Twenty-First Century Fox 2008 Annual Report Download - page 59

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NEWSCORP
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
the fiscal year ended June 30, 2008 benefited from a net gain of $126 million on the disposal of a parcel of land in the United Kingdom which was
included in Other operating (income) charges in the consolidated statements of operations.
Equity earnings of affiliates—Equity earnings of affiliates decreased $692 million for the fiscal year ended June 30, 2008 as compared to the
fiscal year ended June 30, 2007. The decrease was primarily a result of lower contributions from British Sky Broadcasting Group plc (“BSkyB”) due
to a write-down of its ITV plc investment in the fiscal year ended June 30, 2008. The Company’s portion of the ITV plc write-down was $485 million
in the fiscal year ended June 30, 2008. Also contributing to the decrease in earnings from equity affiliates was lower contributions from DIRECTV
due to the exchange of the Company’s entire interest in DIRECTV to Liberty on February 27, 2008 as part of the Share Exchange Agreement. (See
Note 3—Acquisitions, Disposals and Other Transactions to the accompanying Consolidated Financial Statements of News Corporation)
2008 2007 Change % Change
For the years ended June 30, ($ millions)
The Company’s share of equity earnings of affiliates principally consists of:
DBS equity affiliates $138 $ 844 $(706) (84)%
Cable channel equity affiliates 98 98 — —
Other equity affiliates 91 77 14 18%
Total equity earnings of affiliates $327 $1,019 $(692) (68)%
Interest expense, net—Interest expense, net increased $83 million for the fiscal year ended June 30, 2008 as compared to the fiscal year ended
June 30, 2007, primarily due to the issuance of $1 billion 6.15% Senior Notes due 2037 in March 2007 and $1.25 billion 6.65% Senior Notes due 2037
in November 2007. This increase was partially offset by the retirement of the Company’s $350 million 6.625% Senior Notes due January 2008.
Interest income—Interest income decreased $73 million for the fiscal year ended June 30, 2008 as compared to the fiscal year ended June 30,
2007, primarily as a result of lower average cash balances principally due to cash used in the acquisition of Dow Jones.
Other, net—
2008 2007
For the years ended June 30, (in millions)
Gain on Share Exchange Agreement (a) $ 1,676 $ —
Gain on sale of Fox Sports Net Bay Area (b) 208 —
Gain on sale of China Network Systems (b) 133 —
Gain on sale of Gemstar (b) 112 —
Gain on sale of Sky Brasil (b) — 261
Gain on sale of Phoenix Satellite Television Holdings Limited (b) — 136
Termination of participation rights agreement (a) — 97
Impairment of cost based investments (b) (125) (2)
Change in fair value of exchangeable securities (c) 307 (126)
Other (18) (7)
Total Other, net $2,293 $ 359
(a) See Note 3 to the Consolidated Financial Statements of News Corporation.
(b) See Note 6 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 require separate accounting and, as such, changes in their fair value are recognized 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, 2008 was 25%, which was lower than the statutory rate and the
effective tax rate of 34% in the fiscal year ended June 30, 2007. The lower rate in the current fiscal year was due to the closing of the tax-free
Exchange and the reversal of previously deferred tax liabilities for DIRECTV and the Three RSNs. The Exchange was treated as a tax-free split-off in
accordance with Section 355 of the Internal Revenue Code of 1986, as amended, and, as a result, no income tax provision was recorded against the
gain recorded on the transaction.
Minority interest in subsidiaries, net of tax—Minority interest expense increased $65 million for the fiscal year ended June 30, 2008 as
compared to the fiscal year ended June 30, 2007. The increase was primarily due to the minority interest associated with National Geographic
58 NEWSCORP 2008 Annual Report