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NEWSCORP
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Operating income increased 15% for the fiscal year ending June 30, 2007 as compared to fiscal 2006, primarily due to increased Operating
income at the Cable Networks Programming, DBS, Newspapers and Information Services and Filmed Entertainment segments.
During the fiscal year ended June 30, 2007, the weakening of the U.S. dollar resulted in an increase of approximately 2% in both revenues and
Operating income as compared to fiscal 2006.
Equity earnings of affiliates—Net earnings from equity affiliates increased $131 million for the fiscal year ended June 30, 2007 as compared to
fiscal 2006. Fiscal 2007 reflected increased contributions from DIRECTV, resulting from subscriber growth and higher pricing, as well as lower
expenses resulting from DIRECTV’s set-top receiver lease program. These improvements were offset by the absence of equity earnings from
Innova S. de R.L. de C.V. (“Innova”) sold in February 2006 and Sky Brasil Servicos Ltda (“Sky Brasil”) sold in August 2006 and increased costs at
BSkyB associated with the launch of broadband.
2007 2006 Change % Change
For the years ended June 30, ($ millions)
The Company’s share of equity earnings of affiliates principally consists of:
DBS equity affiliates $ 844 $ 723 $ 121 17%
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%
Interest expense, net—Interest expense, net for the fiscal year ended June 30, 2007 increased $52 million as compared to fiscal 2006, 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.
Interest income—Interest income for the fiscal year ended June 30, 2007 increased $73 million as compared to fiscal 2006, primarily resulting
from higher cash balances during the period.
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 (b) 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
Impairment of cost based investments (a) (2) (14)
Change in fair value of exchangeable securities (c) (126) (76)
Other (7) 26
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 SFAS No. 133, these
embedded derivatives are not designated as hedges 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, 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 transactions 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 operations in the consolidated statements of operations for the fiscal year ended June 30, 2006.
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