Twenty-First Century Fox 2008 Annual Report Download - page 107

NEWSCORP
Notes to the Consolidated Financial Statements (continued)
(the “Warrants”). During fiscal 2003, approximately 85% of the Company’s outstanding TOPrS and related warrants were redeemed. As of June 30,
2008, approximately 1.5 million TOPrS and 1 million warrants 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 22—Additional Financial Information) 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, 2008, $131 million and $17 million of the TOPrS were included in borrowings and non-current liabilities, respectively, on the
consolidated balance sheet. 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.
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 proceeds 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 22—Additional Financial Information) 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, 2008, $1,561 million and $64 million of the BUCS were included in non-current borrowings and other non-current liabilities,
respectively, on the consolidated balance sheet. As of June 30, 2007, $1,502 million and $352 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.
106 NEWSCORP 2008 Annual Report