Twenty-First Century Fox 2005 Annual Report Download - page 52

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NEWS CORPORATION
Gain on issuance of subsidiary/affiliate shares
– In November 2002, Fox Entertainment Group, Inc. (“FEG”), a subsidiary of the
Company sold 50 million shares of its Class A common stock in a public offering. The net proceeds received by FEG were approximately $1.2
billion and were used to repay intercompany indebtedness to the Company and its affiliates. This offering reduced the Company’s equity
ownership and voting percentage in FEG from 85% and 98% to 81% and 97%, respectively, and increased minority interest in subsidiaries. In
accordance with SAB No. 51, the Company recognized a gain of approximately $71 million in connection with this transaction in Gain on sale of
subsidiary/affiliate shares in the accompanying consolidated statements of operations for the year ended June 30, 2003. This gain was limited
because the Company’s ownership interest in FEG increased since the time of FEG’s initial public offering in fiscal year 1999.
Also in fiscal 2003, BSkyB, an affiliate of the Company issued 43.2 million new shares as consideration related to its purchase of an interest
in British Interactive Broadcasting Holdings Limited. In accordance with SAB No. 51, the Company recognized a gain of approximately $92
million in connection with this transaction in Gain on sale of subsidiary/affiliate shares in the accompanying consolidated statements of operations
for the year ended June 30, 2003. As a result of this transaction, the Company’s ownership in BSkyB was diluted to 35%.
No such transactions occurred during fiscal 2004.
Other, net
– Other, net was a gain of $186 million for the year ended June 30, 2004. Other, net included a gain of $105 million on the sale
of the Company’s interest in Sky PerfecTV!, a DBS service provider. Also, during fiscal 2004, the Company received a special dividend from
Monarchy Enterprises Holdings B.V., a cost based investment. The portion of the dividend representing a distribution of the Company’s share of
cumulative earnings of the investee of $52 million is reflected as Other, net while the balance was reflected as a return of capital. Other, net also
included a gain of $26 million related to the settlement in fiscal 2004 of the Company’s insurance claim primarily for for the September 2001 loss
of its broadcast tower at the World Trade Center in New York, New York. The fiscal 2003 amount primarily includes a gain on the settlement of
the Company’s exchangeable debt securities embedded derivatives, as discussed below, which was more than offset by a charge of $92 million
to write down the Company’s investment in Knowledge Enterprises. The charge was based on Knowledge Enterprises’ planned equity rights
offering and reflects the estimated recoverable value of this investment.
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. Fiscal 2004 and
fiscal 2003, Other, net included gains on the change in fair value of exchangeable securities of $18 million and loss of $14 million, respectively.
(See Notes 2 and 9 to the Consolidated Financial Statements of News Corporation for a more detailed description of the Company’s
exchangeable securities and their corresponding embedded derivatives.)
Income tax expense
– The effective tax rate for the year ended June 30, 2004 was 37% as compared to the fiscal 2003 effective tax rate
of 38%. The change in the effective tax rate was principally from the non-recognition of a tax benefit on the Gemstar-TV Guide impairment
charge in fiscal 2003 with no comparable charge in fiscal 2004.
Minority interest expense.
For the year ended June 30, 2004, Minority interest expense decreased $7 million from $215 million for fiscal
year 2003 to $208 million. This decrease was primarily due to the allocation of losses of SKY Italia to its minority shareholder, partially offset by
improved results at FEG.
Net income
– Net income for the year ended June 30, 2004 was $1,533 million, an improvement of $711 million from $822 million for fiscal
2003. This improvement was due to the increased operating results noted above for the year ended June 30, 2004 as compared to fiscal 2003.
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