnings of affiliates(b)
2007
2006
2005
(in millions)
$ 336
$369
$ 374
489
19
98
77
246
108
68
97
(186)
81
46
40
$1,019
$888
$ 355
(a) The Company’s share of DIRECTV’s losses for the fiscal year ended June 30, 2005 includes the Company’s share of DIRECTV’s
increased loss from its sale of PanAmSat resulting from a reduction in the sales proceeds and the Company’s portion of
DIRECTV’s SPACEWAY program impairment.
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Notes to the Consolidated Financial Statements (continued)
(b) The Company’s investment in several of its affiliates exceeded its equity in the underlying net assets at their acquisition by a total
of $5.9 billion and $5.7 billion as of June 30, 2007 and 2006, respectively.
This excess primarily relates to the Company’s investment in DIRECTV. At June 30, 2007 the remaining excess included in
the investment in DIRECTV was $4.1 billion which represents the excess of fair value over the Company’s proportionate share of
DIRECTV’s underlying net assets as adjusted to record such net assets at fair value, most notably the adjustment to the carrying
value of DIRECTV’s SPACEWAY, PanAmSat, Hughes Software Systems and Hughes Network Systems, Inc. businesses and its
deferred subscriber acquisition costs. The Company’s purchase price allocation reflected the fair value of these assets at the date
of acquisition, which approximate DIRECTV’s revised carrying amounts. As such, portions of the impacts of the preceding items
were recognized by the Company through its purchase price allocation. The resulting excess has been allocated to finite-lived
intangibles, which are being amortized over lives ranging from six to 20 years, and to certain indefinite-lived intangibles and
goodwill, which are not subject to amortization in accordance with SFAS No. 142.
In accordance with SFAS No. 142, the Company amortized $96 million and $83 million in fiscal 2007 and 2006, respectively,
related to amounts allocated to definite-lived intangible assets. Such amortization is reflected in equity earnings of affiliates.
Fiscal Year 2007 Acquisitions and Disposals
In August 2006, the Company sold a portion of its equity investment in Phoenix Satellite Television Holdings Limited (“Phoenix”),
representing a 19.9% stake, for approximately $164 million. The Company recognized a pre-tax gain of approximately $136 million
on the sale included in Other, net in the consolidated statement of operations for the fiscal year ended June 30, 2007. The Com-
pany retained a 17.6% stake in Phoenix, which is accounted for under the cost method of accounting and, accordingly, the carrying
value is adjusted to market value each reporting period as required under SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities.”
In July 2007, the Company and its joint venture partner sold a majority of the cable systems in Taiwan, in which the Company
maintains a minority interest ownership, to a third party. The Company will be recording a gain in proportion to its minority interest
on this transaction. The Company and its joint venture partner intend to sell the remaining cable systems in fiscal 2008.
In October 2006, the Company acquired a 7.3% share in Fairfax, an Australian newspaper publisher, for approximately $299
million. The Company sold its investment in Fairfax in May 2007. A loss of approximately $9 million on this sale was included in
Other, net in the consolidated statement of operations for the fiscal year ended June 30, 2007.
In December 2006, the Company acquired 25% stakes in each of NGC International and NGC UK joint ventures for a combined
total of approximately $154 million. These two joint ventures produce and distribute the National Geographic Channel in various
international markets. The transaction increased the Company’s interest in NGC International to 75% with National Geographic
Television holding the remaining interest. In January 2007, National Geographic Television agreed to certain governance changes
related to the operations of NGC International and NGC Latin America which gave the Company operating decision-making author-
ity and control over these entities. Accordingly, the results of NGC International and NGC Latin America have been included in the
Company’s consolidated results of operations since January 2007.
Fiscal Year 2006 Disposals
In July 2005, the Company sold its entire cost investment in China Netcom Group Corporation (“China Netcom”). The Company’s
1% investment in China Netcom was sold for total consideration of approximately $112 million. The Company recognized a gain of
approximately $52 million on this sale included in Other, net in the consolidated statement of operations for the fiscal year ended
June 30, 2006.
Fiscal Year 2005 Acquisitions and Disposals
In June 2005, the Company sold its entire cost investment in The Wireless Group plc (“Wireless Group”). The Company’s
38.9 million shares of Wireless Group were sold for total consideration of approximately $60 million. The Company recognized a
gain of approximately $6 million on the sale, which is reflected in Other, net in the accompanying consolidated statements of oper-
ations for the fiscal year ended June 30, 2005.
In fiscal 2005, Independent Newspapers Limited merged with Sky Network Television and formed a new company which has
been named Sky Network Television Limited (“Sky Network Television”). As part of the transaction, the Company received net cash
consideration of approximately $60 million and increased the Company’s ownership interest in Sky Network Television by 10%, to
44%.
During fiscal 2005, as part of the Company’s acquisition of the remaining outstanding shares of FEG it did not already own (See
Note 3–Acquisitions, Disposals and Other Transactions), approximately $166 million of the FEG excess purchase price was assigned
to the Company’s investments in National Geographic and DIRECTV, of which approximately $53 million was allocated to amortiz-
able intangibles with an estimated weighted average useful life of 17 years.
In October 2004, the Company and its then 34% investee, DIRECTV, announced a series of transactions with Grupo Televisa,
Globopar and Liberty Media International, Inc. that would result in the reorganization of the companies’ direct-to-home (“DTH”)
satellite television platforms in Latin America. The transactions would result in DIRECTV Latin America and Sky Latin America con-
solidating their two DTH platforms into a single platform in each of the major territories served in the region. As part of these trans-
actions, DIRECTV would acquire News Corporation’s interests in Sky Multi-Country Partners, Innova and Sky Brasil.
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Notes to the Consolidated Financial Statements (continued)
The Sky Multi-Country Partners transaction closed during fiscal 2005 and the Company recognized a pre-tax loss of approx-
imately $55 million on this transaction.
In February 2006, the Company completed its sale of its investment in Innova, a Mexican DTH platform, to DIRECTV for
$285 million. As a result of this transaction, the Company recognized a pre-tax gain of approximately $206 million, in the third
quarter of fiscal 2006. The Company deferred a portion of its total gain on sale due to its indirect retained interest through the
Company’s ownership of DIRECTV. Upon the closing of the Innova transaction, the Company was released from both its Innova
transponder lease guarantee and its guarantee under Innova’s credit agreement.
In August 2006, the Company completed the sale of its investment in Sky Brasil, a Brazilian DTH platform, to DIRECTV for
approximately $300 million in cash which was received in fiscal 2005. The Company recognized a pre-tax gain of approximately
$261 million, which is included in Other, net in the consolidated statement of operations for the fiscal year ended June 30,
2007. The Company deferred a portion of its total gain on sale due to its indirect retained interest through the Company’s
ownership of DIRECTV. As a result of the transaction, the Company was released from its Sky Brasil transponder lease guarantee
and was released from its Sky Brasil credit agreement guarantee in January 2007.
Summarized financial information
Summarized financial information for significant equity affiliates, determined in accordance with Regulation S-X of the Securities
Exchange Act of 1934, as amended, accounted for under the equity method is as follows:
For the years ended June 30,
Revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
As of June 30,
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2007
2006
2005
(in millions)
$24,682
$21,109
$19,734
4,100
2,457
2,473
3,068
1,889
1,889
(221)
(67)
(119)
2007
2006
(in millions)
$ 6,430
$ 7,835
17,885
6,181
10,064
13,613
5,268
8,770
Equity affiliates of the Company have balance sheet dates consistent with the Company with the following exceptions:
Investment
Gemstar-TV Guide International, Inc.
NGC UK
The DIRECTV Group, Inc.
Year End
December 31
December 31
December 31
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Notes to the Consolidated Financial Statements (continued)
Note 7 Property, Plant and Equipment
As of June 30,
Land
Buildings and leaseholds
Machinery and equipment
Less accumulated depreciation and amortization
Construction in progress
Total property, plant and equipment, net
Useful Lives
2007
2006
2 to 50 years
2 to 30 years
(in millions)
$
305
$
288
2,864
6,394
9,563
2,451
5,361
8,100
(4,838)
(4,029)
4,725
892
4,071
684
$ 5,617
$ 4,755
Depreciation and amortization related to property, plant and equipment was $769 million, $676 million and $608 million for
the fiscal years ended June 30, 2007, 2006, and 2005, respectively. This includes depreciation of set-top boxes at the DBS segment
of $119 million, $100 million and $100 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively.
Total operating lease expense was approximately $432 million, $358 million and $327 million for the fiscal years ended
June 30, 2007, 2006 and 2005, respectively.
Note 8 Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, the Company’s intangible assets and related accumulated amortization are as follows:
As of June 30,
FCC licenses(a)
Distribution networks
Publishing rights & imprints
Newspaper mastheads
Other
Intangible assets not subject to amortization
Film library, net of accumulated amortization of $70 million and $39 million as of
June 30, 2007 and 2006, respectively
Other intangible assets, net of accumulated amortization of $222 million and
$138 million as of June 30, 2007 and 2006, respectively
Total intangibles, net
Weighted average
useful lives
2007
2006
(in millions)
Indefinite-lived
$ 6,910
$ 6,910
Indefinite-lived
Indefinite-lived
Indefinite-lived
750
506
918
749
506
796
Indefinite-lived
1,355
1,365
10,439
10,326
20 years
3 – 20 years
553
711
584
536
$11,703
$11,446
(a) Effective July 1, 2005, the Company adopted EITF D-108. EITF D-108 requires companies who have applied the residual value
method in the valuation of acquired identifiable intangibles for purchase accounting and impairment testing to now use a direct
value method. As a result of the adoption, the Company recorded a charge of $1.6 billion ($1 billion net of tax, or ($0.33) per
diluted share of Class A Common Stock and ($0.28) per diluted share of Class B Common Stock) to reduce the intangible balan-
ces attributable to its television stations’ FCC licenses. As required, this charge has been reflected as a cumulative effect of
accounting change, net of tax in the consolidated statement of operations.
The direct valuation method used for FCC Licenses requires, among other inputs, the use of published industry data that are
based on subjective judgments about future advertising revenues in the markets where the Company owns television stations.
This method also involves the use of management’s judgment in estimating an appropriate discount rate reflecting the risk of a
market participant in the U.S. broadcast industry. The resulting fair values for FCC Licenses are sensitive to these long-term
assumptions and any variations to such assumptions could result in an impairment to existing carrying values in future periods
and such impairment could be material.
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Notes to the Consolidated Financial Statements (continued)
The changes in the carrying value of goodwill, by segment, are as follows:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines & Inserts
Newspapers
Book Publishing
Other
Total goodwill
Balance as of
June 30, 2006
Additions
Adjustments
(in millions)
Balance as of
June 30, 2007
$ 1,073
$ —
$ (2)
$ 1,071
3,284
4,779
559
257
913
2
1,681
—
138
—
—
354
—
642
—
(2)
33
—
128
—
(20)
3,284
4,915
592
257
1,395
2
2,303
$12,548
$1,134
$137
$13,819
Goodwill balances increased $1,271 million during the fiscal year ended June 30, 2007, primarily as a result of new acquisitions. The
largest goodwill balance increases arose primarily from acquisitions at the Other segment (Jamba, TGRT, Jungo and SDC), the
Newspapers segment (FPC) and the Cable segment (NGC International). Fiscal 2007 adjustments primarily relate to the finalization
of purchase price allocations for previously announced acquisitions and foreign currency translation adjustments.
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines & Inserts
Newspapers
Book Publishing
Other
Total goodwill
Balance as of
June 30, 2005
Additions
Adjustments
(in millions)
Balance as of
June 30, 2006
$
976
$ —
3,407
4,416
523
257
980
—
385
—
323
—
—
—
2
1,382
$ 97
(123)
40
36
—
(67)
—
(86)
$ 1,073
3,284
4,779
559
257
913
2
1,681
$10,944
$1,707
$(103)
$12,548
Goodwill balances increased $1,604 million during the fiscal year ended June 30, 2006 primarily as a result of new acquisitions. The
largest goodwill balance increases arose from acquisitions at the Other segment (Intermix, IGN and Scout) and at the Cable seg-
ment (SportSouth). Fiscal 2006 adjustments primarily relate to the finalization of purchase price allocations for previously announced
acquisitions and foreign currency translation adjustments.
Amortization related to finite-lived intangible assets was $110 million, $99 million and $40 million for the fiscal years ended
June 30, 2007, 2006 and 2005, respectively.
Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the
succeeding five fiscal years is as follows: 2008—$170 million, 2009—$161 million, 2010—$153 million, 2011—$114 million and
2012—$105 million. These amounts may vary as acquisitions and disposals occur in the future and as purchase price allocations are
finalized.
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Notes to the Consolidated Financial Statements (continued)
Note 9 Borrowings
Weighted average
interest rate at
June 30, 2007
Outstanding
As of June 30,
Due date
2007
2006
(in millions)
Description
Bank Loans(a)
Public Debt
Senior notes issued under January 1993 indenture(b)
Senior notes issued under March 1993 indenture(c)(d)
Liquid Yield Option™ Notes(e)
Exchangeable securities(f)
8.60%
6.75%
2013 - 2034
2008 - 2096
2021
Total public debt
Total borrowings
Less current portion
Long-term borrowings
$
192
$
194
2,217
8,390
72
1,631
2,201
7,390
70
1,572
12,310
11,233
12,502
11,427
355
42
$12,147
$11,385
At June 30, 2007, the fair value of interest bearing liabilities in aggregate amounts to $13.2 billion.
a) The Company previously entered into two loan agreements with the European Bank for Reconstruction and Development
(the “EBRD”) and had an outstanding balance of $154 million under these loans at June 30, 2006. In August 2006, the Company
entered into a loan agreement with Raiffeisen Zentralbank Österreich AG (“RZB”) for $300 million and repaid all amounts out-
standing under the Company’s loan agreements with the EBRD. As of June 30, 2007, $113 million remains available for future use.
The RZB loan bears interest at LIBOR for a period equal to each one, three or six month interest period, plus a margin of up to
2.85% dependent upon certain financial metrics. Principal amounts under the RZB loan are to be repaid in equal amounts every six
months starting on the second anniversary of the date of the agreement until the fifth anniversary of the date of the agreement. The
remaining available amount under the RZB loan, which may be drawn prior to the second anniversary of the date of the agreement,
will be used to expand the Company’s outdoor advertising business primarily in Russia and Eastern Europe. The loans are secured by
certain guarantees, bank accounts and share pledges of the Company’s Russian operating subsidiaries.
b) These notes are issued under the Amended and Restated Indenture dated as of January 28, 1993, as supplemented, among
News America Incorporated (“NAI”), the Company (the “Parent Guarantor”) named therein and U.S. Bank National Association, as
Trustee. These notes are direct unsecured obligations of NAI and rank pari passu with all other unsecured indebtedness of NAI.
Redemption may occur, at the option of the holders, at 101% of the principal plus an accrued interest amount in certain circum-
stances where a change of control is deemed to have occurred. These notes are subject to certain covenants, which, among other
things, restrict secured indebtedness to 10% of tangible assets and in certain circumstances limit new senior indebtedness.
c) These notes are issued under the Amended and Restated Indenture dated as of March 24, 1993, as supplemented, among
NAI, the Parent Guarantor named therein and The Bank of New York, as Trustee. These notes are direct unsecured obligations of
NAI and rank pari passu with all other unsecured indebtedness of NAI. Redemption may occur, at the option of the holders, at
101% of the principal plus an accrued interest amount in certain circumstances where a change of control is deemed to have
occurred. These notes are subject to certain covenants, which, among other things, restrict secured indebtedness to 10% of tangible
assets and in certain circumstances limit new senior indebtedness.
d) In December 2004, the Company issued approximately $750 million of 5.30% Senior Notes due 2014 and $1,000 million of
6.20% Senior Notes due 2034 for general corporate purposes. The Company received proceeds of $1,743 million on the issuance of
this debt, net of expenses.
In December 2005, the Company issued $1,150 million of 6.40% Senior Notes due 2035 for general corporate purposes. The
Company received proceeds of approximately $1,133 million on the issuance of this debt, net of expenses.
In March 2007, the Company issued $1,000 million of 6.15% Senior Notes due 2037 for general corporate purposes. The
Company received proceeds of approximately $1,000 million on the issuance of this debt, net of expense.
e) In February 2001, the Company issued Liquid Yield OptionTM Notes (“LYONs”) which pay no interest and have an aggregate
principal amount at maturity of $1,515 million representing a yield of 3.5% per annum on the issue price. The remaining holders
may exchange the notes at any time into Class A Common Stock or, at the option of the Company, the cash equivalent thereof at a
fixed exchange rate of 24.2966 shares of Class A Common Stock per $1,000 note. The remaining LYONs are redeemable at the
option of the holders on February 28, 2011 and February 28, 2016 at a price of $706.82 and $840.73, respectively. The Company,
at its election, may satisfy the redemption amounts in cash, Class A Common Stock or any combination thereof. The Company can
redeem the notes in cash at any time at specified redemption amounts.
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Notes to the Consolidated Financial Statements (continued)
On February 28, 2006, 92% of the LYONs were redeemed for cash at the specified redemption amount of $594.25 per LYON.
Accordingly, the Company paid an aggregate of approximately $831 million to the holders of the LYONs that had exercised this
redemption option. The pro-rata portion of unamortized deferred financing costs relating to the redeemed LYONs approximating
$13 million was recognized and included in Other, net in the consolidated statement of operations for the fiscal year ended June 30,
2006.
The LYONs constitute senior indebtedness of NAI and rank equal in right of payment with all present and future senior indebted-
ness of NAI. The Parent Guarantor has fully and unconditionally guaranteed the LYONs. The LYONs, which have been recorded at a
discount, are being accreted using the effective interest rate method.
f) See Note 10—Exchangeable Securities
Interest Expense, Net
Interest expense, net consists of:
For the years ended June 30,
Interest income
Interest expense
Interest capitalized
Interest expense, net
Ratings of Public Debt
The table below summarizes the Company’s credit ratings as of June 30, 2007.
Rating Agency
Moody’s
Standard & Poor’s
Original Currencies of Borrowings
Borrowings are payable in the following currencies:
As of June 30,
United States Dollars
Australian Dollars
Other currencies
Total borrowings
2007
2006
2005
(in millions)
$ 319
$ 246
$ 200
(867)
(819)
(767)
24
28
31
$(524)
$(545)
$(536)
Senior Debt
Outlook
Baa 2
BBB
Stable
Stable
2007
2006
(in millions)
$12,370
$11,312
127
5
111
4
$12,502
$11,427
At June 30, 2007, the impact of foreign currency movements on borrowings was not material.
In May 2007, NAI, a subsidiary of the Company, terminated its existing $1.75 billion Revolving Credit Agreement (the “Prior
Credit Agreement”) and entered into a new credit agreement (the “New Credit Agreement”), among NAI as Borrower, the Com-
pany as Parent Guarantor, the lenders named therein (the “Lenders”), Citibank, N.A. as Administrative Agent and JPMorgan Chase
Bank, N.A. as Syndication Agent. The New Credit Agreement consists of a $2.25 billion five-year unsecured revolving credit facility
with a sublimit of $600 million available for the issuance of letters of credit. Borrowings are in U.S. dollars only, while letters of credit
are issuable in U.S. Dollars or Euros. The significant terms of the New Credit Agreement include, among others, the requirement
that the Company maintain specific leverage ratios and limitations on secured indebtedness. The Company will pay a facility fee of
0.10% regardless of facility usage. The Company will pay interest of a margin over LIBOR for borrowings and a letter of credit fee of
0.30%. The Company is subject to additional fees of 0.05% if borrowings under the facility exceed 50% of the committed facility.
The interest and fees are based on the Company’s current debt rating. Under the New Credit Agreement, NAI may request an
increase in the amount of the credit facility up to a maximum amount of $2.5 billion. The New Credit Agreement is available for the
general corporate purposes of NAI, the Company and its subsidiaries. The maturity date is in May 2012, however, NAI may request
that the Lenders’ commitments be renewed for up to two additional one year periods. At June 30, 2007, letters of credit represent-
ing approximately $121 million were issued under the New Credit Agreement. The total unused credit facility under the New Credit
Agreement amounted to $2,129 million at June 30, 2007. The total unused credit facility under the Prior Credit Agreement
amounted to $1,570 million at June 30, 2006.
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Note 10 Exchangeable Securities
TOPrS
In November 1996, the Company, through a trust (the “Exchange Trust”) wholly-owned by NAI, issued 10 million 5% TOPrS for
aggregate gross proceeds of $1 billion. Such proceeds were invested in (i) preferred securities representing a beneficial interest of
NAI’s 5% Subordinated Discount Debentures due November 12, 2016 (the “Subordinated Debentures”) and (ii) 10,000,000 war-
rants to purchase from NAI ordinary shares of BSkyB (the “Warrants”). During fiscal 2003, approximately 85% of the Company’s
outstanding TOPrS and related warrants were redeemed. As of June 30, 2007, approximately 1.5 million TOPrS and 1 million war-
rants remain outstanding. These investments represent the sole assets of the Exchange Trust. Cumulative cash distributions are
payable on the TOPrS at an annual rate of 5%. The TOPrS have a mandatory redemption date of November 12, 2016 or earlier to
the extent of any redemption by NAI of any Subordinated Debentures or Warrants. The Company has the right to pay cash equal to
the market value of the BSkyB ordinary shares for which the Warrants are exercisable in lieu of delivering freely tradable shares. The
Company and certain of its direct and indirect subsidiaries have certain obligations relating to the TOPrS, the preferred securities
representing a beneficial interest in the Subordinated Debentures, the Subordinated Debentures and Warrants which amount to a
full and unconditional guarantee of the respective issuer’s obligations with respect thereto.
The total net proceeds from the issuance of the TOPrS were allocated between the fair value of the obligation and the fair value
of the Warrants on their date of issuance. The fair value of the Warrants is determined at the end of each period using the Black-
Scholes method. The original fair value of the obligation has been recorded in non-current borrowings and in accordance with SFAS
No. 133, the Warrants are reported at fair value and in non-current other liabilities. The fair value of the obligation is accreted to its
maturity value through the effective interest method. (See Note 17—Other, net) A significant variance in the price of the underlying
stock could have a material impact on the operating results of the Company.
As of June 30, 2007, $129 million and $35 million of the TOPrS were included in borrowings and non-current liabilities,
respectively, on the consolidated balance sheet. As of June 30, 2006, $128 million and $26 million of the TOPrS were included in
borrowings and non-current liabilities, respectively, on the consolidated balance sheet.
BUCS
During fiscal 2003, News Corporation Finance Trust II (the “Trust”) issued an aggregate of $1.655 billion 0.75% BUCS representing
interests in debentures issued by NAI and guaranteed on a senior basis by the Company and certain of its subsidiaries. The net pro-
ceeds from the BUCS issuance were used to purchase approximately 85% of the Company’s outstanding TOPrS. The BUCS are
exchangeable at the holders’ option into BSkyB ordinary shares based on an exchange ratio of 77.09 BSkyB ordinary shares per
$1,000 original liquidation amount of BUCS. The Trust may pay the exchange market value of each BUCS in cash, by delivering
ordinary shares of BSkyB or a combination of cash and ordinary shares of BSkyB.
The holders also have the right to tender the BUCS for redemption on March 15, 2010, March 15, 2013 or March 15, 2018 for
payment of the adjusted liquidation preference plus accrued and unpaid distributions and any final period distribution in, at the
Company’s election, cash, BSkyB ordinary shares, the Company’s Class A Common Stock or any combination thereof.
The Company may redeem the BUCS for cash, BSkyB ordinary shares or a combination thereof in whole or in part, at any time
on or after March 20, 2010, at the adjusted liquidation preference of the BUCS plus any accrued and unpaid distributions and any
final period distribution thereon.
The total net proceeds from the issuance of the BUCS were allocated between the fair value of the obligation and the fair value
of the exchange feature. The fair values of the obligation and the exchange feature were determined by pricing the issuance with
and without the exchange feature. The original fair value of the obligation has been recorded in non-current borrowings and in
accordance with SFAS No.133, the call option feature of the exchangeable debentures is reported at fair value and in non-current
other liabilities. The fair value of the obligation is being accreted to its maturity value through the effective interest method. (See
Note 17—Other, net) A significant variance in the price of the underlying stock could have a material impact on the operating
results of the Company.
As of June 30, 2007, $1,501 million and $352 million of the BUCS were included in borrowings and non-current liabilities,
respectively, on the consolidated balance sheet. As of June 30, 2006, $1,444 million and $235 million of the BUCS were included in
borrowings and non-current liabilities, respectively, on the consolidated balance sheet.
Note 11 Film Production Financing
The Company enters into arrangements with third parties to co-produce many of its theatrical productions. These arrangements,
which are referred to as co-financing arrangements, take various forms. The parties to these arrangements include studio and
non-studio entities, both domestic and foreign. In several of these agreements, other parties control certain distribution rights. The
Filmed Entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the
film, as the investor assumes full risk for that portion of the film asset acquired in these transactions. The substance of these
arrangements is that the third-party investors own an interest in the film and, therefore, receive a participation based on the third-
party investor’s contractual interest in the profits or losses incurred on the film. Consistent with the requirements of SOP 00-2, the
estimate of the third-party investor’s interest in profits or losses incurred on the film is determined by reference to the ratio of actual
revenue earned to date in relation to total estimated ultimate revenues.
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Notes to the Consolidated Financial Statements (continued)
Note 12
Stockholders’ Equity
Preferred Stock and Common Stock
Under the News Corporation Restated Certificate of Incorporation, the Company’s Board of Directors (the “Board”) is authorized to
issue shares of preferred stock or common stock at any time, without stockholder approval, and to determine all the terms of those
shares, including the following:
(i) the voting rights, if any, except that the issuance of preferred stock or series common stock which entitles holders thereof
to more than one vote per share requires the affirmative vote of the holders of a majority of the combined voting power of the
then outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors;
(ii) the dividend rate and preferences, if any, which that preferred stock or common stock will have compared to any other
class; and
(iii) the redemption and liquidation rights and preferences, if any, which that preferred stock or common stock will have
compared to any other class.
Any decision by the Board to issue preferred stock or common stock must, however, be taken in accordance with the Board’s
fiduciary duty to act in the best interests of the Company’s stockholders. The Company is authorized to issue 100,000,000 shares of
preferred stock, par value $0.01 per share, of which 9,000,000 preferred shares have been designated as Series A Junior Participating
Preferred Stock, par value $0.01 per share. As of June 30, 2007, there were no shares of preferred stock, including Series A Junior
Participating Preferred Stock, issued and outstanding. The Board has the authority, without any further vote or action by the stock-
holders, to issue preferred stock in one or more series and to fix the number of shares, designations, relative rights (including voting
rights), preferences, qualifications and limitations of such series to the full extent permitted by Delaware law.
The Company has two classes of common stock that are authorized and outstanding, non-voting Class A Common Stock and
voting Class B Common Stock. Class A Common Stock carry the right to dividends in the amount equal to 120% of the aggregate
of all dividends declared on a share of Class B Common Stock through fiscal 2007. Subsequent to the final fiscal 2007 dividend
payment, shares of Class A Common Stock will cease to carry any rights to a greater dividend than shares of Class B Common Stock.
As of June 30, 2007, there were approximately 54,000 holders of record of shares of Class A Common Stock and 1,600 holders
of record of Class B Common Stock.
In the event of a liquidation or dissolution of the Company, or a portion thereof, holders of Class A Common Stock and Class B
Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its stockholders,
ratably in proportion to the number of shares held by Class A Common Stock stockholders and Class B Common Stock stockholders,
respectively. In the event of any merger or consolidation with or into another entity, the holders of Class A Common Stock and the
holders of Class B Common Stock shall be entitled to receive substantially identical per share consideration.
Stockholder Rights Plan
In fiscal 2005, the Board adopted a stockholder rights plan (the “Rights Plan”).
Under the Rights Plan, each stockholder of record received a distribution of one right for each share of voting and non-voting
common stock of the Company (the “Rights”).
The Rights are represented by the Company’s common stock certificates. The Rights are not traded separately from the com-
mon stock and are not exercisable.
The Rights will become exercisable only if a person or group obtains ownership (defined to include stock which a person has the
right to acquire, regardless of whether such right is subject to the passage of time or the satisfaction of conditions), or announces a
tender offer that would result in ownership of 15% or more of the Company’s voting common stock, at which time each Right
would enable the holder of such Right to buy additional stock of the Company. Following the acquisition of 15% or more of the
Company’s voting common stock, the holders of Rights (other than the acquiring person or group) will be entitled to purchase from
the Company shares of the Company’s voting or non-voting common stock, as applicable, at half price, and in the event of a sub-
sequent merger or other acquisition of the Company, to buy shares of common stock of the acquiring entity at half price. The Rights
Plan grandfathered holdings of voting common stock and disclosed contracts permitting the acquisition of voting common stock in
each case that existed at the time the Right Plan was adopted, including the then existing holdings of the Murdoch family and affili-
ated entities and Liberty, but any additional acquisitions (subject to a 1% cushion granted to all exempt holders) by the Murdoch
family and its affiliated entities or by Liberty and its affiliated entities would trigger the Rights.
In August 2005, the Company announced that the Board determined to extend the expiration date of the Rights Plan for an
additional two-year period, expiring in November 2007. Each Right permits the holder to spend $80 for the purchases described
above. In April 2006, the Company agreed to a settlement of a lawsuit regarding the extension of its stockholder rights plan. In
August 2006, the Company announced that, in accordance with the terms of the settlement of a lawsuit regarding the Company’s
Rights Plan, the Board had approved the adoption of an Amended and Restated Rights Plan, extending the term of the Company’s
existing Rights Plan from November 7, 2007 to October 20, 2008. The Board has the right to extend the term for an additional year
if the situation with Liberty has not, in the Board’s judgment, been resolved. The terms of the Amended and Restated Rights Plan
remain the same as the Company’s existing stockholder rights plan in all other material respects. Pursuant to the terms of the
settlement, on October 20, 2006, the Amended and Restated Rights Plan was presented for a vote of the Company’s Class B stock-
holders at the Company’s 2006 annual meeting of stockholders and the stockholders voted in favor of its approval. In January 2007,
the Rights Plan was amended to allow for the grant of an irrevocable proxy to Liberty in connection with the stockholder vote on
the Share Exchange Agreement. The Company has announced that it intends to redeem the rights issued under the Rights Plan if
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Notes to the Consolidated Financial Statements (continued)
the transactions contemplated under the Share Exchange Agreement are consummated. (See Note 3—Acquisitions, Disposals and
Other Transactions for further discussion of the Share Exchange Agreement)
Stock Repurchase Program
In June 2005, the Company announced a stock repurchase program under which the Company is authorized to acquire from time
to time up to an aggregate of $3 billion in Class A Common Stock and Class B Common Stock. In May 2006, the Company
announced that the Board had authorized increasing the total amount of the stock repurchase program to $6 billion. The Company
repurchased approximately 58 million and approximately 125 million shares during the fiscal year ended June 30, 2007 and 2006,
respectively. The remaining authorized amount at June 30, 2007, under the Company’s stock repurchase program was approx-
imately $2,149 million excluding commissions.
The repurchases will be made through open market transactions. The timing of such transactions and class of shares purchased
will depend on a variety of factors, including market conditions. The program may be suspended or discontinued at any time.
Dividends
The total dividends declared related to fiscal 2007 results were $0.12 per share of Class A Common Stock and $0.10 per share of
Class B Common Stock. In August 2007, the Company declared the final dividend on fiscal 2007 results of $0.06 per share for
Class A Common Stock and $0.05 per share for Class B Common Stock. This together with the interim dividend of $0.06 per share
of Class A Common Stock and a dividend of $0.05 per share of Class B Common Stock constitute the total dividend relating to fiscal
2007.
For the years ended June 30,
Cash dividends paid per share
Class A
Class B
2007
2006
2005
$0.12
$0.10
$0.13
$0.13
$0.10
$0.04
Note 13 Equity Based Compensation
News Corporation 2005 Long-Term Incentive Plan
The Company has adopted the News Corporation 2005 Long-Term Incentive Plan (the “2005 Plan”) under which equity based
compensation, including stock options, restricted stock, restricted stock units (“RSUs”) and other types of awards, may be granted.
Such equity grants under the 2005 Plan will generally vest over a four-year period and expire ten years from the date of grant. The
Company’s employees and directors are entitled to participate in the 2005 Plan. The Compensation Committee of the Board (the
“Compensation Committee”) will determine the recipients, type of award to be granted and amounts of awards to be granted
under the 2005 Plan. Stock options awarded under the 2005 Plan will be granted at exercise prices which are equal to or exceed the
market price at the date of grant. The 2005 Plan replaced the News Corporation 2004 Stock Option Plan under which no additional
stock options will be granted. The maximum number of shares of Class A Common Stock that may be issued under the 2005 Plan is
165 million shares. The remaining shares available for issuance under the 2005 Plan at June 30, 2007 were approximately 148 mil-
lion. The Company will issue new shares of Class A Common Stock for award upon exercises of stock options or vesting of stock-
settled RSUs.
The fair value of equity based compensation under the 2005 Plan will be calculated according to the type of award issued.
Stock options and Stock Appreciation Rights (“SARs”) issued under the 2005 Plan or under the NDS Group plc executive share
option schemes will be fair valued using a Black-Scholes option valuation method that uses the following assumptions: expected
volatility is based on the historical volatility of the Class A Common Stock; expected term of awards granted is derived from the his-
torical activity of the Company’s awards and represents the period of time that the awards granted are expected to be outstanding;
weighted average risk-free interest rate is an average of the interest rates of U.S. government bonds with similar lives on the dates of
the stock option grants; and dividend yield was calculated as an average of a ten year history of the Company’s yearly dividend div-
ided by the fiscal year’s closing stock price.
RSU awards are grants that entitle the holder to shares of Class A Common Stock or the value of shares of Class A Common
Stock as the award vests, subject to the 2005 Plan and such other terms and conditions as the Compensation Committee may
establish. RSUs issued under the 2005 Plan are fair valued based upon the fair market value of Class A Common Stock on the grant
date. Any person who holds RSUs shall have no ownership interest in the shares of Class A Common Stock to which such RSUs relate
until and unless shares of Class A Common Stock are delivered to the holder. All shares of Class A Common Stock reserved for can-
celled or forfeited stock-based compensation awards or for awards that are settled in cash become available for future grants. Cer-
tain RSU awards are settled in cash and are subject to terms and conditions of the 2005 Plan and such other terms and conditions as
the Compensation Committee may establish. During the fiscal years ended June 30, 2007 and 2006, the Company issued
1.8 million and 16.2 million RSUs, respectively, which primarily vest over four years. Outstanding RSUs as of June 30, 2007 and
June 30, 2006 are payable in shares of the Class A Common Stock, upon vesting, except for approximately 2.3 million RSUs that will
be settled in cash. During the fiscal years ended June 30, 2007 and June 30, 2006, approximately 4,583,000 and 295,000 RSUs
vested, of which approximately 3,632,000 and 125,000 were settled in stock and 951,000 and 170,000 were settled in cash,
respectively.
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Notes to the Consolidated Financial Statements (continued)
The following table summarizes the activity related to the Company’s RSUs to be settled in stock:
(Shares in thousands)
Unvested restricted stock units at beginning of the year
Granted
Vested
Cancelled
Fiscal 2007
Fiscal 2006
Weighted
average
grant-
date
fair value
Restricted
stock
units
Weighted
average
grant-
date
fair value
Restricted
stock
units
12,861
$15.37
—
$ —
1,317
(3,632)
(493)
19.28
15.82
15.74
13,187
(125)
(201)
15.38
16.93
15.24
Unvested restricted stock units at the end of the year
10,053
$15.70
12,861
$15.37
In fiscal 2007, a group of executives responsible for various business units within the Company had the opportunity to earn a grant
of RSUs under the 2005 Plan. These fiscal 2007 awards (the “fiscal 2007 LTIP”) were conditioned upon the attainment of
pre-determined operating profit goals for fiscal 2007 by the executive’s particular business unit. If the actual fiscal 2007 operating
profit of the executive’s business unit as compared to its pre-determined target operating profit was within a certain performance
goal range, the executive was entitled to receive a grant of RSUs under the fiscal 2007 LTIP. To the extent that it was determined
that the business unit’s actual fiscal 2007 operating profit fell within the performance goal range, the executive received a percent-
age of his or her annualized base salary, ranging from 0% to 100%, in time-vested RSUs representing shares of our Class A Common
Stock. The RSUs are generally payable in shares of Class A Common Stock. In fiscal 2008, approximately 3.9 million RSUs were
issued in connection with these fiscal 2007 LTIP awards, twenty-five percent of which vested on August 15, 2007. The remaining
balance will vest in three equal annual installments over the next three years, subject to the individual’s continued employment with
the Company.
News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan
As a result of the Reorganization, all preferred limited voting ordinary shares which the Company issued stock options over were
cancelled and holders received in exchange stock options for shares of Class A Common Stock on a one-for-two basis with no
change in the original terms under the News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan
(collectively, the “2004 Plan”). In addition, all other outstanding stock options to purchase preferred limited voting ordinary shares
were adjusted to be exercisable into shares of Class A Common Stock subject to the one-for-two share exchange. Prior to the
Reorganization, stock options were granted to employees with Australian dollar exercise prices.
Under the 2004 Plan, equity grants generally vest over a four-year period and expire ten years from the date of grant. The
equity awards were granted with exercise prices that are equal to or exceed the market price at the date of grant and were valued,
in Australian dollars. The 2004 Plan automatically terminates in 2014.
Other
The Company operates employee share ownership schemes in the United Kingdom and Ireland. These plans enable employees to
enter into fixed-term savings contracts with independent financial institutions linked to an option for Class A Common Stock. The
savings contracts can range from three to seven years with an average expected life of four years. During the fiscal years ended
June 30, 2007, 2006 and 2005, the Company granted approximately 256,000, 341,000 and 1.4 million stock options under this
scheme, respectively.
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Notes to the Consolidated Financial Statements (continued)
The following table summarizes information about the Company’s stock option transactions for all the Company’s stock option
plans (options in thousands):
Fiscal 2007
Fiscal 2006
Fiscal 2005
Options
Weighted average
exercise price
(in A$)
(in US$)
Options
Weighted average
exercise price
(in A$)
(in US$)
Options
Weighted average
exercise price
(in A$)
(in US$)
Outstanding at the beginning of the year
110,881 $14.52 $24.50 131,367 $13.97 $23.35 143,849 $13.69 $23.13
Granted
Exercised
Cancelled
256
17.72
*
935
16.36
*
1,519
14.04
(24,719)
11.04
18.59
(16,102)
10.32
(1,060)
16.01
28.40
(5,319)
13.98
16.74
24.27
(6,273)
10.09
(7,728)
11.95
18.70
15.96
20.97
Outstanding at the end of the year
85,358 $15.52 $26.18 110,881 $14.52 $24.50 131,367 $13.97 $23.35
Vested and unvested expected to vest at
June 30, 2007
Exercisable at the end of the year
Weighted average fair value of options
85,358
83,521
102,055
95,638
granted
$ 8.83
*
$ 4.20
*
$ 6.74 $ 8.66
* Granted in U.S. dollars.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in fiscal years ended June 30:
Weighted average risk free interest rate
Dividend yield
Expected volatility
Maximum expected life of options
2007
2006
2005
4.50%
0.7%
4.94%
0.7%
4.08%
0.9%
26.98%
29.52%
35.38%
7 years
7 years
7 years
The fair value of each outstanding stock option award under the 2004 Plan was estimated on the date of grant using the Black-
Scholes option valuation model that uses the following assumptions: expected volatility was based on historical volatility of the
Class A Common Stock; expected term of stock options granted was derived from the historical activity of the Company’s stock
options and represented the period of time that stock options granted were expected to be outstanding; weighted average risk-free
interest rate was an average of the interest rates of U.S. government bonds with similar lives on the dates of the stock option grants;
and dividend yield was calculated as an average of a ten year history of the Company’s yearly dividend divided by the fiscal year’s
closing stock price.
The exercise prices for the stock options issued prior to the Reorganization in November 2004 are in Australian dollars. The U.S.
dollar equivalents presented above have been converted at historical exchange rates; therefore, the proceeds from the exercise of
these options may differ due to fluctuations in exchange rates in periods subsequent to the date of the grants.
The Company issued 1,325,000 SARs in both fiscal 2005 and fiscal 2004 at exercise prices of $15.20 and $12.99, respectively.
As of June 30, 2007, none of the SARs have been exercised and 593,750 of the SARs issued in fiscal 2005 and 890,625 of the SARs
issued in fiscal 2004 were vested and exercisable. No SARs have been issued since fiscal 2005.
The following table summarizes information about the Company’s stock option transactions (options in thousands):
Options
Outstanding
16,092
41,979
15,274
12,013
85,358
Weighted
Average
Exercise
Price
(in US$)
8.65
12.91
20.34
27.74
$15.52
Weighted
Average
Remaining
Contractual
Life
4.74
3.93
3.05
2.35
Exercisable
Options
16,092
40,392
15,024
12,013
83,521
Weighted
Average
Exercise
Price
(in US$)
8.65
12.89
20.38
27.74
$15.56
Tranches
(in US$)
$6.49 to $9.31
$9.96 to $14.70
$15.20 to $22.38
$23.25 to $27.74
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Notes to the Consolidated Financial Statements (continued)
NDS Option Schemes
NDS has three executive share option schemes (“the NDS Plans”). The NDS Plans provide for the grant of options to purchase Series
A ordinary shares in NDS with a maximum term of ten years. Stock options granted under the NDS Plans vest over a four-year peri-
od. The NDS Plans authorize stock options to be granted subject to a maximum of 10% of the ordinary shares of NDS on issue at
the date of grant. All NDS employees are entitled to participate in the NDS Plans, however (with the exception of the employee
share ownership schemes which are open to all), management determines to whom and how many stock options are granted.
A summary of the NDS stock options (options in thousands):
Fiscal 2007
Weighted
average
exercise price
(in US$)
Options
Outstanding at the beginning of the year
3,691
$26.28
Granted
Exercised
Cancelled
—
(846)
(55)
—
16.68
33.64
Fiscal 2006
Weighted
average
exercise price
(in US$)
$18.17
43.13
14.00
20.05
Options
4,338
942
(1,555)
(34)
Fiscal 2005
Weighted
average
exercise price
(in US$)
$14.60
32.78
11.92
21.66
Options
4,844
721
(1,132)
(95)
Outstanding at the end of the year
2,790
$29.05
3,691
$26.28
4,338
$18.17
Vested and unvested expected to vest at
June 30, 2007
Exercisable at the end of the year
2,757
1,841
2,150
2,872
Weighted average fair value of options granted
$ —
$29.42
$23.59
NDS 2006 Long-Term Incentive Plan
In October 2006, NDS shareholders approved the NDS 2006 Long-Term Incentive Plan (the “NDS LTIP”), which provides for awards
of stock options to purchase NDS Series A ordinary shares (“NDS shares”), restricted awards, conditional awards, stock appreciation
rights or awards of NDS shares, the terms and conditions of which are described in the NDS LTIP. American Depositary Receipts
(ADRs) representing NDS shares are given to recipients in respect of any awards of NDS shares. The maximum number of NDS
shares that may be issued or delivered under the NDS LTIP is 10,000,000 shares. There will be no further stock options granted
under two of NDS’s existing stock option plans: The NDS 1997 Executive Share Option Scheme or The NDS 1999 Executive Share
Option Scheme. However, further grants may be made under the NDS U.K. Approved Share Option Scheme, which will be treated
as a sub-scheme of the plan.
The fair value of equity-based compensation under the NDS LTIP is calculated according to the type of award issued. During the
fiscal year ended June 30, 2007, fixed conditional awards (the “Fiscal 2007 Fixed Conditional Awards”) over an aggregate of 43,500
NDS shares were awarded to certain employees and directors, twenty-five percent of which vested and were issued on August 15,
2007. The remaining balance will vest in three equal annual installments, subject to the individual’s continued employment with the
Company. The fair value of these awards was $51.57 per share.
In addition, during the fiscal year ended June 30, 2007, certain employees and executives of NDS had the opportunity to earn
grants of NDS shares under the NDS LTIP conditioned upon the attainment of pre-determined operating income goals for the fiscal
year ended June 30, 2007 (the “Fiscal 2007 Performance-Based Award”). To the extent that it was determined that the Company’s
actual fiscal 2007 operating income fell within the performance goal range, the employees or executives received a percentage of
his or her annualized base salary, ranging from 0% to 45% for the vast majority of recipients (the range for some recipients was
from 0% to up to 225%) in time-vesting NDS shares. In fiscal 2008, approximately 285,000 NDS shares were awarded in con-
nection with the Fiscal 2007 Performance-Based Award, twenty-five percent of which vested and were issued on August 15,
2007. The remaining balance will vest in three equal annual installments over the next three years, subject to the individual’s con-
tinued employment with the Company.
The following table summarizes the Company’s equity-based compensation:
For the years ended June 30,
Equity-based compensation
Cash received from exercise of equity-based compensation
Total intrinsic value of options exercised
2007
2006
(in millions)
$131
$132
$366
$222
$208
$123
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Notes to the Consolidated Financial Statements (continued)
At June 30, 2007, the Company’s total compensation cost related to non-vested stock options, SARs and RSUs not yet recognized
for all plans presented was approximately $284 million, a portion of which is expected to be recognized over the next three fiscal
years. Compensation expense on all stock-based awards is recognized on a straight line basis over the vesting period of the entire
award.
The Company recognized a tax benefit on stock options exercised of $68 million, $35 million and $12 million for the fiscal years
ended June 30, 2007, 2006 and 2005, respectively.
On May 3, 2005, the Compensation Committee approved the acceleration of vesting of unvested out-of-the-money stock
options granted under the 2004 Plan. The affected stock options were those with exercise prices greater than A$19.74 per share,
which was the closing price of the Class A Common Stock (as traded on the Australian Stock Exchange in the form of CHESS Deposi-
tary Interests) on May 2, 2005. Prior to the Reorganization, stock options were granted to employees with Australian dollar exercise
prices. As a result of this action, the vesting of approximately 19,862,000 previously unvested stock options was accelerated and
those stock options became exercisable. None of the unvested stock options held by directors, some of whom have stock options
with exercise prices in excess of A$19.74, were accelerated.
The Compensation Committee’s decision to accelerate the vesting of these stock options was in anticipation of the related
compensation expense that would be recorded subsequent to the Company’s adoption of SFAS 123R. In addition, the Compensa-
tion Committee considered that because these stock options had exercise prices in excess of the prevailing market value on May 2,
2005, they were not fully achieving their original objectives of incentive compensation and employee retention, and it believed that
the acceleration would have a positive effect on employee morale. Incremental expense of approximately $100 million ($65 million,
net of tax) associated with the acceleration was recorded in the fiscal 2005 pro forma disclosure.
The following table reflects the effect on net income and earnings per share as if the Company had applied the fair value recog-
nition provisions for stock-based employee compensation prior to the adoption of SFAS 123R on July 1, 2005. These pro forma
effects may not be representative of future amounts since the estimated fair value of stock options on the date of grant is amortized
to expense over the vesting period, additional stock options may be granted in future years and the vesting of certain options was
accelerated on May 3, 2005 (see above).
For the year ended June 30, 2005
Net income, as reported
Deduct: Total stock-based employee compensation expense determined under fair value based method for
all awards, net of related tax effects
Pro forma net income
Basic earnings per share:
As reported:
Class A
Class B
Pro forma:
Class A
Class B
Diluted earnings per share:
As reported:
Class A
Class B
Pro forma:
Class A
Class B
(in millions except
per share data)
$2,128
(184)
$1,944
$ 0.74
$ 0.62
$ 0.68
$ 0.57
$ 0.73
$ 0.61
$ 0.67
$ 0.56
In fiscal 2005, the Company received $88 million in cash from stock option exercises for all plans presented. The aggregate intrinsic
value of stock options exercised for all the Company’s plans presented in fiscal 2005 was $51 million.
As a result of adopting SFAS 123R on July 1, 2005, the Company’s income from continuing operations before income tax
expense and minority interest in subsidiaries and net income for the fiscal year ended June 30, 2006, were $53 million and $35 mil-
lion lower, respectively, than if the Company had continued to account for stock-based compensation under APB No. 25
“Accounting for Stock Issued to Employees” (“APB 25”). Basic and diluted earnings per share for the fiscal year ended June 30, 2006
were each $0.01 lower for both Class A Common Stock and Class B Common Stock, than if the Company had continued to account
for share-based compensation under APB 25.
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Notes to the Consolidated Financial Statements (continued)
Note 14 Related Parties
Director transactions
Mr. Shuman served as a non-executive Director of the Company through October 2005 and was named Director Emeritus effective
October 2005. He is also the Managing Director of Allen & Company LLC, a U.S. based investment bank. In fiscal 2006, total fees
paid to Allen & Company LLC were $6.1 million. There were no fees paid to Allen & Company LLC in fiscal 2007 or fiscal 2005.
Mr. Aznar, a Director of the Company, holds a 50% interest in Famaztella S.L. (“Famaztella”), a private consulting firm, which
provided advisory services to the Company related to its global corporate strategy. Since September 1, 2004, Famaztella received
€10,000 per month for its services. The consultancy agreement between Famaztella and the Company was terminated on June 20,
2006, immediately preceding Mr. Aznar’s appointment to the Board.
Freud International LLP, which is controlled by Matthew Freud, Mr. K.R. Murdoch’s son-in-law, has provided external support to
the press and publicity activities of the Company during fiscal year 2007 and 2006 amounting to approximately $500,000 in each
year. At June 30, 2007, there were no outstanding amounts due to or from Freud International LLP. Freud International LLP did not
provide any services to the Company prior to fiscal 2006.
The Company has engaged Mrs. Wendi Murdoch, the wife of Mr. K. Rupert Murdoch, the Company’s Chairman and Chief
Executive Officer, to provide strategic advice for the development of the MySpace business in China. The fees paid to Mrs. Murdoch
pursuant to this arrangement are $100,000 per annum and Mrs. Murdoch received $83,333 in the fiscal year ended June 30, 2007.
Mrs. Murdoch is a Director of MySpace China Holdings Limited (“MySpace China”), a joint venture in which the Company owns a
51.5% interest on a fully diluted basis, which licenses the technology and brand to the local company in China that operates the
MySpace China website. As a Director of MySpace China, Mrs. Murdoch will receive options over 2.5% of the fully diluted shares of
MySpace China that will vest over four years under the MySpace China option plan. There were no fees paid to Mrs. Murdoch in
fiscal 2006 or fiscal 2005.
SMS TV, which is controlled by Ms. Elisabeth Murdoch, the daughter of Mr. K.R. Murdoch, was a party to a production agree-
ment with the Company, for programming that is distributed on the Company’s owned-and-operated television stations. Under a
revenue sharing arrangement provided under the terms of the production agreement, SMS TV received approximately $300,000 in
the fiscal year 2007. The production agreement was terminated by the Company during fiscal 2007, and the parties are negotiating
a termination fee to be paid by the Company to SMS TV.
Other related entities
In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates, to purchase
and/or sell advertising, the sale of programming, administrative services and supplying digital technology and services for digital pay
television platforms. The following table sets forth the net revenue from related parties, excluding transactions with QPL, included
on the consolidated statement of operations:
For the years ended June 30,
Related party revenue, net of expense
2007
2006
2005
(in millions)
$1,173
$1,143
$1,008
The following table sets forth the amount of accounts receivable due from and payable to related parties outstanding on the con-
solidated balance sheets:
As of June 30,
Accounts receivable from related parties
Accounts payable to related parties
2007
2006
(in millions)
$389
$371
15
38
Liberty Transaction
In December 2006, the Company entered into the Share Exchange Agreement with Liberty. Under the terms of the Share Exchange
Agreement, Liberty will exchange its entire interest in the Company for 100% of Splitco, whose holdings will consist of an approx-
imate 39% interest in DIRECTV, the Three RSNs and $588 million in cash, subject to adjustment. As of June 30, 2007, Liberty’s
economic equity ownership in the Company was approximately 16% and its voting interest was approximately 19%. (See Note 3—
Acquisitions, Disposals and Other Transactions for further discussion of the Share Exchange Agreement.)
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Notes to the Consolidated Financial Statements (continued)
Note 15 Commitments and Contingencies
The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments.
These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The
following table summarizes the Company’s material firm commitments as of June 30, 2007.
As of June 30, 2007
Contracts for capital expenditure
Land and buildings
Plant and machinery
Operating leases(a)
Land and buildings
Plant and machinery
Other commitments
Borrowings
Exchangeable securities
News America Marketing(b)
Sports programming rights(c)
Entertainment programming rights
Other commitments and contractual obligations(d)
Payments Due by Period
Total
1 year
2-3 years
(in millions)
4-5 years
After 5
years
$
75
373
3,078
935
10,871
1,631
428
17,092
3,631
2,263
$
68
$
353
259
203
355
—
94
2,908
1,566
674
7
20
453
256
430
1,502
166
4,855
1,395
418
$ —
$ —
—
386
165
107
—
102
—
1,980
311
9,979
129
66
3,990
5,339
433
314
237
857
Total commitments, borrowings and contractual obligations
$40,377
$6,480
$9,502
$5,497
$18,898
The Company also has certain contractual arrangements in relation to certain investees that would require the Company to make
payments or provide funding if certain circumstances occur (“contingent guarantees”). The Company does not expect that these
contingent guarantees will result in any material amounts being paid by the Company in the foreseeable future. The timing of the
amounts presented in the table below reflect when the maximum contingent guarantees will expire and does not indicate that the
Company expects to incur an obligation to make payments during that time frame.
As of June 30, 2007
Contingent guarantees:
Programming rights(e)
Affiliate borrowings(f)
Other
Amount of Guarantees Expiration Per Period
Total Amounts
Committed
1 year
2-3
years
(in millions)
4-5
years
After 5
years
$523
$ 21
$ 73
$135
$294
65
19
65
19
—
—
—
—
—
—
$607
$105
$ 73
$135
$294
(a) The Company leases transponders, office facilities, warehouse facilities, equipment and microwave transmitters used to carry
broadcast signals. These leases, which are classified as operating leases, expire at certain dates through fiscal 2090. In addition,
the Company leases various printing plants, which leases expire at various dates through fiscal 2095.
(b) News America Marketing (“NAMG”), a leading provider of in-store marketing products and services primarily to consumer
packaged goods manufacturers, enters into agreements with retailers to rent space for the display of point of service advertising.
(c) The Company’s contract with MLB gives the Company rights to telecast certain regular season and post season games, as well as
exclusive rights to telecast MLB’s World Series and All-Star Game for a seven-year term through the 2013 MLB season.
Under the Company’s contract with the National Football League (“NFL”), remaining future minimum payments for program
rights to broadcast certain football games are payable over the remaining term of the contract through fiscal 2012.
The Company’s contracts with the National Association of Stock Car Auto Racing (“NASCAR”) give the Company rights to
broadcast certain races and ancillary content through calendar year 2014.
Under the Company’s contract with the Bowl Championship Series (“BCS”), remaining future minimum payments for program
rights to broadcast the BCS are payable over the remaining term of the contract through fiscal 2010.
In addition, the Company has certain other local sports broadcasting rights.
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Notes to the Consolidated Financial Statements (continued)
(d) The Company is upgrading its printing presses with new automated technology that once fully on line, are expected to lower
production costs and improve newspaper quality, including expanded color. As part of this initiative, the Company entered into
several third party printing contracts in the United Kingdom expiring in fiscal 2022.
The Company has an eight year agreement with Nielsen Media Research (“Nielsen”) under which Nielsen provides audience
measurement services for 49 of the Company’s subsidiaries and affiliates.
(e) A joint-venture in which the Company owns a 50% equity interest, entered into an agreement for global programming
rights. Under the terms of the agreement, the Company and the other joint-venture partner have jointly guaranteed the pro-
gramming rights obligation.
(f) The Company has guaranteed a bank loan facility of $65 million (¥7.97 billion) for an affiliate. The facility covers a term loan
which matures in June 2008, and an agreement for an overdraft. The Company would be liable under this guarantee, to the
extent of default by the affiliate.
As of June 30, 2007 the Company was contractually obligated for approximately $242 million and $42 million in the United King-
dom and Australia, respectively, for new printing plants and related costs. All firm commitments related to these projects are
included in the capital expenditure lines disclosed in the commitments table above.
In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Post-
retirement Benefits Other Than Pensions,” the total accrued benefit liability for pension and other postretirement benefit plans
recognized as of June 30, 2007 was $344 million (see Note 16 Pensions and Other Postretirement Benefits). This amount is effected
by, among other items, statutory funding levels, changes in plan demographics and assumptions, and investment return on plan
assets. Because of the current overall funded status of our material plans, the accrued liability does not represent expected near-term
liquidity needs and accordingly the Company did not include this amount in the contractual obligations table.
Contingencies
NDS
Echostar Litigation
On June 6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies Corporation and
Nagrastar L.L.C. (collectively, “Echostar”) filed an action against NDS in the United States District Court for the Central District of
California. Echostar filed an amended complaint on October 8, 2003, which purported to allege claims for violation of the Digital
Millennium Copyright Act (“DMCA”), the Communications Act of 1934 (“CA”), the Electronic Communications Privacy Act, the
Computer Fraud and Abuse Act, California’s Unfair Competition statute and the federal Racketeer Influenced and Corrupt Orga-
nizations (“RICO”) statute. The complaint also purported to allege claims for civil conspiracy, misappropriation of trade secrets and
interference with prospective business advantage. The complaint sought injunctive relief, unspecified compensatory and exemplary
damages and restitution. On December 22, 2003, all of the claims were dismissed by the court, except for the DMCA, CA and unfair
competition claims, and the court limited these claims to acts allegedly occurring within three years of the filing of Echostar’s origi-
nal complaint.
After Echostar filed a second amended complaint, NDS filed a motion to dismiss this complaint on March 31, 2004. On July 21,
2004, the court issued an order directing Echostar to, among other things, file a third amended complaint within ten days correct-
ing various deficiencies noted in the second amended complaint. Echostar filed its third amended complaint on August 4, 2004. On
August 6, 2004, the court ruled that NDS was free to file a motion to dismiss the third amended complaint, which NDS did on
September 20, 2004. The hearing occurred on January 3, 2005. On February 28, 2005, the court issued an order treating NDS’s
motion to dismiss as a motion for a more definite statement, granting the motion and giving Echostar until March 30, 2005 to file a
fourth amended complaint correcting various deficiencies noted in the third amended complaint. On March 30, 2005, Echostar filed
a fourth amended complaint, which NDS moved to dismiss. On July 27, 2005, the court granted in part and denied in part NDS’s
motion to dismiss, and again limited Echostar’s surviving claims to acts allegedly occurring within three years of the filing of Echos-
tar’s original complaint. NDS’s management believes these surviving claims are without merit and intends to vigorously defend
against them.
On October 24, 2005, NDS filed its Amended Answer with Counterclaims, alleging that Echostar misappropriated NDS’s trade
secrets, violated the Computer Fraud and Abuse Act and engaged in unfair competition. On November 8, 2005, Echostar moved to
dismiss NDS’s counterclaims for conversion and claim and delivery, arguing that these claims were preempted and time-barred.
Echostar also moved for a more definite statement of NDS’s trade secret misappropriation claim. On December 8, 2005, the court
granted in part and denied in part Echostar’s motion to dismiss and for a more definite statement, but granted NDS leave to file
amended counterclaims. On December 13, 2005, NDS filed a Second Amended Answer with Counterclaims, which Echostar
answered on December 27, 2005. The court has set this case to go to trial in February 2008.
Sogecable Litigation
On July 25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L., Spanish satellite broadcasters and customers of
Canal+ Technologies SA (together, “Sogecable”), filed an action against NDS in the United States District Court for the Central Dis-
trict of California. Sogecable filed an amended complaint on October 9, 2003, which purported to allege claims for violation of the
Digital Millennium Copyright Act and the federal RICO Act. The amended complaint also purported to allege claims for interference
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Notes to the Consolidated Financial Statements (continued)
with contract and prospective business advantage. The complaint sought injunctive relief, unspecified compensatory and exemplary
damages and restitution. On December 22, 2003, all of the claims were dismissed by the court. Sogecable filed a second amended
complaint. NDS filed a motion to dismiss the second amended complaint on March 31, 2004. On August 4, 2004, the court issued
an order dismissing the second amended complaint in its entirety. Sogecable had until October 4, 2004 to file a third amended
complaint. On October 1, 2004, Sogecable notified the court that it would not be filing a third amended complaint, but would
appeal the court’s entry of final judgment dismissing the suit to the United States Ninth Circuit Court of Appeals. On December 14,
2006, the appellate court issued a memorandum decision reversing the district court’s dismissal. On January 26, 2007, NDS filed its
petition for rehearing by an en banc panel of the United States Ninth Circuit Court of Appeals. On February 21, 2007, the petition
was denied. On June 11, 2007, NDS filed a petition for a Writ of Certiorari in the United States Supreme Court seeking reversal of
the Ninth Circuit Court of Appeals’ decision. The Company believes that Sogecable’s claims are without merit and will continue to
vigorously defend itself in this matter.
Intermix
FIM Transaction
On August 26, 2005 and August 30, 2005, two purported class action lawsuits captioned, respectively, Ron Sheppard v. Richard
Rosenblatt et. al., and John Friedmann v. Intermix Media, Inc. et al., were filed in the California Superior Court, County of Los Angeles.
Both lawsuits named as defendants all of the then incumbent members of the Intermix Board, including Mr. Rosenblatt, Intermix’s
former Chief Executive Officer, and certain entities affiliated with VantagePoint Venture Partners, a former major Intermix stock-
holder. The complaints alleged that, in pursuing the transaction whereby Intermix was to be acquired by FIM (the “FIM
Transaction”) and approving the related merger agreement, the director defendants breached their fiduciary duties to Intermix
stockholders by, among other things, engaging in self-dealing and failing to obtain the highest price reasonably available for Inter-
mix and its stockholders. The complaints further alleged that the merger agreement resulted from a flawed process and that the
defendants tailored the terms of the merger to advance their own interests. The FIM Transaction was consummated on Sep-
tember 30, 2005. The Friedmann and Sheppard lawsuits were subsequently consolidated and, on January 17, 2006, a consolidated
amended complaint was filed (the “Intermix Media Shareholder Litigation”). The plaintiffs in the consolidated action are seeking vari-
ous forms of declaratory relief, damages, disgorgement and fees and costs. On March 20, 2006, the court ordered that substantially
identical claims asserted in a separate state action filed by Brad Greenspan, captioned Greenspan v. Intermix Media, Inc., et al., be
severed and related to the Intermix Media Shareholder Litigation. The defendants filed demurrers seeking dismissal of all claims in the
Intermix Media Shareholder Litigation and the severed Greenspan claims, which were heard by the Court on July 6, 2006. On
October 6, 2006, the court sustained the demurrers without leave to amend. On December 13, 2006, the court dismissed the
complaints and entered judgment for the defendants. On February 6, 2007, the Intermix Media Shareholder Litigation plaintiffs filed a
notice of appeal.
Although their opening brief is currently due on August 24, 2007, plaintiffs have requested that the Court of Appeal grant them
an extension of this due date to October 23, 2007. The Court of Appeal has not yet ruled on this request. The matter will likely not
be fully briefed and ready for oral argument until the first half of 2008.
In November 2005, plaintiff in a derivative action captioned LeBoyer v. Greenspan et al. pending against various former Intermix
directors and officers in the United States District Court for the Central District of California, filed a First Amended Class and
Derivative Complaint (the “Amended Complaint”). The original derivative action was filed in May 2003 and arose out of Intermix’s
restatement of quarterly financial results for its fiscal year ended March 31, 2003. Until the filing of the Amended Complaint, the
action had been stayed by mutual agreement of the parties since its inception. A substantially similar derivative action filed in Los
Angeles Superior Court was dismissed based on inability of the plaintiffs to adequately plead demand futility. Plaintiff LeBoyer’s
November 2005 Amended Complaint added various allegations and purported class claims arising out of the FIM Transaction which
are substantially similar to those asserted in the Intermix Media Shareholder Litigation. The Amended Complaint also adds as defend-
ants the individuals and entities named in the Intermix Media Shareholder Litigation that were not already defendants in the matter.
On July 14, 2006, the parties filed their briefing on defendants’ motion to dismiss and stay the matter. On October 16, 2006, the
court dismissed the fourth through seventh claims for relief, which related to the 2003 restatement, finding that the plaintiff is pre-
cluded from relitigating demand futility. At the same time, the court asked for further briefing regarding the standing issues and the
effect of the judge’s dismissal of the claims in the Greenspan case and the Intermix Media Shareholder Litigation on the remaining
claims, which include two direct class action claims related to alleged breaches of fiduciary duty leading up to the FIM Transaction
and a third claim under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) asserted as a
derivative claim and alleging material misstatements and omissions in the FIM Transaction proxy statement. The parties filed the
requested additional briefing in which the defendants requested that the court stay the federal court proceedings pending the reso-
lution of any appeal in the Greenspan case and the Intermix Media Shareholder Litigation. The court vacated the scheduled
November 27, 2006 hearing with respect to this briefing and took the matter under submission. The court denied the stay in an
order dated May 22, 2007, and as explained in more detail in the next paragraph, consolidated this case with the Brown v. Brewer
action also pending before the court. On July 11, 2007, plaintiffs filed the consolidated first amended complaint. Pursuant to the
stipulated briefing schedule ordered by the court, the parties’ joint brief is due to be filed on October 11, 2007.
On June 14, 2006, a purported class action lawsuit, captioned Jim Brown v. Brett C. Brewer, et al., was filed against certain former
Intermix directors and officers in the United States District Court for the Central District of California. The plaintiff asserts claims for
alleged violations of Section 14a of the Exchange Act and SEC Rule 14a-9, as well as control person liability under Section 20a. The
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Notes to the Consolidated Financial Statements (continued)
plaintiff alleges that certain defendants disseminated false and misleading definitive proxy statements on two occasions: one on
December 30, 2003 in connection with the shareholder vote on January 29, 2004 on the election of directors and ratification of
financing transactions with certain entities of VantagePoint Venture Partners (“VantagePoint”), a former large stockholder of Inter-
mix, and another on August 25, 2005 in connection with the shareholder vote on the FIM Transaction. The complaint names as
defendants certain VantagePoint related entities and the members of the Intermix Board who were incumbent on the dates of the
respective proxy statements. Intermix is not named as a defendant, but has certain indemnity obligations to the former officer and
director defendants in connection with these claims and allegations. Intermix believes that the claims are without merit and expects
that the individual defendants will vigorously defend themselves in the matter. On August 25, 2006, plaintiff amended his complaint
to add certain investment banks (the “Investment Banks”) as defendants. Intermix has certain indemnity obligations to the Invest-
ment Banks as well. After conferring with defendants concerning deficiencies in the amended complaint pursuant to local rule and
entering a stipulation with defendants regarding a briefing schedule, plaintiff amended his complaint again on September 27, 2006.
On October 19, 2006, defendants filed motions to dismiss all claims in the Second Amended Complaint. These motions were
scheduled to be heard on February 12, 2007. On February 9, 2007, the case was transferred from Judge Walter to Judge George H.
King, the judge assigned to the LeBoyer action on the grounds that it raises substantially related questions of law and fact as LeBoyer,
and would entail substantial duplication of labor if heard by different judges. Judge King took the February 26, 2007 hearing date
for the motions to dismiss off-calendar. On May 22, 2007, Judge King ordered a combined status conference with the LeBoyer action
occur on June 11, 2007 at which he ordered the Brown case be consolidated with the LeBoyer action. Judge King also stated that he
was not going to consider the pending motions to dismiss but rather ordered plaintiffs’ counsel to file a consolidated first amended
complaint setting forth the causes of action in the LeBoyer and Brown matters and further ordered the parties to file a joint brief
regarding dismissal of the first amended complaint. On July 11, 2007, plaintiffs filed the consolidated first amended complaint.
Pursuant to the stipulated briefing schedule ordered by the court, the parties’ joint brief is due to be filed on October 11, 2007.
Intermix believes that the claims are without merit and expects the individual defendants will vigorously defend themselves in the
matter.
Greenspan Litigation
On February 10, 2005, Brad Greenspan, Intermix’s former Chairman and Chief Executive Officer who was asked to resign as CEO
and was removed as Chairman in the fall of 2003, filed a derivative complaint in Los Angeles Superior Court against Intermix, vari-
ous of its former directors and officers, VantagePoint and certain of VantagePoint’s principals and affiliates. The complaint alleged
claims of libel and fraud against Intermix and various of its then current and former officers and directors, claims of intentional inter-
ference with contract and prospective economic advantage, unfair competition and fraud against VantagePoint and certain of its
affiliates and principals and claims alleging that Intermix’s forecasts of profitability leading up to its January 2004 annual stockholder
meeting and associated proxy contest waged by Mr. Greenspan were false and misleading. These claims generally related to Inter-
mix’s decision to consummate its Series C Preferred Stock financing with VantagePoint in October 2003, Mr. Greenspan’s con-
temporaneous separation from Intermix and matters arising during the proxy contest. The complaint also alleged that Intermix’s
acquisition of the assets of a company known as Supernation LLC (“Supernation”) in July 2004 involved breaches of fiduciary duty.
Mr. Greenspan sought remittance of compensation received by the various then current and former Intermix director and officer
defendants, unspecified damages, removal of various Intermix directors, disgorgement of unspecified profits, reformation of the
Supernation purchase, punitive damages, fees and costs, injunctive relief and other remedies. Intermix and the other defendants
filed motions challenging the validity of the action and Mr. Greenspan’s ability to pursue it. Mr. Greenspan voluntarily dismissed this
action in October 2005.
Prior to dismissing his derivative lawsuit, in August 2005, Mr. Greenspan filed another complaint in Los Angeles Superior Court
against the same defendants. The complaint, for breach of fiduciary duty, included substantially the same allegations made by
Mr. Greenspan in the above-referenced lawsuit. Mr. Greenspan further alleged that defendants’ actions have, with the FIM Trans-
action, culminated in the loss of Mr. Greenspan’s interest in Intermix for a cash payment allegedly below its value. On October 31,
2005, the defendants filed motions seeking dismissal of the lawsuit on the grounds that the complaint fails to state any cause of
action. Instead of responding to these motions, Mr. Greenspan filed an amended complaint on February 21, 2006, in which
Mr. Greenspan omitted certain previously named defendants and added two other former directors as defendants. In this amended
complaint, Mr. Greenspan asserts seven causes of action. The first two causes of action, for intentional interference with prospective
economic advantage and violation of California’s Business Professions Code section 17200, generally related to Intermix’s decision
to consummate its Series C Preferred Stock financing with VantagePoint in October 2003 and allege that Mr. Greenspan was
“forced” to resign. The third through sixth causes of action assert various claims for breach of fiduciary duty related to the FIM
Transaction and substantially mirror the allegations in the Intermix Media Shareholder Litigation. By Order of March 20, 2006, the
court ordered that Mr. Greenspan’s claims based on the FIM Transaction be severed from the rest of his complaint and coordinated
with the claims asserted in the Intermix Media Shareholder Litigation. The seventh cause of action is asserted against Intermix for
indemnification. In his amended complaint, Mr. Greenspan seeks compensatory and consequential damages, punitive damages, fees
and costs, injunctive relief and other remedies. Motions to dismiss the first six causes of action were filed and, on October 6, 2006,
granted without leave to amend. On November 21, 2006, Mr. Greenspan dismissed with prejudice the seventh cause of action for
indemnity, which was the only remaining claim and his sole cause of action against Intermix. On January 24, 2007, Mr. Greenspan
filed a notice of appeal of the court’s October 6, 2006 ruling. Mr. Greenspan’s opening brief in the Court of Appeal is currently due
August 24, 2007. The matter will likely not be fully briefed and ready for oral argument until the first half of 2008.
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Notes to the Consolidated Financial Statements (continued)
News America Marketing
On January 18, 2006, Valassis Communications, Inc. (“Valassis”) filed a complaint against News America Incorporated, News Amer-
ica Marketing FSI, LLC and News America Marketing Services, In-Store, LLC (collectively “News America”) in the United States Dis-
trict Court for the Eastern District of Michigan. Valassis alleges that News America possesses monopoly power in a claimed in-store
advertising and promotions market (the “in-store market”) and has used that power to gain an unfair advantage over Valassis in a
purported market for coupons distributed by free standing inserts (“FSIs”). Valassis alleges that News America is attempting to
monopolize the purported FSI market by leveraging its alleged monopoly power in the purported in-store market, thereby allegedly
violating Section 2 of the Sherman Antitrust Act of 1890, as amended (the “Sherman Act”). Valassis further alleges that News Amer-
ica has unlawfully bundled the sale of in-store marketing products with the sale of FSIs and that such bundling constitutes unlawful
tying in violation of Sections 1 and 3 of the Sherman Act. Additionally, Valassis alleges that News America is predatorily pricing its
FSI products in violation of Section 2 of the Sherman Act. Valassis also asserts that News America violated various state antitrust stat-
utes and has tortiously interfered with Valassis’ actual or expected business relationships. Valassis’ complaint seeks injunctive relief,
damages, fees and costs. On April 20, 2006, News America moved to dismiss Valassis’ complaint in its entirety for failure to state a
cause of action. On September 28, 2006, the Magistrate Judge issued a Report and Recommendation granting the motion. On
October 16, 2006, Valassis filed an Amended Complaint, alleging the same causes of action. On November 17, 2006, News America
answered the three federal antitrust claims and moved to dismiss the remaining nine state law claims. On March 23, 2007, the
Court granted News America’s motion and dismissed the nine state law claims. On April 12, 2007, the Court entered a Scheduling
Order that provides that all discovery will be closed on or before October 12, 2007 and sets a jury trial date for February 5, 2008.
The parties are in ongoing negotiations regarding discovery and production of responsive discovery is imminent.
On March 9, 2007, Valassis filed a two-count complaint in Michigan state court against News America. That complaint, which is
based on the same factual allegations as the federal complaint discussed above, alleges that News America has tortiously interfered
with Valassis’ business relationships and that News America has unfairly competed with Valassis. Valassis’ Michigan complaint seeks
injunctive relief, damages, fees and costs. On May 4, 2007, News America filed a motion to dismiss or, in the alternative stay, that
complaint. On August 14, 2007, the Court denied the motion.
On March 12, 2007, Valassis filed a three-count complaint in California state court against News America. That complaint,
which is based on the same factual allegations as the federal complaint discussed above, alleges that News America has violated the
Cartwright Act (California’s state antitrust law) by unlawfully tying its FSI products to its in-store products, has violated California’s
Unfair Practices Act by predatorily pricing its FSI products, and has unfairly competed with Valassis. Valassis’ California complaint
seeks injunctive relief, damages, fees and costs. On May 4, 2007, News America filed a motion to dismiss or, in the alternative stay,
that complaint. On June 28, 2007, the court issued a tentative ruling denying the motion and reassigned the case to the Complex
Litigation Program. On July 19, 2007, the court denied the motion.
News America believes that all of the claims in each of the complaints filed by Valassis are without merit and it intends to defend
itself vigorously in the three matters.
Other
Other than previously disclosed in the notes to these consolidated financial statements, the Company is party to several purchase
and sale arrangements which become exercisable over the next ten years by the Company or the counter-party to the agreement.
In the next twelve months, none of these arrangements that become exercisable are material. Purchase arrangements that are
exercisable by the counter-party to the agreement, and that are outside the sole control of the Company are accounted for in
accordance with EITF D-98. Accordingly the fair values of such purchase arrangements are classified in Minority interest liabilities.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending
litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the
Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for
the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax
matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
Note 16 Pensions and Other Postretirement Benefits
The Company participates in and/or sponsors pension and savings plans of various types in a variety of jurisdictions covering, in
aggregate, substantially all employees. The Company has a legally enforceable obligation to contribute to some plans and is not
required to contribute to others. Non-U.S. plans include both employee contributory and employee non-contributory defined bene-
fit plans and accumulation plans covering all eligible employees. The plans in the United States include both defined benefit pension
plans and employee non-contributory and employee contributory accumulation plans covering all eligible employees. The Company
makes contributions in accordance with applicable laws or contract terms in each jurisdiction in which the Company operates. The
Company’s benefit obligation is calculated using several assumptions which the Company reviews on a regular basis.
The funded status of the plans can change from year to year but plan assets have been sufficient to fund all benefits coming due
in each of the fiscal 2007, 2006 and 2005.
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Notes to the Consolidated Financial Statements (continued)
The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The following table sets forth the
change in the benefit obligation for the Company’s benefit plans:
As of June 30,
Pension benefits
Postretirement
benefits
2007
2006
2007
2006
(in millions)
Projected benefit obligation, beginning of the year
$2,061
$2,074
$138
$143
Service cost
Interest cost
Benefits paid
Actuarial loss (gain)(a)
Foreign exchange rate changes
Amendments, transfers and other
70
122
(98)
57
110
70
82
106
(85)
(168)
29
23
4
8
(6)
(4)
2
(3)
4
7
(6)
(11)
1
—
Projected benefit obligation, end of year
$2,392
$2,061
$139
$138
(a) Actuarial gains and losses primarily related to changes in the discount rate and mortality assumptions utilized in measuring plan
obligations at June 30, 2007 and June 30, 2006.
The following table sets forth the change in the fair value of plan assets for the Company’s benefit plans:
As of June 30,
Fair value of plan assets, beginning of the year
Actual return on plan assets
Employer contributions
Benefits paid
Foreign exchange rate changes
Amendments, transfers and other
Fair value of plan assets, end of the year
Pension benefits
2007
2006
(in millions)
$1,903
$1,609
232
67
(97)
112
70
186
149
(85)
22
22
$2,287
$1,903
The accrued pension and postretirement costs recognized in the Company’s consolidated balance sheets were computed as follows:
As of June 30,
Funded status
Unrecognized net loss
Unrecognized prior service cost (benefit)
Unrecognized net transition obligation
Net amount recognized, end of the year
Pension benefits
Postretirement
benefits
2007
2006
2007
2006
(in millions)
$(105)
$(158)
$(139)
$(138)
N/A
N/A
N/A
348
7
(1)
N/A
N/A
N/A
32
(31)
—
$(105)
$ 196
$(139)
$(137)
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Notes to the Consolidated Financial Statements (continued)
Amounts recognized in the consolidated balance sheets consist of:
As of June 30,
Non-current pension assets
Accrued pension/postretirement liabilities
Intangible asset
Other Comprehensive Income
Net amount recognized
Amounts recognized in accumulated other comprehensive income consist of:
As of June 30,
Actuarial losses
Prior service cost (benefit)
Net amounts recognized
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Pension
benefits
Postretirement
benefits
2007
2006
2007
2006
(in millions)
$ 100
$ 275
$ —
$ —
(205)
(205)
(139)
(137)
N/A
N/A
4
122
N/A
N/A
—
—
$(105)
$ 196
$(139)
$(137)
Pension
benefits
2007
Postretirement
benefits
2007
(in millions)
$301
6
$307
$ 26
(28)
$ (2)
Amounts in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost in
fiscal 2008:
As of June 30,
Actuarial losses
Prior services benefit
Net amounts recognized
Pension
benefits
2007
Postretirement
benefits
2007
(in millions)
$15
(1)
$14
$ 2
(6)
$(4)
Accumulated pension benefit obligations at June 30, 2007 and 2006 were $2,181 million and $1,867 million, respectively. Below is
information about pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.
2007
2006
(in millions)
$236
$774
229
54
701
506
As of June 30,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
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Notes to the Consolidated Financial Statements (continued)
The components of net periodic costs were as follows:
For the years ended June 30,
(in millions)
Pension benefits
Postretirement benefits
2007
2006
2005
2007
2006
2005
Components of net periodic cost:
Service cost benefits earned during the period
Interest costs on projected benefit obligations
Expected return on plan assets
Amortization of deferred losses
Other
Net periodic costs
For the years ended June 30,
Additional information:
Decrease (increase) in minimum liability reflected in other
$ 70
$ 82
$ 83
$ 4
$ 4
$ 4
122
(135)
19
(2)
106
(122)
45
(1)
107
(111)
28
3
8
—
2
(6)
7
—
3
(5)
7
—
3
(6)
$ 74
$ 110
$ 110
$ 8
$ 9
$ 8
Pension benefits
Postretirement benefits
2007
2006
2005
2007
2006
2005
(in millions)
comprehensive income
N/A
$286
$(106)
N/A
N/A
N/A
Weighted-average assumptions used to determine benefit
obligations
Discount rate
Rate of increase in future compensation
Weighted-average assumptions used to determine net periodic
benefit cost
Discount rate
Expected return on plan assets
Rate of increase in future compensation
N/A—not applicable
6.0%
5.0%
5.9%
4.9%
5.1%
6.2%
6.1%
5.2%
4.8% N/A
N/A
N/A
5.9%
7.0%
4.9%
5.1%
7.5%
4.8%
5.7%
6.1%
5.2%
5.9%
7.5% N/A
4.7% N/A
N/A
N/A
N/A
N/A
The following assumed health care cost trend rates at June 30 were also used in accounting for postretirement benefits:
Health care cost trend rate
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Postretirement benefits
Fiscal 2007
Fiscal 2006
8.2%
4.9%
9.4%
4.9%
2011
2011
Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement health care
plan. The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate
would have the following effects on the results for fiscal 2007:
One percentage point increase
One percentage point decrease
Service and interest
costs
Benefit
Obligation
(in millions)
$ 1
(1)
$ 8
(7)
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Notes to the Consolidated Financial Statements (continued)
The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years
thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation
at the end of the fiscal year and include benefits attributable to estimated future employee service:
Fiscal year:
2008
2009
2010
2011
2012
2013-2017
Expected benefit payments
Pension
benefits
Postretirement
benefits
$116
109
112
116
125
701
$ 7
8
9
9
10
59
The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an
acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The
Company’s practice is to conduct a periodic strategic review of its asset allocation. The Company’s current broad strategic targets
are to have a pension asset portfolio comprising of 60% equity securities, 37% fixed income securities, 2% in real estate and 1% in
other instruments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s past
average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in
short-term cash to provide for expected benefits to be paid in short term. The Company’s equity portfolios are managed in such a
way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does
not manage any assets internally.
The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:
As of June 30,
Asset Category:
Equity securities
Debt securities
Real estate
Other
Total
Pension benefits
2007
2006
(in millions)
61% 60%
34% 37%
2%
3%
2%
1%
100% 100%
The Company contributes to multi-employer plans that provide pension and health and welfare benefits to certain employees under
collective bargaining agreements. The contributions to these plans were $114 million, $88 million, and $75 million for the fiscal
years ended June 30, 2007, 2006, and 2005, respectively. In addition, the Company has defined contribution plans for the benefit
of substantially all employees meeting certain eligibility requirements. Employer contributions to such plans were $115 million, $104
million, and $76 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively.
The Company does not expect mandatory pension funding requirements to be significant in fiscal 2008. However, the Com-
pany does expect to continue making discretionary contributions to the plans during fiscal 2008 of approximately $60 million.
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Notes to the Consolidated Financial Statements (continued)
Note 17 Other, Net
The following table sets forth the components of Other, net included in the accompanying consolidated statements of operations:
For the years ended June 30,
Gain on sale of Sky Brasil(a)
Gain on sale of Phoenix Satellite Television Holdings Limited(a)
Termination of Participation rights agreement(b)
Gain on sale of Innova(a)
Gain on sale of China Netcom Group Corporation(a)
Loss on sale of RPP(b)
Loss on sale of Sky Multi-Country Partners(a)
Gain on sale of Rogers Sportsnet(a)
Change in fair value of Exchangeable securities(c)
Other
Total Other, net
2007
2006
2005
(in millions)
$ 261
$ —
$ —
136
97
—
—
—
—
—
(126)
(9)
—
—
206
52
—
—
—
(76)
12
—
—
—
—
(85)
(55)
39
246
33
$ 359
$194
$178
(a) See Note 6—Investments.
(b) See Note 3—Acquisitions, Disposals and Other Transactions.
(c) The Company has certain outstanding exchangeable debt securities which contain embedded derivatives. Pursuant to SFAS
No. 133, these embedded derivatives are not designated as hedges and, as such, changes in their fair value are recognized in
Other, net. A significant variance in the price of the underlying stock could have a material impact on the operating results of
the Company. See Note 10—Exchangeable Securities.
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Note 18 Income Taxes
Income from continuing operations before income tax expense and minority interest in subsidiaries was attributable to the following
jurisdictions:
For the years ended June 30,
United States (including exports)
Foreign
Income from continuing operations before income tax expense and minority interest in
subsidiaries
2007
2006
2005
(in millions)
$4,586
$3,748
$2,896
720
657
665
$5,306
$4,405
$3,561
Significant components of the Company’s provisions for income taxes from continuing operations were as follows:
For the years ended June 30,
Current:
United States
Federal
State & local
Foreign
Total current
Deferred
Total provision for income taxes
2007
2006
2005
(in millions)
$ 281
$ 145
$
69
390
740
1,074
66
357
568
958
51
45
179
275
945
$1,814
$1,526
$1,220
In October 2004, the American Jobs Creation Act (the “AJCA”) was signed into law. The AJCA includes a temporary incentive for
U.S. multinationals to repatriate foreign earnings at the favorable effective tax rate of 5.25%. Such repatriations must occur in either
an enterprise’s last tax year that began before the enactment date or the first tax year that begins during the one-year period
beginning on the date of enactment. In accordance with the AJCA, the Company repatriated $420 million at a favorable tax rate of
5.25%, which resulted in a tax benefit to the Company of approximately $125 million. The amounts repatriated were used to
compensate non-executive U.S. employees for services performed within the United States.
The reconciliation of income tax attributable to continuing operations computed at the statutory rate to income tax expense is:
2007
2006
2005
35% 35% 35%
1
2
2
1
1
1
—
(3)
—
(2)
(1)
(1)
—
(1)
1
(3)
(1)
1
34% 35% 34%
For the years ended June 30,
US federal income tax rate
State and local taxes
Effect of foreign taxes
AJCA Section 965 Benefit
Resolution of tax matters
Change in valuation allowance
Other permanent differences
Effective tax rate
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Notes to the Consolidated Financial Statements (continued)
The following is a summary of the components of the deferred tax accounts:
As of June 30,
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
Accrued liabilities
Total deferred tax assets
Deferred tax liabilities, net:
Basis difference and amortization
Revenue recognition
Sports rights contracts
Other
Total deferred tax liabilities
Net deferred tax liabilities before valuation allowance
Less: valuation allowance
Net deferred tax liabilities
2007
2006
(in millions)
$
695
991
265
1,951
$
874
1,107
172
2,153
(5,448)
(4,872)
(271)
(164)
(284)
(228)
(78)
(205)
(6,167)
(5,383)
(4,216)
(1,562)
(3,230)
(1,877)
$(5,778)
$(5,107)
At June 30, 2007 and 2006, the Company had net current deferred tax assets of $4 million and $18 million, respectively, and
non-current deferred tax assets of $117 million and $75 million, respectively. The Company also had non-current deferred tax
liabilities of $5,899 million and $5,200 million at June 30, 2007 and 2006, respectively.
At June 30, 2007, the Company had approximately $2.0 billion of net operating and $3.2 billion of capital loss carryforwards
available to offset future taxable income. The majority of these net operating loss carryforwards, if not utilized to reduce taxable
income in future periods, will expire in varying amounts between 2008 and 2026, with a significant portion, approximately $1.4 bil-
lion relating to foreign operations, expiring within the next four years. While approximately $464 million of the capital loss carryfor-
wards expire in four years, the remaining capital loss carryforwards are in jurisdictions where they do not expire. In assessing the
realizability of deferred tax assets, management evaluates a variety of factors in considering whether it is more likely than not that
some portion or all of the deferred tax assets will ultimately be realized. Management considers earnings expectations, the existence
of taxable temporary differences, tax planning strategies, and the periods in which estimated losses can be utilized. Based upon this
analysis, management has concluded that it is more likely than not that the Company will not realize all of the benefits of its
deferred tax assets. In particular, this is due to the uncertainty of generating capital gains, as well as generating taxable income
within the requisite period in various foreign jurisdictions and the uncertainty of fully utilizing the capital losses and net operating
losses before they expire through tax planning strategies or reversing taxable temporary differences in the foreseeable future.
Accordingly, valuation allowances of $1.6 billion and $1.9 billion have been established to reflect the expected realization of the
deferred tax assets as to June 30, 2007 and 2006, respectively. The net decrease in the valuation allowance during fiscal 2007 of
$315 million was primarily due to the expiration of foreign net operating losses for which a full valuation had previously been pro-
vided.
Except for amounts repatriated under the AJCA, the Company has not provided for possible U.S. taxes on the undistributed
earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax
liability for temporary differences related to these earnings is not practicable. Undistributed earnings of foreign subsidiaries consid-
ered to be indefinitely reinvested amounted to approximately $5.0 billion at June 30, 2007. (See Note 2, Summary of Significant
Accounting Policies)
NEWS CORPORATION 2007 Annual Report
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements (continued)
Note 19 Segment Information
The Company is a diversified entertainment company, which manages and reports its businesses in eight segments:
(cid:129) Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pic-
tures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of
television programming worldwide.
(cid:129) Television, which principally consists of the operation of 35 full power broadcast television stations, including nine duopolies,
in the United States (Of these stations, 25 are affiliated with the FOX network, and ten are affiliated with the MyNetworkTV
network.), the broadcasting of network programming in the United States and the development, production and broad-
casting of television programming in Asia.
(cid:129) Cable Network Programming, which principally consists of the production and licensing of programming distributed
through cable television systems and DBS operators primarily in the United States.
(cid:129) Direct Broadcast Satellite Television, which principally consists of the distribution of premium programming services via
satellite and broadband directly to subscribers in Italy.
(cid:129) Magazines and Inserts, which principally consists of the publication of free-standing inserts, which are promotional booklets
containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the provision
of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States and
Canada.
(cid:129) Newspapers, which principally consists of the publication of four national newspapers in the United Kingdom, the publication
of approximately 145 newspapers in Australia and the publication of a mass circulation, metropolitan morning newspaper in
the United States.
(cid:129) Book Publishing, which principally consists of the publication of English language books throughout the world.
(cid:129) Other, which includes NDS, a company engaged in the business of supplying open end-to-end digital technology and serv-
ices to digital pay-television platform operators and content providers; News Outdoor, an advertising business which offers
display advertising in outdoor locations primarily throughout Russia and Eastern Europe; and FIM, which operates the
Company’s Internet activities.
The Company’s operating segments have been determined in accordance with the Company’s internal management structure,
which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the
primary financial measures are segment operating income (loss) and Operating income (loss) before depreciation and amortization.
Operating income (loss) before depreciation and amortization, defined as operating income (loss) plus depreciation and amor-
tization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of
non-cash depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equip-
ment, 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 Operating income (loss) before deprecia-
tion and amortization. Operating income (loss) before depreciation and amortization is a non-GAAP measure and it should be con-
sidered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of financial
performance reported in accordance with GAAP. Operating income (loss) before depreciation and amortization does not reflect cash
available to fund requirements, and the items excluded from Operating income (loss) before depreciation and amortization, such as
depreciation and amortization, are significant components in assessing the Company’s financial performance.
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Notes to the Consolidated Financial Statements (continued)
Management believes that Operating income (loss) before depreciation and amortization is an appropriate measure for evaluat-
ing the operating performance of the Company’s business segments. Operating income (loss) before depreciation and amortization
provides management, investors and equity analysts a measure to analyze operating performance of each business segment and
enterprise value against historical and competitors’ data, although historical results, including Operating income (loss) before depre-
ciation and amortization, may not be indicative of future results (as operating performance is highly contingent on many factors
including customer tastes and preferences).
For the years ended June 30,
Revenues:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total revenues
Operating income:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total operating income (loss)
Interest expense, net
Equity earnings of affiliates
Other, net
Income from continuing operations before income tax expense and minority interest
in subsidiaries
Income tax expense
Minority interest in subsidiaries, net of tax
Income from continuing operations
Gain on disposition of discontinued operations, net of tax
Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax
2007
2006
2005
(in millions)
$ 6,734
$ 6,199
$ 5,919
5,705
3,902
3,076
1,119
4,486
1,347
2,286
5,334
3,358
2,542
1,090
4,095
1,312
1,397
5,338
2,688
2,313
1,068
4,083
1,327
1,123
$28,655
$25,327
$23,859
$ 1,225
$ 1,092
$ 1,058
962
1,090
221
335
653
159
(193)
4,452
(524)
1,019
359
5,306
(1,814)
(66)
3,426
—
3,426
—
1,032
864
39
307
517
167
(150)
3,868
(545)
888
194
4,405
(1,526)
(67)
2,812
515
3,327
(1,013)
952
702
(173)
298
740
164
(177)
3,564
(536)
355
178
3,561
(1,220)
(213)
2,128
—
2,128
—
Net income
$ 3,426
$ 2,314
$ 2,128
Interest expense, net, Equity earnings of affiliates, Other, net, Income tax expense and Minority interest in subsidiaries are not allo-
cated to segments, as they are not under the control of segment management.
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Notes to the Consolidated Financial Statements (continued)
Intersegment revenues, generated primarily by the Filmed Entertainment segment, of approximately $1,030 million, $864 mil-
lion and $789 million for the fiscal years ended June 30, 2007, 2006, and 2005, respectively, have been eliminated within the
Filmed Entertainment segment. Intersegment operating profit (losses) generated primarily by the Filmed Entertainment segment of
approximately $5 million, $(2) million and $(3) million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively, have
been eliminated within the Filmed Entertainment segment.
Operating
income (loss)
Depreciation
and
amortization
Amortization
of cable
distribution
investments
(in millions)
$1,225
962
1,090
221
335
653
159
(193)
$ 85
93
56
191
8
284
8
154
$ —
—
77
—
—
—
—
—
Operating
income (loss)
before
depreciation
and
amortization
$1,310
1,055
1,223
412
343
937
167
(39)
$4,452
$879
$ 77
$5,408
Operating
income (loss)
Depreciation
and
amortization
Amortization
of cable
distribution
investments
(in millions)
$1,092
1,032
864
39
307
517
167
(150)
$ 85
88
51
172
7
263
7
102
$ —
—
103
—
—
—
—
—
Operating
income (loss)
before
depreciation
and
amortization
$1,177
1,120
1,018
211
314
780
174
(48)
$3,868
$775
$103
$4,746
For the year ended June 30, 2007
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total
For the year ended June 30, 2006
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total
112
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Notes to the Consolidated Financial Statements (continued)
For the year ended June 30, 2005
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total
For the years ended June 30,
Depreciation and amortization
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total depreciation and amortization
Capital expenditures:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total capital expenditures
Operating
income (loss)
Depreciation
and
amortization
Amortization
of cable
distribution
investments
(in millions)
$1,058
$ 51
952
702
(173)
298
740
164
(177)
92
39
156
6
222
6
76
$ —
—
117
—
—
—
—
—
Operating
income (loss)
before
depreciation
and
amortization
$1,109
1,044
858
(17)
304
962
170
(101)
$3,564
$648
$117
$4,329
2007
2006
2005
(in millions)
$
85
93
56
191
8
284
8
154
$ 85
$ 51
88
51
172
7
263
7
102
92
39
156
6
222
6
76
$ 879
$775
$648
$
85
$ 66
$ 53
125
92
199
10
544
23
230
136
40
223
9
359
7
136
119
32
324
4
293
10
66
$1,308
$976
$901
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Notes to the Consolidated Financial Statements (continued)
As of June 30,
Total assets:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Investments
Total assets
Goodwill and Intangible assets, net:
Filmed Entertainment
Television
Cable Network Programming
Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers
Book Publishing
Other
Total goodwill and intangibles, net
Geographic Segments
For the years ended June 30,
Revenues:
United States and Canada(1)
Europe(2)
Australasia and Other(3)
Total revenues
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2007
2006
(in millions)
$ 6,738
$ 6,489
12,974
12,903
8,523
2,030
1,278
5,343
1,566
12,478
11,413
7,813
2,124
1,257
4,524
1,452
9,486
10,601
$62,343
$56,649
$ 1,979
$ 2,010
10,195
10,195
5,517
595
1,009
2,422
508
3,297
5,393
563
1,006
1,709
508
2,610
$25,522
$23,994
2007
2006
2005
(in millions)
$15,282
$14,102
$12,884
9,073
4,300
7,552
3,673
7,511
3,464
$28,655
$25,327
$23,859
(1) Revenues include approximately $14.8 billion, $13.6 billion and $12.5 billion from customers in the United States in fiscal 2007,
2006 and 2005, respectively.
(2) Revenues include approximately $3.6 billion, $3.1 billion and $3.3 billion from customers in the United Kingdom in fiscal 2007,
2006 and 2005, respectively, as well as approximately $3.4 billion, $2.8 billion and $2.5 billion from customers in Italy in fiscal
2007, 2006 and 2005, respectively.
(3) Revenues include approximately $2.5 billion, $2.2 billion and $2.1 billion from customers in Australia in fiscal 2007, 2006 and
2005, respectively.
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements (continued)
As of June 30,
Long-Lived Assets:
United States and Canada
Europe
Australasia and Other
Total long-lived assets
2007
2006
(in millions)
$35,289
$35,097
4,949
6,200
3,582
4,847
$46,438
$43,526
There is no material reliance on any single customer. Revenues are attributed to countries based on location of customers.
Australasia comprises Australia, Asia, Fiji, Papua New Guinea and New Zealand.
Note 20 Earnings Per Share
Earnings per share (“EPS”) is computed individually for the Class A Common Stock and Class B Common Stock. Net income is appor-
tioned to both Class A stockholders and Class B stockholders on the ratio of 1.2 to 1, respectively, in accordance with the rights of
the stockholders as described in the Company’s Restated Certificate of Incorporation. In order to give effect to this apportionment
when determining EPS, the weighted average Class A Common Stock is increased by 20% (the “Adjusted Class”) and is then com-
pared to the sum of the weighted average Class B Common Stock and the weighted average Adjusted Class. The resulting percent-
age is then applied to the Net income to determine the apportionment for the Class A stockholders with the balance attributable to
the Class B stockholders.
EPS has been presented in the two-class presentation, as the Class B Common Stock participate in dividends with the Class A
Common Stock.
The following tables set forth the computation of basic and diluted earnings per share under SFAS No. 128, “Earnings per
Share”:
For the years ended June 30,
Income from continuing operations
Perpetual preference dividends(a)
Income from continuing operations available to shareholders—basic
Interest on convertible debt(b)
Other
Income from continuing operations available to shareholders—diluted
Gain on disposition of discontinued operations
Cumulative effect of accounting change, net of tax
Net income
Perpetual preference dividends(a)
Net income available to shareholders—basic
Interest on convertible debt(b)
Other
Net income available to shareholders—diluted
2007
2006
2005
(in millions)
$3,426
$ 2,812
$2,128
—
—
(10)
3,426
2,812
2,118
—
(5)
—
(1)
20
—
$3,421
$ 2,811
$2,138
$ —
$ —
$
515
$(1,013)
$ —
$ —
$3,426
$ 2,314
$2,128
—
—
(10)
3,426
2,314
2,118
—
(5)
—
(1)
20
—
$3,421
$ 2,313
$2,138
(a) In November 2004, the Company redeemed the adjustable rate cumulative perpetual preference shares and the guaranteed
8.625% perpetual preference shares for $345 million at par.
(b) In February 2006, the Company redeemed 92% of the LYONs for cash at the specified redemption amount of $594.25 per
LYON. (see Note 9—Borrowings)
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Notes to the Consolidated Financial Statements (continued)
For the years ended June 30,
Allocation of income—basic:
2007
2006
2005
Class A
Class B
Total
Class A
Total
Class B
(in millions, except per share data)
Class A
Class B
Total
Income from continuing operations
$2,484
$ 942
$3,426
$2,033
$ 779
$ 2,812
$1,484
$ 634
$2,118
Gain on disposition of discontinued
operations
Cumulative effect of accounting
change, net of tax
Net income available to
shareholders
Weighted average shares used in
—
—
—
—
—
—
372
143
515
(732)
(281)
(1,013)
—
—
—
—
—
—
2,484
942
3,426
1,673
641
2,314
1,484
634
2,118
income allocation
2,604
987
3,591
2,638
1,012
3,650
2,390
1,021
3,411
Allocation of income—diluted:
Income from continuing operations
$2,487
$ 934
$3,421
$2,036
$ 775
$ 2,811
$1,513
$ 625
$2,138
Gain on disposition of discontinued
operations
Cumulative effect of accounting
change, net of tax
Net income available to
shareholders
Weighted average shares used in
income allocation
Weighted average shares—basic
Shares issuable under equity based
compensation plans
Convertible debt(a)
—
—
—
—
—
—
373
142
515
(734)
(279)
(1,013)
—
—
—
—
—
—
2,487
934
3,421
1,675
638
2,313
1,513
625
2,138
2,629
2,170
987
987
3,616
3,157
2,659
2,198
1,012
1,012
3,671
3,210
2,473
1,992
1,021
1,021
3,494
3,013
21
—
—
—
21
—
18
—
—
—
18
—
32
37
—
—
32
37
Weighted average shares—diluted
2,191
987
3,178
2,216
1,012
3,228
2,061
1,021
3,082
Earnings per share—basic:
Income from continuing operations
$ 1.14
$0.95
$ 0.92
$ 0.77
$ 0.74
$ 0.62
Gain on disposition of discontinued
operations
$ — $ —
$ 0.17
$ 0.14
$ — $ —
Cumulative effect of accounting
change, net of tax
Net income
Earnings per share—diluted:
$ — $ —
$ 1.14
$0.95
$ (0.33) $ (0.28)
$ 0.76
$ 0.63
$ — $ —
$ 0.74
$ 0.62
Income from continuing operations
$ 1.14
$0.95
$ 0.92
$ 0.77
$ 0.73
$ 0.61
Gain on disposition of discontinued
operations
$ — $ —
$ 0.17
$ 0.14
$ — $ —
Cumulative effect of accounting
change, net of tax
Net income
$ — $ —
$ 1.14
$0.95
$ (0.33) $ (0.28)
$ 0.76
$ 0.63
$ — $ —
$ 0.73
$ 0.61
(a) In February 2006, the Company redeemed 92% of the LYONs for cash at the specified redemption amount of $594.25 per
LYON. The impact of the remaining LYONs which are convertible into approximately 2.8 million shares is not significant.
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Notes to the Consolidated Financial Statements (continued)
Note 21 Quarterly Data (unaudited)
For the three months ended
Fiscal 2007
Revenues
Operating income
Net income
Basic earnings per share
Class A
Class B
Diluted earnings per share
Class A
Class B
Stock prices(a)
Class A—High
Class A—Low
Class B—High
Class B—Low
Fiscal 2006
Revenues
Operating income
Gain on disposition of discontinued operations
Income before cumulative effect of accounting change
Net income (loss)
Basic earnings (loss) per share
Income before cumulative effect of accounting change
Class A
Class B
Net income (loss)
Class A
Class B
Diluted earnings (loss) per share
Income before cumulative effect of accounting change
Class A
Class B
Net income (loss)
Class A
Class B
Stock prices(a)
Class A—High
Class A—Low
Class B—High
Class B—Low
September 30,
December 31,
March 31,
June 30,
(in millions, except per share amounts)
$5,914
$7,844
$7,530
$7,367
851
843
$ 0.28
$ 0.23
$ 0.28
$ 0.23
$19.75
$18.19
$20.64
$18.96
1,144
822
1,239
871
1,218
890
$ 0.27
$ 0.23
$ 0.29
$ 0.24
$ 0.30
$ 0.25
$ 0.27
$ 0.23
$ 0.29
$ 0.24
$ 0.30
$ 0.25
$21.75
$19.35
$22.74
$20.30
$23.98
$21.26
$25.34
$22.16
$23.74
$21.21
$25.27
$22.94
$5,682
$6,665
$6,198
$6,782
909
—
580
(433)
$ 0.19
$ 0.16
$ (0.14)
$ (0.12)
$ 0.19
$ 0.15
$ (0.14)
$ (0.11)
$17.13
$15.22
$18.11
$16.04
920
381
1,075
1,075
1,011
1,028
—
820
820
134
852
852
$ 0.35
$ 0.29
$ 0.27
$ 0.23
$ 0.28
$ 0.24
$ 0.35
$ 0.29
$ 0.27
$ 0.23
$ 0.28
$ 0.24
$ 0.35
$ 0.29
$ 0.27
$ 0.22
$ 0.28
$ 0.24
$ 0.35
$ 0.29
$ 0.27
$ 0.22
$ 0.28
$ 0.24
$16.01
$14.09
$16.92
$14.97
$16.86
$15.25
$17.83
$16.30
$19.52
$16.67
$20.47
$17.72
(a) The stock prices reflect the reported high and low closing sales prices for the Class A Common Stock and Class B Common
Stock, as reported on the New York Stock Exchange.
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Note 22 Valuation and Qualifying Accounts
Balance at
beginning
of year
Acquisitions
and
disposals
Additions
Utilization
Foreign
exchange
Balance at
end of
year
(in millions)
Fiscal 2007
Allowances for returns and doubtful accounts
Deferred tax valuation allowance
$(1,068)
$(1,691)
(1,877)
(3)
$ (7)
—
$1,701
$(37)
$(1,102)
318
—
(1,562)
Fiscal 2006
Allowances for returns and doubtful accounts
Deferred tax valuation allowance
(1,178)
(1,324)
(1,598)
(629)
Fiscal 2005
Allowances for returns and doubtful accounts
Deferred tax valuation allowance
(1,017)
(1,541)
(1,309)
(7)
(1)
—
(6)
—
1,738
76
1,148
224
(29)
—
6
—
(1,068)
(1,877)
(1,178)
(1,324)
Note 23 Additional Financial Information
Supplemental Cash Flow Information
For the years ended June 30,
Supplemental cash flow information:
Cash paid for income taxes
Cash paid for interest
Shares issued in lieu of cash dividend payments
Sale of other investments
Purchase of other investments
Supplemental information on businesses acquired:
Fair value of assets acquired
Cash acquired
Less: Liabilities assumed
Assets exchanged
Minority interest acquired
Cash paid
Fair value of stock consideration issued to third parties
Treasury stock acquired
Fair value of stock consideration
Note 24 Subsequent Events
2007
2006
2005
(in millions)
$ (969)
$ (558)
$ (455)
(744)
(715)
(671)
—
64
(392)
—
22
(50)
1,594
2,215
96
408
—
127
26
232
—
35
10
(37)
6,253
162
1,371
1,191
(39)
(3,483)
1,155
2,015
232
—
—
33
—
7,104
13,548
$ —
$
33
$20,652
In July 2007, the Company acquired Photobucket, a web-based provider of photo- and video-sharing services. The initial consid-
eration of approximately $234 million was paid in cash. Further amounts of up to $50 million may be payable, contingent upon the
achievement of certain performance objectives.
On July 31, 2007, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Dow Jones &
Company, Inc. (“Dow Jones”), pursuant to which the Company will acquire Dow Jones in a transaction valued at approximately
$5.6 billion. Members of the Bancroft family and related trusts owning approximately 37% of Dow Jones voting stock have agreed
to vote their shares in favor of the transaction. Under the terms of the Merger Agreement, Dow Jones Stockholders will be entitled
to receive $60 in cash for each share of Dow Jones stock they own, and up to 250 holders of record and not more than 10% of the
shares of Dow Jones may elect to have their shares of Dow Jones converted into a number of units of a newly formed subsidiary of
the Company (each unit of which will be exchangeable for one share of the Company’s Class A Common Stock in accordance with
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Notes to the Consolidated Financial Statements (continued)
the terms and conditions of such subsidiary’s operating agreement). The Merger Agreement is subject to, among other things, the
adoption of the Merger Agreement by Dow Jones’ stockholders, the execution of an editorial agreement (the form of which has
been agreed by the parties), the establishment by the Company of a special committee as contemplated under such editorial
agreement, the receipt of various regulatory approvals and other customary closing conditions. The Merger Agreement contains
certain termination rights for both the Company and Dow Jones, including the right of Dow Jones to terminate the agreement to
enter into an alternative transaction that constitutes a superior acquisition proposal. Upon termination of the Merger Agreement
under specified circumstances, including a termination by Dow Jones to accept a superior acquisition proposal, Dow Jones would be
required to pay the Company a termination fee of $165 million less any previously paid expenses. The transaction is expected to be
completed in the fourth quarter of calendar 2007. The Company has agreed, upon consummation of the transaction, to appoint a
member of the Bancroft family or another mutually acceptable person to the Company’s Board of Directors.
Note 25 Supplemental Guarantor Information
In May 2007, NAI entered into the New Credit Agreement. The New Credit Agreement provides a $2.25 billion unsecured revolving
credit facility with a sub-limit of $600 million available for the issuance of letters of credit, and expires on May 23, 2012. NAI may
request an increase in the amount of the credit facility up to a maximum amount of $2.5 billion. Borrowings are in U.S. dollars only,
while letters of credit are issuable in U.S. dollars or Euros. The significant terms of the agreement include the requirement that the
Company maintain specific gearing ratios and limitations on secured indebtedness. The Company pays a facility fee of 0.10%
regardless of facility usage. The Company pays interest for borrowings and letters of credit at LIBOR plus 0.30%. The Company pays
an additional fee of 0.05% if borrowings under the facility exceed 50% of the committed facility. The interest and fees are based on
the Company’s current debt rating.
The Parent Guarantor presently guarantees the senior public indebtedness of NAI. The supplemental condensed consolidating
financial information of the Parent Guarantor should be read in conjunction with the consolidated financial statements included
herein.
In accordance with rules and regulations of the Securities and Exchange Commission, the Company uses the equity method to
account for the results of all of the non-guarantor subsidiaries, representing substantially all of the Company’s consolidated results of
operations, excluding certain intercompany eliminations.
The following condensed consolidating financial statements present the results of operations, financial position and cash flows
of NAI, News Corporation, the wholly-owned and non-wholly-owned non-guarantor subsidiaries of News Corporation and the
eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis.
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2007
(US$ in millions)
Revenues
Expenses
Operating income (loss)
Other (Expense) Income:
Interest expense, net
Equity earnings of affiliates
Earnings (losses) from subsidiary entities
Other, net
Income (loss) before income tax expense and
minority interest in subsidiaries
Income tax (expense) benefit
Minority interest in subsidiaries, net of tax
News
America
Incorporated
$
7
307
(300)
News
Corporation
$ —
—
—
Non-Guarantor
$28,648
23,896
4,752
(1,740)
4
1,627
169
(115)
—
3,638
(97)
(240)
3,426
82
—
—
—
1,331
1,015
—
287
7,385
(2,524)
(66)
Reclassifications
and
Eliminations
$ —
—
—
—
—
(5,265)
(5,265)
628
—
News
Corporation
and
Subsidiaries
$28,655
24,203
4,452
(524)
1,019
—
359
5,306
(1,814)
(66)
Net income (loss)
$ (158)
$3,426
$ 4,795
$(4,637)
$ 3,426
See notes to supplemental guarantor information
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2006
(US$ in millions)
Revenues
Expenses
Operating income (loss)
Other (Expense) Income:
Interest expense, net
Equity earnings of affiliates
Earnings (losses) from subsidiary entities
Other, net
Income (loss) from continuing operations before
income tax expense and minority interest in
subsidiaries
Income tax benefit (expense)
Minority interest in subsidiaries, net of tax
Income (loss) from continuing operations
Gain on disposal of discontinued operations
Income (loss) before cumulative effect of
News
America
Incorporated
$
7
240
(233)
News
Corporation
$ —
—
—
Non-Guarantor
$25,320
21,219
4,101
(1,504)
1
1,645
20
(71)
24
—
(47)
—
(145)
—
2,558
(99)
2,314
—
—
2,314
—
1,104
887
—
273
6,365
(2,164)
(67)
4,134
515
Reclassifications
and
Eliminations
$ —
—
—
—
—
(4,203)
—
(4,203)
614
—
(3,589)
—
News
Corporation
and
Subsidiaries
$25,327
21,459
3,868
(545)
888
—
194
4,405
(1,526)
(67)
2,812
515
accounting change
(47)
2,314
4,649
(3,589)
3,327
Cumulative effect of accounting change, net of
tax
Net income (loss)
See notes to supplemental guarantor information
—
—
(1,013)
—
(1,013)
$
(47)
$2,314
$ 3,636
$(3,589)
$ 2,314
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Operations
For the year ended June 30, 2005
(US$ in millions)
Revenues
Expenses
Operating income (loss)
Other (Expense) Income:
Interest expense, net
Equity earnings of affiliates
Earnings (losses) from subsidiary entities
Other, net
Income (loss) before income tax expense and
minority interest in subsidiaries
Income tax (expense) benefit
Minority interest in subsidiaries, net of tax
News
America
Incorporated
$
4
261
(257)
(1,880)
—
3,191
319
1,373
(481)
—
News
Corporation
$ —
—
—
—
—
2,128
—
2,128
—
—
Reclassifications
and
Eliminations
$ —
—
—
—
—
(5,319)
—
(5,319)
1,144
—
News
Corporation
and
Subsidiaries
$23,859
20,295
3,564
(536)
355
—
178
3,561
(1,220)
(213)
Non-Guarantor
$23,855
20,034
3,821
1,344
355
—
(141)
5,379
(1,883)
(213)
Net income (loss)
$
892
$2,128
$ 3,283
$(4,175)
$ 2,128
See notes to supplemental guarantor information
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Balance Sheet
At June 30, 2007
(US$ in millions)
Assets:
Current Assets:
News
America
Incorporated
News
Corporation
Non-Guarantor
Reclassifications
and
Eliminations
News
Corporation
and
Subsidiaries
Cash and cash equivalents
$ 5,450
$ —
$ 2,204
$
Receivables, net
Inventories, net
Other
Total Current Assets
Non-Current Assets:
Receivables
Inventories, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Investments
Investments in associated companies and
Other investments
Intragroup investments
Total Investments
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Borrowings
Other current liabilities
Total Current Liabilities
Non-Current Liabilities:
Borrowings
Other non-current liabilities
Intercompany
Minority interest in subsidiaries
Stockholders’ Equity
24
—
9
5,483
1
—
82
—
—
131
108
39,028
39,136
39,350
—
—
—
—
—
—
—
—
—
1
5
38,045
38,050
38,051
5,818
2,039
362
10,423
436
2,626
5,535
11,703
13,819
690
11,300
—
11,300
46,109
—
—
—
—
—
—
—
—
—
—
—
$ 7,654
5,842
2,039
371
15,906
437
2,626
5,617
11,703
13,819
822
—
11,413
(77,073)
—
(77,073)
11,413
(77,073)
46,437
$44,833
$38,051
$ 56,532
$(77,073)
$62,343
$
350
$ —
$
5
$
1
351
11,960
519
14,608
—
—
—
—
2
5,127
—
17,395
32,922
7,138
7,143
187
8,697
(19,735)
562
59,678
—
—
—
—
—
—
—
$
355
7,139
7,494
12,147
9,218
—
562
(77,073)
32,922
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$44,833
$38,051
$ 56,532
$(77,073)
$62,343
See notes to supplemental guarantor information
NEWS CORPORATION 2007 Annual Report
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Balance Sheet
At June 30, 2006
(US$ in millions)
Assets:
Current Assets:
News
America
Incorporated
News
Corporation
Non-Guarantor
Reclassifications
and
Eliminations
News
Corporation
and
Subsidiaries
Cash and cash equivalents
$ 4,094
$
17
$ 1,672
$
Receivables, net
Inventories, net
Other
Total Current Assets
Non-Current Assets:
Receivables
Inventories, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Investments
Investments in associated companies and
Other investments
Intragroup investments
Total Investments
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Borrowings
Other current liabilities
Total Current Liabilities
Non-Current Liabilities:
Borrowings
Other non-current liabilities
Intercompany
Minority interest in subsidiaries
Stockholders’ Equity
25
—
4
4,123
2
—
83
—
4
157
—
—
—
17
—
—
—
—
—
1
100
43,290
43,390
43,636
—
33,466
33,466
33,467
5,125
1,840
346
8,983
591
2,410
4,672
11,446
12,544
1,015
10,501
—
10,501
43,179
—
—
—
—
—
—
—
—
—
—
—
$ 5,783
5,150
1,840
350
13,123
593
2,410
4,755
11,446
12,548
1,173
—
10,601
(76,756)
—
(76,756)
10,601
(76,756)
43,526
$47,759
$33,484
$ 52,162
$(76,756)
$56,649
$ —
$ —
$
42
$
251
251
11,233
376
14,330
—
—
—
—
1
3,609
—
21,569
29,874
6,080
6,122
152
8,359
(17,939)
281
55,187
—
—
—
—
—
—
—
$
42
6,331
6,373
11,385
8,736
—
281
(76,756)
29,874
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$47,759
$33,484
$ 52,162
$(76,756)
$56,649
See notes to supplemental guarantor information
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Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2007
(US$ in millions)
News America
Incorporated
News
Corporation
Non-Guarantor
Reclassifications
and Eliminations
News
Corporation
and
Subsidiaries
Operating activities:
Net cash provided by operating activities
$ 375
$ 1,269
$ 2,466
$—
$ 4,110
Investing and other activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and
non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Repurchase of shares
Dividends paid
(10)
(14)
5
(19)
1,000
—
—
—
—
—
(5)
—
(5)
—
—
375
(1,294)
(362)
(1,298)
(1,489)
735
(2,052)
196
(198)
17
—
(7)
Net cash (used in) provided by financing
activities
1,000
(1,281)
8
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of period
Exchange movement on opening cash balance
1,356
4,094
—
(17)
17
—
422
1,672
110
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,308)
(1,508)
740
(2,076)
1,196
(198)
392
(1,294)
(369)
(273)
1,761
5,783
110
Cash and cash equivalents, end of period
$5,450
$ —
$ 2,204
$—
$ 7,654
See notes to supplemental guarantor information
NEWS CORPORATION 2007 Annual Report
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2006
(US$ in millions)
News America
Incorporated
News
Corporation
Non-Guarantor
Reclassifications
and
Eliminations
News
Corporation
and
Subsidiaries
Operating activities:
Net cash provided by (used in) operating
activities
$ (441)
$ 2,261
$ 1,437
$—
$ 3,257
Investing and other activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and
non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Issuance of shares
Repurchase of shares
Dividends paid
(6)
5
—
(1)
1,133
(831)
—
—
—
—
—
—
—
—
—
200
(2,027)
(417)
Net cash (used in) provided by financing
activities
302
(2,244)
(970)
(2,111)
1,022
(2,059)
26
(34)
32
—
(14)
10
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents, beginning of period
Exchange movement on opening cash balance
(140)
4,234
—
17
—
—
(612)
2,236
48
—
—
—
—
—
—
—
—
—
—
—
—
—
(976)
(2,106)
1,022
(2,060)
1,159
(865)
232
(2,027)
(431)
(1,932)
(735)
6,470
48
Cash and cash equivalents, end of period
$4,094
$
17
$ 1,672
$—
$ 5,783
See notes to supplemental guarantor information
126
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements (continued)
Supplemental Condensed Consolidating Statement of Cash Flows
For the year ended June 30, 2005
(US$ in millions)
Operating activities:
News America
Incorporated
News
Corporation
Non-Guarantor
Reclassifications
and
Eliminations
News
Corporation
and
Subsidiaries
Net cash provided by operating activities
$ 519
$ 673
$ 2,179
$—
$ 3,371
Investing and other activities:
Property, plant and equipment
Investments
Proceeds from sale of investments and
non-current assets
Net cash used in investing activities
Financing activities:
Borrowings
Repayment of borrowings
Cash on deposit
Issuance of shares
Repurchase of shares
Dividends paid
(4)
(136)
14
(126)
1,743
(149)
275
—
—
—
—
—
—
—
—
—
—
76
(535)
(214)
(897)
(66)
786
(177)
98
(1,961)
—
12
—
(26)
Net cash (used in) provided by financing
activities
1,869
(673)
(1,877)
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Exchange movement on opening cash balance
2,262
1,972
—
—
—
—
125
2,079
32
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(901)
(202)
800
(303)
1,841
(2,110)
275
88
(535)
(240)
(681)
2,387
4,051
32
Cash and cash equivalents, end of period
$4,234
$ —
$ 2,236
$—
$ 6,470
See notes to supplemental guarantor information
NEWS CORPORATION 2007 Annual Report
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N E W S C O R P O R A T I O N
Notes to the Consolidated Financial Statements (continued)
Notes to Supplemental Guarantor Information
(1) Investments in the Company’s subsidiaries, for purposes of the supplemental consolidating presentation, are accounted for by
their parent companies under the equity method of accounting whereby earnings of subsidiaries are reflected in the parent compa-
ny’s investment account and earnings.
(2) The guarantees of NAI’s senior public indebtedness constitute senior indebtedness of the Company, and rank pari passu with all
present and future senior indebtedness of the Company. Because the factual basis underlying the obligations created pursuant to
the various facilities and other obligations constituting senior indebtedness of the Company differ, it is not possible to predict how a
court in bankruptcy would accord priorities among the obligations of the Company.
128
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ASX Corporate Governance Recommendations (“Recommendations”)
Details of News Corporation’s corporate governance procedures are described in News Corporation’s Proxy Statement for its 2007
Annual Meeting of Stockholders, including under the heading “Corporate Governance Matters.” News Corporation has followed the
Recommendations during the reporting period, except that Mr. K. Rupert Murdoch serves as the Chairman and Chief Executive
Officer of News Corporation. The Board of Directors has taken the view that it is in the best interests of News Corporation and its
stockholders that Mr. K. Rupert Murdoch serve in such capacities. This view departs from Recommendations 2.2 and 2.3.
Information on News Corporation’s Common Stock
For a list of the beneficial ownership of both News Corporation’s Class A Common Stock and Class B Common Stock as of
August 17, 2007 for: (i) each person who is known by News Corporation to own beneficially more than 5% of the outstanding
shares of Class B common stock; (ii) each member of the Board of Directors; (iii) each Named Executive Officer (as defined in
Item 402(a)(3) of Regulation S-K) of News Corporation; and (iv) all Directors and executive officers of News Corporation as a group,
please refer to News Corporation’s Proxy Statement for its 2007 Annual Meeting of Stockholders under the heading “Security
Ownership of News Corporation.”
As of August 17, 2007, there were approximately 1,600 holders of record of Class B Common Stock and 54,000 holders of
record of Class A Common Stock.
Each share of Class B Common Stock entitles the holder to one vote per share on all matters on which stockholders have the
right to vote. Each share of Class A Common Stock does not have voting rights. However, holders of shares of Class A Common
Stock do have the right to vote, together with holders of shares of Class B Common Stock in limited circumstances which are
described in News Corporation’s Restated Certificate of Incorporation.
Distribution of stockholding (includes CDIs)
The following information is provided as of August 17, 2007:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – above
Class B
Common
Stock
37,600
9,659
986
689
123
Class A
Common
Stock
61,837
3,503
398
338
69
Based on the market price on August 17, 2007, there were approximately 1,700 holders holding less than a marketable parcel of
Class B Common Stock and approximately 39,500 holders holding less than a marketable parcel of Class A Common Stock.
NEWS CORPORATION 2007 Annual Report
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Top twenty stockholders as at August 17, 2007.
The following information regarding the top twenty stockholders of record is based on information provided by News Corporation’s
transfer agent as of August 17, 2007.
Class B Common Stock
Cede & Co
Chess Depositary Nominees Pty Limited
Liberty NC Inc.
Liberty NC VIII Inc.
Liberty NC VII Inc.
Fayez Sarofim
LMC Bay Area Sports Inc.
Charles Wilson
David L. Nelson Trust
Clarence Chang
Audrey Christine Cohen
Ann T. P. Allen-Stevens
Alfred C. Glassell Jr.
Maguire Resources Company
Woodchester Investments Inc.
W&K Staff Pension Fund Limited
Henry R. Marten
Forbar Custodians Limited
Julian R. Stow
Kenneth B. Ullman
Class A Common Stock
Cede & Co
Liberty NC IV Inc.
Liberty NC XII Inc.
Chess Depositary Nominees Pty Limited
Liberty NC V Inc.
Liberty NC II Inc.
Herbert J. Seigel
LMC Bay Area Sports Inc.
Evan C. Thompson Revocable Trust
Ogier Employee Benefit Trust Limited
Merrill Lynch, Pierce, Fenner & Smith Inc.
Fayez Sarofim
Howard Arvey Trust
Barbara Grace Phillips
Brian C. Kelly
Abe Rosenstein
Computershare Trust Company of NY as Agent for Unexchanged Holders of Cert News
Equiserve as Exchange Agent for Hughes Unex13+CO M
Computershare Trust Company of NY as Agent for Unexchanged Chris Craft Class B
130
569,613,046
226,506,226
149,013,186
19,250,000
19,250,000
1,085,440
486,814
59,240
32,000
30,626
26,160
25,384
20,000
20,000
20,000
18,000
16,552
15,200
14,896
14,589
985,517,359
1,800,600,341
102,926,818
99,740,260
82,802,819
19,000,000
13,831,272
5,500,000
4,284,225
2,545,718
2,511,494
1,397,189
542,720
235,328
228,050
131,542
114,358
104,880
68,882
66,206
2,136,632,102
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Board of Directors
Executive Officers
K. RUPERT MURDOCH
Chairman and Chief Executive Officer
PETER CHERNIN
President and Chief Operating Officer
DAVID F. DEVOE
Chief Financial Officer
ROGER AILES
Chairman and Chief Executive Officer
FOX News Channel and FOX Business Network
Chairman
Fox Television Stations and Twentieth Television
LAWRENCE A. JACOBS
Group General Counsel
K. RUPERT MURDOCH
Chairman and Chief Executive Officer
News Corporation
JOSÉ MARÍA AZNAR
President
Foundation for Social Studies and Analysis
Former President of Spain
PETER BARNES
Chairman
Ansell Limited
CHASE CAREY
President and Chief Executive Officer
The DIRECTV Group, Inc.
PETER CHERNIN
President and Chief Operating Officer
News Corporation
KENNETH E. COWLEY
Chairman
RM Williams Holdings Limited
DAVID F. DEVOE
Chief Financial Officer News Corporation
VIET DINH
Professor of Law
Georgetown University Law Center
SIR RODERICK I. EDDINGTON
Chairman, Australia and New Zealand
JP Morgan Chase Bank N.A.
ANDREW S.B. KNIGHT
Director
Rothschild Investment Trust Capital Partners plc
LACHLAN K. MURDOCH
Chief Executive
Illyria Pty Ltd
RODERICK R. PAIGE
Founder and Chairman
Chartwell Education Group, LLC
THOMAS J. PERKINS
Partner
Kleiner Perkins Caulfield & Byers
ARTHUR M. SISKIND
Senior Advisor to the Chairman
News Corporation
JOHN L. THORNTON
Professor and Director of Global Leadership
Tsinghua University of Beijing
STANLEY S. SHUMAN (Director Emeritus)
Managing Director Allen & Company LLC
NEWS CORPORATION 2007 Annual Report
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Supplemental Information
Corporate Secretary
Laura A. O’Leary
Head Office
1211 Avenue of the Americas, New York, NY 10036
Telephone 1 (212) 852 7000
Registered Office – U.S.
2711 Centerville Road, Suite 400, Wilmington, DE 19808
Registered Office – Australia
2 Holt Street, Sydney, N.S.W. Australia 2010
News Corporation is incorporated in Delaware, and is not sub-
ject to Chapters 6, 6A, 6B and 6C of the Corporations Act of
Australia dealing with the acquisition of shares. The acquisition
of shares in News Corporation is subject to Delaware law and
applicable United States securities laws.
Auditors
Ernst & Young LLP
Share Listings
Class A Common Stock and Class B Common Stock
New York Stock Exchange
Australian Stock Exchange Limited
The London Stock Exchange
Share Registers
Computershare Investor Services
Shareholder Communications Department
2 N. LaSalle Street, 3rd Floor, Chicago, IL 60602
Telephone 1 (877) 277 9781 (Toll free)
Telephone 1 (312) 360 5343 (Outside the U.S.)
web.queries@computershare.com or
www.computershare.com
Computershare Investor Services Pty Ltd
Level 5, 115 Grenfell Street, Adelaide, S.A., Australia 5000
Telephone 1300 556 239 (Within Australia)
Telephone 61(3) 9415 4000 (Outside Australia)
Computershare Investor Services plc
P.O. Box 82
The Pavilions, Bridgewater Road, Bristol, BS99 7NH,
United Kingdom
Telephone 44(870) 702 0002
Annual Report and Form 10-K Requests
United States:
1211 Avenue of Americas, New York, NY 10036
Telephone 1 (212) 852 7059
Australasia:
2 Holt Street, Sydney, N.S.W. Australia 2010
Telephone 61 (2) 9288 3233
United Kingdom:
1 Virginia Street, London, E98 1XY
United Kingdom
Telephone 44 (20) 7782 6000
Fax 44 (20) 7895 9020
On the Web
www.newscorp.com/investor/information_request.html
News Corporation has included as Exhibit 31.1 and 31.2 to its
Annual Report on Form 10-K for fiscal year ended June 30,
2007 filed with the Securities and Exchange Commission
certificates of News Corporation’s Chief Executive Officer and
Chief Financial Officer respectively certifying the quality of the
Company’s public disclosure. News Corporation’s Chief Execu-
tive Officer intends to submit to the New York Stock Exchange
(“NYSE”) a certificate certifying that he is not aware of any
violations by News Corporation of the NYSE corporate gover-
nance listing standards.
News Corporation Notice of Meeting
A separate Notice of Meeting and Proxy Statement for News
Corporation’s 2007 Annual Meeting of Stockholders accom-
pany this Annual Report.
The interactive version of the News Corporation 2007 Annual
Report can be found at: www.newscorp.com
132
Global Energy Initiative
News Corporation is committed to being carbon neutral by 2010. For fiscal 2006, News Corporation’s carbon footprint
was 641,150 metric tons of carbon dioxide equivalents. We will repeat our carbon footprint analysis annually, measuring
our progress in reducing our greenhouse gas emissions and energy use.
For more information on News Corp.’s energy work, carbon footprint methodology and efforts to engage audiences,
business partners and employees on the issue of climate change, please see http://www.newscorp.com/energy.
Greenhouse Gas Emissions by Geography
Greenhouse Gas Emissions by Source
Middle East 3%
Europe 5%
other 5%
North America 48%
Asia 7%
Electricity 72%
United Kingdom 11%
Australia 25%
Transport 23%
Stock Performance
The following graph compares the cumulative total return to
stockholders of a $100 investment in the Company’s Class A
Common Stock and Class B Common Stock for the five-year
period from June 30, 2002 through June 30, 2007, with a
similar investment in the Standard & Poor’s 500 Stock Index
and the market value weighted returns of a Peer Group Index
and assumes reinvestment of dividends. The Peer Group
Index, which consists of media and entertainment companies
that represent the Company’s competitors in the industry,
includes The Walt Disney Company, Time Warner Inc.,
CBS Corporation Class B common stock and Viacom Inc.
Class B Common Stock (created on December 31, 2005
by the separation of the company formerly known as Viacom
Inc. into two publicly held companies, CBS Corporation
and Viacom Inc.).
NWS/A
NWS
S&P 500
Peer Group
Cumulative Stockholder Return for Five-Year Period
Ended June 30, 2007
$250 –
$200 –
$150 –
$100 –
n NWS/A n NWS n S&P 500 n Peer Group
6/30/02
$100
$100
$100
$100
6/30/03 6/30/04
$128
$132
$100
$104
$169
$155
$119
$107
6/30/05
$167
$148
$127
$101
6/30/06 6/30/07
$200
$179
$138
$109
$222
$204
$166
$131
DESIGN: SUNDBErG & ASSoCIATES INC. PrINTING: HENNEGAN