Twenty-First Century Fox 2007 Annual Report Download - page 46

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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 $131 million for the fiscal year ended June 30, 2007 as
compared to fiscal 2006. Fiscal 2007 reflects increased contributions from DIRECTV, resulting from subscriber growth and higher
pricing, as well as lower expenses resulting from DIRECTV’s set-top receiver lease program. These improvements were offset by the
absence of equity earnings from Innova S. de R.L. de C.V. (“Innova”) sold in February 2006 and Sky Brasil Servicos Ltda (“Sky
Brasil”) sold in August 2006 and increased costs at British Sky Broadcasting Group plc (“BSkyB”) associated with the launch of
broadband.
2007 2006 Change % Change
For the years ended June 30, ($ millions)
The Company’s share of equity earnings of affiliates principally consists of:
British Sky Broadcasting Group plc $ 336 $369 $ (33) (9)%
The DIRECTV Group, Inc. 489 246 243 99%
Other DBS equity affiliates 19 108 (89) (82)%
Cable channel equity affiliates 98 68 30 44%
Other equity affiliates 77 97 (20) (21)%
Total equity earnings of affiliates $1,019 $888 $131 15%
Other, net–
2007 2006
For the years ended June 30, (in millions)
Gain on sale of Sky Brasil(a) $ 261 $ —
Gain on sale of Phoenix Satellite Television Holdings Limited(a) 136 —
Termination of participation rights agreement(b) 97 —
Gain on sale of Innova(a) — 206
Gain on sale of China Netcom Group Corporation(a) —52
Change in fair value of exchangeable securities(c) (126) (76)
Other (9) 12
Total Other, net $ 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 45