Twenty-First Century Fox 2007 Annual Report Download - page 97

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NEWS CORPORATION
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
(in millions except
per share data)
Net income, as reported $2,128
Deduct: Total stock-based employee compensation expense determined under fair value based method for
all awards, net of related tax effects (184)
Pro forma net income $1,944
Basic earnings per share:
As reported:
Class A $ 0.74
Class B $ 0.62
Pro forma:
Class A $ 0.68
Class B $ 0.57
Diluted earnings per share:
As reported:
Class A $ 0.73
Class B $ 0.61
Pro forma:
Class A $ 0.67
Class B $ 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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