Twenty-First Century Fox 2006 Annual Report Download - page 98

News Corporation
Notes totheConsolidated Financial Statements (CONTINUED)
with Australian dollar exercise prices. As aresult of this action, the vesting of approximately 19,862,000 previously
unvested stock options was accelerated and became exercisable. None of the unvested stock options held by directors, some
of whom have 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 totheCompany’s adoption of SFAS 123R. In addition,
the Compensation 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 shareasif the Company had applied the fair
value recognition provisions for stock-based employee compensation prior to the adoption of SFAS 123R on July 1, 2004.
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 grantedinfuture years and
the vesting of certain optionswasaccelerated on May 3, 2005 (see above).
2005 2004
For the years ended June 30,
(in millionsexcept per
share data)
Net income, as reported $2,128 $1,533
Deduct: Total stock-based employee compensation expense determined under fair value basedmethod
for all awards, net of related tax effects (184) (89)
Pro forma net income $1,944 $1,444
Basic earnings per share:
As reported:
Class A $0.74 $0.58
Class B $0.62 $0.49
Pro forma:
Class A $0.68 $0.55
Class B $0.57 $0.46
Diluted earnings per share:
As reported:
Class A $0.73 $0.58
Class B $0.61 $0.48
Pro forma:
Class A $0.67 $0.55
Class B $0.56 $0.45
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 year ended June 30, 2006, were $53 million and $35
million 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 sharefortheyear ended
June 30, 2006 are each $0.01 lower for both Class ACommon Stock and Class BCommon Stock, than if the Company had
continued to account for share-based compensation under APB 25.
NOTE 14. RELATED PARTIES
Director transactions
Mr. Shuman served as anon-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, aU.S. based investment bank. In fiscal
2006, total fees paid to Allen &Company LLC were approximately $6.1 million. There were no fees paid to Allen & Com-
pany LLC in fiscal 2005. In fiscal 2004, total fees paid to Allen & Company LLC were $3.9 million.
Mr. Aznar, aDirector of the Company, holds a50%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 June20,2006, immediately preceding Mr. Aznar’s appointment to the Board.
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