SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2005

or

For the transition period fromto

Commission file number 001-32352

NEWS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code (212) 852-7000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

As of May 4,November 8, 2005, 2,251,413,2582,214,840,541 shares of Class A Common Stock, par value $0.01 per share, and 1,044,776,1581,029,576,988 shares of Class B Common Stock, par value $0.01 per share, were outstanding.

NEWS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

NEWS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NEWS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NEWS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

On November 12, 2004, a new Delaware corporation named News Corporation became, through a wholly-owned subsidiary named News Australia Holdings Pty Ltd (“News Australia Holdings”), the parent of News Holdings Limited (formerly known as The News Corporation Limited), an Australian corporation (“TNCL” or for periods prior to November 12, 2004, the “Company”). We referThese transactions are collectively referred to these transactions collectively as the “Reorganization.”

In the Reorganization, all outstanding TNCL ordinary shares and preferred limited voting ordinary shares were cancelled and shares of the Company’s Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock and Class A Common Stock, respectively,Stock”), were issued in exchange on a one for two share basis. The financial statements have been presented as if the one for two share exchange took place on July 1, 2003.2004.

News Corporation (the “Company”) is a diversified entertainment and media company. The Company manages and reports its businesses in eight segments, which are: Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite Television, Magazines and Inserts, Newspapers, Book Publishing and Other.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these unaudited consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005.2006.

These interim unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004 included in the Company’s Current Report on Form 8-K2005 as filed with the Securities and Exchange Commission (“SEC”) on November 24, 2004.September 1, 2005.

The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

Certain fiscal 20042005 amounts have been reclassified to conform to the fiscal 20052006 presentation.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1- Basis of Presentation (continued)

The Company follows the disclosure-only provisions ofIn accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and in accordance with its provisions, applies the intrinsic value method set forth in Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.”

The following table reflects the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions for stock-based employee compensation. These pro forma effects are not 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 options may be granted in future years and the vesting of certain options was accelerated on May 3, 2005 (See Note 14).

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment.” This standard will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values. That cost will be recognized over the vesting period. SFAS No. 123(R) will become effective for the Company in the first quarter of fiscal 2006. An illustration of the impact on the Company using a Black-Scholes option valuation methodology is presented above.

In accordance with SFAS No. 130, “Reporting Comprehensive Income,” total comprehensive income for the Company consists of the following:

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation (continued)STATEMENTS—(Continued)

Recent Accounting Pronouncements

In October 2004, the American Jobs Creation Act (the “Act”) was signed into law. The Jobs Creation Act includes a temporary incentive for U.S. multinationals to repatriate foreign earnings at an effective 5.25 percent tax rate. Such repatriations must occur in either an enterprise’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. In December 2004, the FASBFinancial Accounting Standards Board (“FASB”) issued a FASB Staff Position, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP FAS 109-2”). FSP FAS 109-2 allows companies additional time to evaluate the effect of the Act as to whether unrepatriated foreign earnings continue to qualify for the SFAS No. 109, “Accounting for Income Taxes,” exception regarding non-recognition of deferred tax liabilities and would require explanatory disclosures from those who need the additional time. The Company is currently considering the effects of the repatriation provisions of the Act. Through March 31,September 30, 2005, the Company has not provided deferred taxes on substantially all of the undistributed earnings of foreign subsidiaries since substantially all such earnings were expected to be permanently invested in foreign operations but has started an evaluation of the effects of the repatriation provision. Whether the Company will ultimately take advantage of this provision depends on a number of factors, including reviewing future Congressional or Treasury Department guidance, before a determination can be made. The range of possible amounts that the Company is considering for repatriation under this provision is up to approximately $500 million. The related potential range of income tax is up to approximately $30 million.

In September 2004,May 2005, the Emerging Issues Task ForceFASB issued TopicSFAS No. D-108, “Use154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This standard establishes, unless impracticable, retrospective application as the Residual Method to Value Acquired Assets Other Than Goodwill” (“Topic D-108”). Topic D-108 requiresrequired method for reporting a direct value method, rather thanchange in accounting principle in the residual value method, be used to value intangible assets other than goodwill for such assets acquired in business combinations completed after September 29, 2004. Topic D-108 also requires that registrants who have applied the residual methodabsence of explicit transition requirements specific to the valuation of intangible assetsnewly adopted accounting principle. SFAS No. 154 will become effective for purposes of impairment testing should perform an impairment test using a direct value method for such intangibles no later than the beginning of their first fiscal year beginning after December 15, 2004. The Company has used the residual value method to value its broadcast licenses. Pursuant to the provisions of Topic D-108, the Company plans to utilize a direct methodfor accounting changes and corrections of valuation for an impairment test to be performed as of July 1, 2005. The Company has not yet evaluated the impact of adopting Topic D-108 on its financial position, results of operations or cash flows.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSerrors beginning in fiscal 2007.

Note 2 – Incorporation in the United States2—Acquisitions and Disposals

On November 12, 2004, the Reorganization was accomplished under Australian law whereby the holders of TNCL’s ordinary and preferred limited voting ordinary shares, including those ordinary shares and preferred limited voting ordinary shares represented by American Depositary Shares, had their shares cancelled and received in exchange shares of Class B Common Stock and Class A Common Stock of News Corporation, respectively, on a one for two share basis. Reorganization costs expensed during the nine month period ended March 31, 2005 amounted to $49 million and are included in Other operating charge in the unaudited consolidated statements of operations.

As a result of the Reorganization, News Corporation became the parent company of TNCL. News Corporation has a primary listing on the New York Stock Exchange and secondary listings on the Australian Stock Exchange and the London Stock Exchange.Fiscal 2006 Transactions

In connection with the Reorganization, the Company acquired from the Murdoch Interests the approximate 58% interest in Queensland Press Pty Limited (“QPL”) not already owned bySeptember 2005, the Company through the acquisitionits wholly owned subsidiary acquired all of the Cruden Groupoutstanding common and preferred stock of companies. The Murdoch Interests are certain trusts, the beneficiaries of which include Mr. K.R. Murdoch, members of his family and certain charities. The principal assets of the Cruden Group were shares of the Company and a 58% interest in QPL. QPL owns a publishing business which includes two metropolitan and eight regional newspapers in Queensland, Australia, as well as shares of News Corporation. This transaction has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations”Intermix Media, Inc. (“SFAS No. 141”Intermix”). The consideration for the Intermix acquisition ofwas approximately $580 million in cash which was paid subsequent to quarter end. The Company acquired Intermix in order to increase the net assets of the Cruden Group, excluding shares of the Company owned directlyCompany’s Internet presence through the Cruden Group and indirectly (through QPL), was the issuance of approximately 60 million shares of Class B Common Stock valued at approximately $1 billion and the assumption of approximately $400 million of debt. All of the debt assumed was retired in November 2004.its recently formed Fox Interactive Media unit. The excess purchase price over the fair value of the net assets acquired of approximately $1.2 billion$576 million has been preliminarily allocated to certain indefinite-lived intangibles and goodwill, which in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) areis not being amortized. The allocation of the excess is not final and is subject to changes upon completion of final valuations of certain assets and liabilities. A future reduction in goodwill for additional value to be assigned to identifiable finite-lived intangible assets or tangible assets could reduce future earnings as a result of additional amortization. For every $100 million reduction in goodwill for additional value to be assigned to identifiable finite-lived intangible assets or tangible assets, Depreciation and amortization expense would increase by approximately $10 million per year representing amortization expense assuming an average useful life of 10ten years. The resultsSee Note 16—Subsequent Events.

In September 2005, the Company acquired Scout Media, Inc., the parent company of QPL have been includedScout.com, the country’s leading independent online sports network, and Scout Publishing, producer of widely read local sports magazines in the U.S., for approximately $60 million.

In September 2005, the Company acquired the 25% stake in News Out of Home (“NOOH”) held by Capital International Global Emerging Markets Private Equity Fund, L.P. for approximately $175 million in cash. This

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

acquisition increases the Company’s consolidated statementsownership of operationsNOOH to 100%. NOOH owns 68% of Media Support Services Limited, an outdoor advertising company with operating subsidiaries located in Russia and NOOH also owns and operates outdoor advertising companies located in Eastern Europe.

Fiscal 2005 Transactions

Incorporation in the United States

In April 2004, the Company announced that it would pursue a reorganization that would change the Company’s place of incorporation from Australia to the United States. In August 2004, the Company announced that a Special Committee of Non-executive Directors and the Board of Directors of the Company had unanimously recommended the proposed reorganization of the Company. On October 26, 2004, the reorganization was approved by the Company’s stockholders and option holders and on November 3, 2004, the Federal Court of Australia also approved the reorganization.

On November 12, 2004, the dateproposed reorganization was accomplished under Australian law whereby the holders of acquisition.TNCL’s ordinary and preferred shares, including those ordinary shares and preferred limited voting ordinary shares represented by American Depositary Receipts (“ADRs”), had their shares cancelled and received in exchange shares of voting and non-voting common stock of News Corporation at a one-for-two ratio. Reorganization costs expensed during fiscal 2005 amounted to $49 million and were included in Other operating charge in the Other segment in the consolidated statements of operations. Of these costs, $13 million and $36 million were expensed in the first and second quarter of fiscal 2005, respectively.

In connection with this reorganization, the Company acquired from the A.E. Harris Trust (the “Harris Trust”) the approximate 58% interest in Queensland Press Pty Ltd. (“QPL”) not already owned by the Company through the acquisition of the Cruden Group of companies. The principal assets of the Cruden Group were shares of the Company and a 58% interest in QPL. QPL owns a publishing business which includes two metropolitan and eight regional newspapers in Queensland, Australia, as well as shares of News Corporation. The consideration for the acquisition of the net assets of the Cruden Group, excluding shares of the Company owned directly through the Cruden Group and indirectly (through QPL) by the Cruden Group, was the issuance of approximately 61 million shares of Class B Common Stock valued at approximately $1 billion and the assumption of approximately $400 million of debt. All of the debt assumed was retired in November 2004. The excess purchase price over the fair value of the net assets acquired of approximately $1.3 billion has been allocated to newspaper mastheads and goodwill, which in accordance with SFAS No. 142 are not being amortized. As a result of the purchase of this interest in QPL, the Company’s ownership interest in QPL increased from 42% to 100% and accordingly on November 12, 2004, the Company ceased to equity account for QPL. The results of QPL have been included in the Company’s consolidated statements of operations from November 12, 2004, the date of acquisition.

As a result of the reorganization, News Corporation became the new parent company of TNCL. News Corporation has a primary listing on the New York Stock Exchange and secondary listings on the Australian Stock Exchange and the London Stock Exchange.

In exchange for the approximately 78 million shares of Class A Common Stock and approximately 247 million shares of Class B Common Stock which were owned directly through the Cruden Group and indirectly (through QPL) by the Cruden Group, the Murdoch InterestsHarris Trust received shares of News Corporation in the same exchange ratio as all other holders of Company sharesTNCL stockholders in the Reorganization.reorganization. The number of shares of Class A Common StockNews Corporation non-voting stock that the Murdoch InterestsHarris Trust received waswere reduced by the number of shares equal in value to the net debt and certain other net liabilities of the Cruden Group which were assumed by the Company in the transaction. InThe shares issued to the Reorganization, the Murdoch Interests Harris Trust

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

were issued approximately 6061 million shares of Class A Common Stock, and approximately 247 million shares of Class B Common Stock with an approximate value of $7$6 billion, and the Company assumed approximately $250 million of net debt and certain other net liabilities of the Cruden Group. All of the debt assumed was retired in November 2004.

The Company shares acquired through the acquisition of the Cruden Group as well as the shares which were indirectly owned by the Company through its 42% ownership interest in QPL prior to the acquisition are considered treasury shares. The treasury shares are accounted for using the par value method. Shares of Class A Common Stock and shares of Class B Common Stock related to this transaction that were held in treasury as a result of the acquisition of the Cruden Group at March 31,September 30, 2005 were approximately 109 million and 314 million, respectively.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments

The Company’s investments were comprised Immediately following the reorganization, the Harris Trust owned approximately 29.5% of the following at:

DIRECTV

Investments in equity affiliates primarily reflect the Company’s investment in DIRECTV and includes the excessvoting shares of fair value over the Company’s proportionate share of DIRECTV’s underlying net assets at December 22, 2003, as adjusted to record such net assets at fair value, most notably the adjustment to the carrying value of DIRECTV’s SPACEWAY and PanAmSat businesses and assets and its deferred subscriber acquisition costs. This excess, approximately $3.6 billion, has been allocated to finite-lived intangibles, which are being amortized over lives ranging from 6-20 years, and to certain indefinite-lived intangibles and goodwill, which are not subject to amortization in accordance with SFAS No. 142.

Summarized financial information for DIRECTV, accounted for under the equity method, is as follows:

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments (continued)

The Company’s share of DIRECTV’s losses for the nine months ended March 31, 2005 was $217 million and includes the Company’s share of DIRECTV’s increased loss from its sale of PanAmSat resulting from a reduction in the sales proceeds, the Company’s portion of the SPACEWAY program impairment and the amortization of certain finite-lived intangibles.

Note 4 – Inventories, net

Inventories, net consisted of the following at:

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – BorrowingsNews Corporation.

EurobondsFox Entertainment Group Acquisition

In July 2004, the Company retired the Eurobonds that were outstanding as of June 30, 2004.

New Millennium II

In May 2004, the Company ended the transfer term under the New Millennium II Agreement, the Company’s film financing vehicle, and ceased drawing any borrowings under the facility. During the nine months ended March 31, 2005, the Company fully repaid the remaining outstanding principal of $659 million under the facility that was outstanding as of June 30, 2004.

Notes due 2014 and Notes due 2034

On December 3, 2004, the Company issued approximately $750 million of 5.30% Senior Notes due 2014 and $1,000 million of 6.20% Senior Notes due 2034. The Company received proceeds of $1,743 million on the issuance of this debt, net of expenses.

Notes due 2005

On February 15, 2005, the Company repaid approximately $132 million in principal and $6 million in interest on the 8.5% Notes due February 2005.

LYONS

In February 2001, the Company issued Liquid Yield Option Notes (“LYONS^™”) which pay no interest and have an aggregate principal amount at maturity of $1,515 million representing a yield of 3.5% per annum on the issue price. The holders may exchange the notes at any time into Class A shares of News Corporation or, at the option of the Company, the cash equivalent thereof at a fixed exchange rate of 24.2966 Class A shares per $1,000 note. The notes are redeemable at the option of the holders on February 28, 2006, February 28, 2011 and February 28, 2016 at a price of $594.25, $706.82 and $840.73, respectively. The Company, at its election, may satisfy the redemption amounts in cash, Class A shares or any combination thereof. The Company can redeem the notes in cash at any time on or after February 28, 2006 at specified redemption amounts. The notes, which have been recorded at a discount, are being accreted using the effective interest rate method and had a carrying value of $873 million at March 31, 2005 and are included in current liabilities.

Note 6 – Acquisitions and Disposals

Fiscal 2005 Transactions

In September 2004, the Company purchased Telecom Italia’s 20% interest in SKY Italia, increasing the Company’s ownership interest in SKY Italia to 100%, for aggregate cash consideration of $108 million (€88 million) before fees.

In October 2004, the Company and its 34% investee, DIRECTV, announced a series of transactions with Grupo Televisa, Globopar and Liberty Media International, Inc. that will result in the reorganization of the companies’ direct-to-home (“DTH”) satellite TV platforms in Latin America. The transactions will result in DIRECTV Latin America and Sky Latin America consolidating their two DTH platforms into a single platform in each of the major territories served in the region. As part of these transactions, DIRECTV agreed to aquire News Corporation’s interests in Sky Brasil, Innova and Sky Multi-Country Partners. The Sky Multi-Country Partners transaction has closed and the Company recorded a pre-tax loss during the second quarter of fiscal 2005 of $55 million. Upon the completion of the reorganization of the other platforms, which is subject to the necessary governmental approvals, the Company will record a gain. As a result of these transactions, the Company’s transponder lease guarantee increased by $175 million. However, upon the closing of the Latin American DTH reorganization transactions, the Company will be released from the transponder lease guarantees. (See Note 10 – Commitments and Guarantees)

In December 2004, the Company sold its 20% investment in Rogers Sportsnet to Rogers Broadcasting Limited for $41 million and recognized a gain of $39 million on this sale in Other, net in the unaudited consolidated statements of operations.

In January 2005, STAR completed the acquisition of approximately 26% in Balaji Telefilms Limited, a television content production company in India for $34 million. Balaji’s shares are listed for trading on The Stock Exchange, Mumbai and the National Stock Exchange of India.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Acquisitions and Disposals (continued)

In February 2005, the Company and Rainbow Media Holdings (“Rainbow”) announced the exchange of their investments in Regional Programming Partners (“RPP”). Under the terms of the agreement, the Company will exchange its 40% interest in RPP for Rainbow’s 60% interests in Fox Sports Net Ohio (“FSN Ohio”) and Fox Sports Net Florida (“FSN Florida”) (formerly included in the RPP business) and Rainbow’s 50% interests in National Sports Partners (“NSP”) and National Advertising Partners (“NAP”). In addition, the Company will retain its 40% interest in Fox Sports Net Bay Area (“FSN Bay Area”) (also formerly included in the RPP business) and will remit to RPP the $150 million in promissory notes it received from RPP as a result of RPP’s 2003 acquisition of the Company’s direct ownership interests in Fox Sports Net Chicago and FSN Bay Area. The Company is accounting for this exchange in accordance with Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” and accordingly the Company will record the assets received at fair value upon closing. Accordingly, during the third quarter, the Company recognized a loss of approximately $77 million on this exchange in Other, net on the accompanying unaudited consolidated statement of operations for the nine months ended March 31, 2005, as the fair value of the assets received is less than the book value of the assets exchanged. This transaction closed in April 2005.

In March 2005, Fox Acquisition Corp,Corp., a direct wholly-ownedwholly owned subsidiary of the Company, completed its offer to the holders of Class A common stock of Fox Entertainment Group, Inc. (“FEG”) to exchange 2.04 shares of the Company’s Class A common stockCommon Stock for each outstanding share of FEG’s Class A common stock validly tendered and not withdrawn in the exchange offer (the “Offer”). Shortly thereafter, the Company effected a “short form” merger of FEG with and into Fox Acquisition Corp. Each share of FEG Class A common stock not acquired in the Offer, other than the shares already owned by the Company, was converted in the “short form” merger into 2.04 shares of the Company’s Class A common stock.Common Stock. The Company issued approximately 357 million shares of News Corporation’s Class A Common Stock valued at approximately $6.3 billion in exchange for the outstanding shares of FEG Class A common shares.stock. After the consummation of the offerOffer and the subsequent merger, Fox Acquisition CorpCorp. changed its name to “Fox Entertainment Group, Inc.” As a result of the Offer, the Company’s ownership interest increased from approximately 82% to 100%. This acquisition of the remaining non-controlling interests in FEG has been accounted for under the purchase method in accordance with SFAS No. 141, “Business Combinations” (“SFAS No. 141”).

In connection with the Offer and subsequent merger, a wholly owned subsidiary of the Company tendered the shares of FoxFEG Class A common stock and FoxFEG Class B common stock that it owned prior to the acquisition to Fox Acquisition CorpCorp. in exchange for News Corporation Class A Common Stock at the same exchange ratio as iswas provided in the Offer for shares of FoxFEG Class A common stock. As a result of the exchange, the wholly owned subsidiary owns 1,631 million shares of News Corporation, whichCorporation’s Class A Common Stock, with an approximate value of $8 billion, that are consideredreflected as treasury shares. The treasury shares are accounted for using the par value method. Of the Class A Common Stock held in treasury at March 31, 2005, approximately 1,631 million shares were received in exchange for shares of FEG’s common stock.

This transaction has been accounted for as a purchase in accordance with SFAS No. 141. The Company has not yet completedfinalized the evaluation and allocation of the purchase price as the appraisals associated with the valuation of tangible and intangible assets are not yet complete. Until the final allocation is complete, theThe Company has preliminarily allocated the purchase price to certain finite-lived intangible assets which are being amortized, and certain indefinite-lived intangibles and goodwill, which are not being amortized in the Other segment. In accordance with SFAS No. 142, goodwilluntil the final allocation is not being amortized, however acomplete. These assets are included in the Filmed Entertainment, Television, Cable Network Programming and Other segments. A future reduction in goodwill for additional value to be assigned to identifiable finite-lived intangible assets or tangible assets could reduce future earnings as a result of additional amortization. For every $100 million reduction in goodwill for additional value to be assigned to identifiable finite-lived intangible assets or tangible assets, Depreciation and amortization expense would increase by approximately $10 million per year representing amortization expense assuming an average useful life of 10ten years.

Fiscal 2004 Transactions

On December 22, 2003, the Company acquired a 34% interest in Hughes Electronics Corporation (“Hughes”) for total consideration of approximately $6.8 billion. General Motors Corporation (“GM”) sold its 20% interest in Hughes to the Company in exchange for approximately $3.1 billion, in cash, and 57.2 million shares of News Corporation Class A Common Stock, valued at approximately $800 million. The Company acquired 14% of Hughes from the former GM Class H common stockholders in exchange for approximately 204.2 million shares of News Corporation Class A Common Stock, valued at $2.9 billion. Immediately following the acquisition, the Company transferred its entire 34% interest in Hughes to FEG in exchange for two promissory notes totaling $4.5 billion and approximately 74.5 million shares of FEG’s Class A common stock valued at $2.3 billion. The issuance of approximately 74.5 million shares of FEG’s Class A common stock to the Company increased its equity interest in FEG from approximately 81% to approximately 82% while its voting power remained at approximately 97%. Subsequent to the above transaction, Hughes changed its corporate name to The DIRECTV Group, Inc.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS—(Continued)

Other Fiscal 2005 Transactions

In September 2004, the Company purchased Telecom Italia S.p.A.’s (“Telecom Italia”) 20% interest in SKY Italia for cash consideration of $108 million (€88 million), thereby increasing the Company’s ownership interest in SKY Italia to 100%.

Note 3—Inventories, net

The Company’s inventory was comprised of the following:

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 6 –4—Investments

The Company’s investments were comprised of the following:

During the three months ended September 30, 2005, Gemstar-TV Guide experienced a decline in its market value. As a result of this decline, the Company’s carrying value in Gemstar-TV Guide exceeds its market value by approximately $112 million. Upon review, as discussed below, the Company has determined that at this time the impairment in the value of its investment in Gemstar-TV Guide is temporary.

In determining if the decline in Gemstar-TV Guide’s market value was other than temporary, the Company considered a number of factors: (1) the financial condition, operating performance and near term prospects of the investee; (2) the reason for the decline in fair value, be it general market conditions, industry specific or investee specific; (3) analysts’ ratings and estimates of 12 month share price targets for the investee; (4) the length of the time and the extent to which the investee’s market value has been less than the carrying value of the Company’s investment; and (5) the Company’s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value.

The Company will continue to monitor this investment.

Fiscal Year 2006 Acquisitions and Disposals (continued)

In December 2003, NDS Group plc (“NDS”), a subsidiary of the Company, acquired 100% of the MediaHighway middleware business from a subsidiary of Thomson SA and licensed certain related patents from Thomson SA for a total consideration of $73 million (€60 million) in cash. Subsequent to this acquisition, the Company concluded that certain intangible assets recognized on acquisition were not supported by projections of the incremental future cash flows attributable to the acquired business. Accordingly,during the second quarter of fiscal 2004, the Company recorded an impairment charge against these intangibles of $11.3 million reflected in Operating expenses in the unaudited consolidated statements of operations for the nine months ended March 31, 2004.

In December 2003,July 2005, the Company sold its 50% direct ownership interestsentire cost investment in SportsChannel Chicago AssociatesChina Netcom Group Corporation (“SportsChannel Chicago”China Netcom”) and SportsChannel Pacific Associates (“SportsChannel Bay Area”) (collectively the “SportsChannels”) to subsidiaries ofRegional Programming Partners (“RPP”). The Company’s 77 million shares of China Netcom were sold for total consideration of $150approximately $112 million. This consideration was paid wholly in the form of two three-year promissory notes issued by the subsidiaries of RPP, which own only the acquired interests in the SportsChannels, in an aggregate amount of $150 million and bearing interest at prime plus 1% per annum. The $150 million notes were remitted to RPP as partial consideration for the transaction with Rainbow that closed in April 2005, as described above. Upon the close of this sale, the SportsChannels were held 100% by RPP and indirectly 60% by Rainbow Media Sports Holdings, Inc. and 40% by the Company. The Company recognized a net gain of approximately $52 million on this sale in the salefirst quarter of the SportsChannels of $9 million, which was reflectedfiscal 2006 included in Other, net in the unaudited consolidated statementsstatement of operations for the nine months ended March 31, 2004.

In February 2004, the Company sold the Los Angeles Dodgers (“Dodgers”), together with Dodger Stadium and the team’s training facilities in Vero Beach, Florida and the Dominican Republic, to entities owned by Frank McCourt (the “McCourt Entities”). The gross consideration for the sale of the Dodgers franchise and real estate assets was $421 million, subject to further adjustment. The consideration at closing was comprised of (i) $225 million in cash, (ii) a $125 million two-year note secured by non-team real estate, (iii) a $40 million four-year note secured by bank letters of credit and (iv) a $31 million three-year note that is convertible, at the Company’s option, into preferred equity in the McCourt Entities if unpaid at maturity. The Company agreed to remit $50 million during the first two years following the closing of the transaction to reimburse the McCourt Entities for certain pre-existing commitments of which approximately $39 million has been remitted as of March 31, 2005. Pending the final determination of contractual adjustments, the sale has resulted in an estimated loss of $19 million, which was recorded in Other, net in the Company’s statements of operations for the year ended June 30, 2004.operations.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS—(Continued)

Summarized financial information for significant equity affiliates, determined in accordance with Regulation S-X, accounted for under the equity method is as follows:

Note 5—Intangible Assets

Effective July 1, 2005, the Company adopted Emerging Issues Task Force Topic No. D-108 “Use of the Residual Method to Value Acquired Assets Other Than Goodwill” (“D-108”). D-108 requires companies who have applied the residual value method in the valuation of acquired identifiable intangibles for purchase accounting and impairment testing to now use a direct value method. As a result of the adoption, the Company recorded a charge of $1.6 billion ($1 billion net of tax, or ($0.32) per diluted share of Class A Common Stock and ($0.27) per diluted share of Class B Common Stock), to reduce the intangible balances attributable to its television stations’ Federal Communications Commission (“FCC”) licenses. As required, this charge has been reflected as a cumulative effect of accounting change, net of tax in the unaudited consolidated statement of operations.

As of September 30, 2005, the Company’s FCC licenses were valued at approximately $6.9 billion, reflecting a $1.6 billion reduction of the intangible balances attributable to its television stations’ FCC licenses due to the adoption of D-108 which requires the application of a direct value method to determine the fair value of assets other than goodwill. At June 30, 2005, the Company’s FCC licenses were valued at approximately $8.5 billion. The Company’s FCC licenses are recorded as intangible assets with indefinite lives and are not subject to amortization.

Note 6—Borrowings

LYONs

In February 2001, the Company issued Liquid Yield Option Notes (“LYONs™”) which pay no interest and have an aggregate principal amount at maturity of $1,515 million representing a yield of 3.5% per annum on the issue price. The holders may exchange the notes at any time into Class A Common Stock or, at the option of the Company, the cash equivalent thereof at a fixed exchange rate of 24.2966 shares of Class A Common Stock per $1,000 note. The notes are redeemable at the option of the holders on February 28, 2006, February 28, 2011 and February 28, 2016 at a price of $594.25, $706.82 and $840.73, respectively. The Company, at its election, may satisfy the redemption amounts in cash, Class A Common Stock or any combination thereof. The Company can redeem the notes in cash at any time on or after February 28, 2006 at specified redemption amounts. The notes, which have been recorded at a discount, are being accreted using the effective interest rate method and had a carrying value of $888 million at September 30, 2005 and are included in Borrowings within current liabilities.

Note 7—Stockholders’ Equity

In August 2005, the Company announced that the Board of Directors determined to extend the expiration date of the Company’s stockholder rights plan for an additional two-year period.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the terms of the Kayarem Share Exchange Agreement (the ”KSEA”) and the Cruden Share Exchange Agreement (the “CSEA and together with the KSEA, the “Exchange Agreements”) related to the Reincorporation (See Note 2 Acquisitions and Disposals), the Company and News Australia Holdings Pty Ltd (formerly known as Carlholt Pty Limited), acquired 100% of the entities formerly held by the Harris Trust, which indirectly held shares of TNCL. In exchange for these entities, the Harris Trust received shares of Class A Common Stock and Class B Common Stock. The amounts paid under the terms of the Exchange Agreements were calculated using agreed estimates. The Exchange Agreements provided that any difference between the estimated amount provided in the Exchange Agreements and actual amounts owed to the Harris Trust would be reconciled after the completion of the Company’s reincorporation to the United States with an adjustment (the “Adjustment Amount”).

The Adjustment Amount owed to the Harris Trust under the KSEA was an additional $32 million. The Company and the parties to the KSEA executed an agreement in relation to the Adjustment Amounts under the KSEA under which the Company would issue shares of Class A Common Stock of approximately equivalent value to the Adjustment Amount. Following approval by stockholders on October 21, 2005, a total of approximately 2 million shares of Class A Common Stock were issued on October 27, 2005 to settle the Adjustment Amount under the KSEA. The number of shares was determined based on the NYSE closing price of the Class A Common Stock on October 25, 2005.

Dividends

The Company declared a dividend of $0.07 per share for Class A Common Stock and $0.08 per share for Class B Common Stock in August 2005.

In June 2005, the Company announced a stock repurchase program under which the Company is authorized to acquire from time to time up to an aggregate of $3 billion in Class A Common Stock and Class B Common Stock. Below is a summary of the Company’s purchases of its Class A Common Stock and Class B Common Stock as of September 30, 2005:

Note 8—Stock Option Plans

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment(“SFAS 123R”). SFAS 123R is a revision of SFAS No. 123, as amended, Accounting for Stock-Based Compensation (“SFAS 123”), and supersedes Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees (“APB 25”). SFAS 123R eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of stock options. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In July 2005, the Company adopted SFAS 123R using a modified prospective application, as permitted under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

News Corporation 2005 Long-Term Incentive Plan

The Company has adopted the News Corporation 2005 Long-Term Incentive Plan (the “2005 Plan”) under which stock based compensation, including stock options, restricted stock, restricted stock units and other types of awards, may be granted. Such equity grants under the 2005 Plan will generally vest over a four-year period and expire ten years from the date of grant. The Company’s employees and directors are entitled to participate in the 2005 Plan. The Compensation Committee of the Board of Directors of the Company will determine the recipients, type of award to be granted and amounts of awards to be granted under the 2005 Plan. Stock options awarded under the 2005 plan will be granted at exercise prices which are equal to or exceed the market price at the date of grant. The 2005 Plan replaced the Company’s existing News Corporation 2004 Stock Option Plan under which no additional options will be granted. The maximum number of shares of Class A Common Stock that may be issued under the 2005 Plan is 165 million shares. The Company will issue new shares of Class A Common Stock for award exercises. As of September 30, 2005, no stock options were issued under the 2005 Plan. During the three months ended September 30, 2005, the Company issued 1.6 million Restricted Stock Units (“RSUs”) to several executives of the Company. Subsequent to September 30, 2005, the Company issued 12.7 million RSUs to employees which vest over four years.

The fair value of stock based compensation under the 2005 Plan will be calculated according to the type of award issued. Stock options and Stock Appreciation Rights (“SARs”) will be fair valued using a Black-Scholes option valuation method that uses the following assumptions: expected volatility is based on the historical volatility of the Class A Common Stock; expected term of awards granted is derived from the historical activity of the Company’s awards and represents the period of time that the awards granted are expected to be outstanding; weighted average risk-free interest rate is an average of the interest rates of United States government bonds with similar lives on the dates of the option grants; and dividend yield was calculated as an average of a ten year history of the Company’s yearly dividend divided by the fiscal year’s average closing stock price.

News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan

As a result of the Company’s reincorporation, all preferred limited voting ordinary shares which the Company issued options over were cancelled and holders received in exchange options for shares of Class A Common Stock of the Company on a one-for-two basis with no change in the original terms under the News Corporation 2004 Stock Option Plan and 2004 Replacement Stock Option Plan (collectively, the “2004 Plan”). In addition, all other outstanding stock options to purchase preferred limited voting ordinary shares were adjusted to be exercisable into shares of Class A Common Stock subject to the one-for-two share exchange. Prior to the Company’s reincorporation in the U.S., stock options were granted to employees with Australian dollar exercise prices.

Under the 2004 Plan, equity grants generally vest over a four-year period and expire ten years from the date of grant. The equity awards granted prior to June 30, 2005 have exercise prices, which are equal to or exceeding the market price at the date of grant, in Australian dollars. No future grants will be issued under the 2004 Plan and the plan automatically terminates in ten years.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of each outstanding option award under the 2004 Plan was estimated on the date of grant using the Black-Scholes option valuation model that uses the following assumptions; expected volatility was based on historical volatility of the Company’s Class A Common Stock; expected term of options granted was derived from the historical activity of the Company’s options and represented the period of time that options granted were expected to be outstanding; weighted average risk-free interest rate was an average of the interest rates of Australian government bonds with similar lives on the dates of the option grants; and dividend yield was calculated as an average of a ten year history of the Company’s yearly dividend divided by the fiscal year’s average closing stock price.

Other

The Company operates an employee share ownership scheme in the United Kingdom. This plan enables employees to enter into a fixed-term savings contract with independent financial institutions linked to an option for Class A Common Stock. The savings contracts can range from three to seven years with an average expected life of four years.

The following table summarizes information about the Company’s stock option transactions (options in thousands):

The exercise prices for the options presented above are in Australian dollars. The US dollar equivalents above have been converted at historical exchange rates; therefore, the proceeds from the exercise of these options may differ due to fluctuations in exchange rates in periods subsequent to the date of the grants.

No options were granted in the three months ended September 2005 and 2004.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NDS Option Schemes

NDS, an indirect majority-owned subsidiary of the Company which is a publicly traded company, has three executive share option schemes (“the NDS Plans”). The NDS Plans provide for the grant of options to purchase Series A ordinary shares in NDS with a maximum term of ten years. Options granted under the NDS Plans vest over a four-year period. The NDS Plans authorize options to be granted subject to a maximum of 10% of the ordinary shares of NDS on issue at the date of grant. All NDS employees are entitled to participate in the NDS Plans, however (with the exception of the employee share ownership schemes which are open to all), management determines to whom and how many options are granted.

A summary of the NDS options (options in thousands):

Expected volatility was based on historical volatility of the NDS’s American Depositary Shares as quoted on the NASDAQ National Market. The expected life of options granted was derived from the historical activity of NDS’s options and represented the period of time that options granted were expected to be outstanding. The weighted average risk-free rate was the average interest rates of U.S. government bonds of comparable term to the options on the dates of the option grants. A dividend yield was not calculated because NDS has not, and does not currently expect to pay a dividend.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The aggregate intrinsic value of options exercised for all plans presented during the first quarter of fiscal 2006 and 2005 was $13 million and $9 million, respectively.

For the three months ended September 30, 2005, as a result of the adoption of SFAS 123R, the expense related to stock options previously issued under the Company’s 2004 Stock Option Plan and under the NDS Plans was $14 million. For the three months ended September 30, 2005, the Company recognized approximately $8 million in compensation costs for all other equity-based long-term incentive plans. During the three months ended September 30, 2005, the Company received $29 million in cash from stock option exercises and recognized a tax benefit of $4 million on stock options exercised for all plans presented.

At September 30, 2005, the Company’s total compensation cost related to non-vested stock options not yet recognized for all plans presented is approximately $50 million, which is expected to be recognized over the next three fiscal years.

Compensation Expense

On May 3, 2005, the Compensation Committee of the Board of Directors of the Company approved the acceleration of vesting of unvested out-of-the-money stock options granted under the Company’s 2004 Stock Option Plan. The affected options are those with exercise prices greater than A$19.74 per share, which was the closing price of the Company’s Class A Common Stock (as traded on the Australian Stock Exchange in the form of CHESS Depositary Interests) on May 2, 2005. Prior to the Company’s reorganization in the United States, 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 are now immediately exercisable. None of the unvested stock options held by directors, some of whom have options with exercise prices in excess of $19.74, were accelerated.

The Compensation Committee’s decision to accelerate the vesting of these options was in anticipation of compensation expense to be recorded subsequent to the effective date of SFAS 123R on July 1, 2005. In addition, the Compensation Committee considered that because these options had exercise prices in excess of the current market value 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. The future compensation expense to be recorded upon adoption of SFAS 123R that was eliminated as a result of the acceleration of the vesting of these options was approximately $100 million ($65 million net of tax) of which $58 million ($38 million net of tax) and $42 million ($27 million net of tax) were to be realized in fiscal years 2006 and 2007, respectively.

The following table reflects the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions for stock-based employee compensation prior to the adoption of SFAS 123R on July 1, 2004. 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 options may be granted in future years and the vesting of certain options was accelerated on May 3, 2005 (see above).

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 9—Guarantees

The Company’s guarantees have not changed from disclosures included in the Company’s Annual Report Form 10-K for the fiscal year ended June 30, 2005 filed with the SEC on September 1, 2005.

Note 10—Contingencies

Stockholder Litigation

On October 6, 2005, 13 professionally managed investment funds that own the Company’s stock filed a complaint in the Court of Chancery of the State of Delaware against the Company and its individual directors. The complaint, styled Unisuper et al. v. News Corp., C.A. No. 1699-N, raises claims of breach of contract, promissory estoppel, fraud, negligent misrepresentation and breach of fiduciary duty relating to the Company’s Board of Directors’ policy concerning rights plans, and the August 2005 decision of the board to extend the expiration of the existing stockholder rights plan until November 8, 2007. The plaintiffs are seeking, among other things: (1) a declaration that the amendment extending the rights plan until November 8, 2007 is null and void, and (2) an order permanently enjoining the Defendants from extending the stockholder rights plan without first obtaining approval from the Company’s stockholders.

Also on October 6, 2005, the plaintiffs moved for expedited proceedings, requesting that the court set an expedited trial date. This request was denied. On October 22, 2005, the Company filed a motion to dismiss the complaint. A hearing on that motion is scheduled for November 10, 2005. The duration and outcome of this litigation cannot be determined at this time. The Company believes that the claims raised in the complaint are without merit, and intends to defend against them vigorously.

FEG Offer

News Corporation received complaints relating to a number of purported class actions filed in Court of Chancery in the State of Delaware. The complaints generally allege, among other things, that News Corporation

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and the members of the FEG Board of Directors breached its fiduciary duties owed to the public stockholders of FEG, including the allegation that News Corporation offered to acquire shares of FEG Class A common stock at an unfair price and at a time that disadvantaged the FEG stockholders. The complaints generally sought declaratory and injunctive relief and damages in an unspecified amount.

Approximately 17 purported class action complaints were filed in January 2005 at the Court of Chancery of the State of Delaware challenging the FEG Offer. The Delaware complaints are captioned:Allen v. News Corp., et al., No. 979-N;Mascarenhas v. Fox Entm’t. Group, et al., No. 980-N;Shemesh v. Fox Entm’t. Group, et al., No. 981-N;Striffler v. FEG Holdings, et al., No. 982-N;Howard Vogel Ret. Plan v. Powers, et al., No. 984-N;Doniger v. News Corp., et al., No. 985-N;Engle v. Murdoch, et al., No. 986-N;Shrank v. Murdoch, et al., No. 988-N;Blackman v. Fox Entm’t. Group, et al., No. 991-N;Fishbone v. News Corp., et al., No. 994-N;Kennel v. News Corp., et al., No. 995-N;Millner v. News Corp., et al., No. 996-N;Pipefitters Locals v. Fox Entm’t. Group, et al., No. 1003-N;Molinari v. News Corp., et al., C.A. No. 1018-N;Seaview Services v. Fox Entertainment, et al., C.A. No. 1026-N;Teachers’ Retirement System of Louisiana v. Powers, et al., C.A. No. 1033-N; andNew Jersey Building Laborers’ Pension Fund v. Powers, et al., C.A. No. 1034. TheShrank action, No. 988-N, was voluntarily dismissed on January 19, 2005. News Corporation is also currently aware of two purported class action complaints raising substantially similar claims that have been filed in the Supreme Court of the State of New York, County of New York, and one that has been filed in the United States District Court for the Southern District of New York (the “Southern District of New York Complaint”), which were filed in January 2005. The New York complaints are captioned:Shrank v. Murdoch, et al., Index No. 600114/2005; andGreen Meadows Ptr. v. Fox Entertainment, et al., No. 100706/2005. The Southern District of New York Complaint is captionedGary Kosseff v. Fox Entertainment Group, Inc., et. al., No. 05 Civ. 1942 (LLS). On January 21, 2005, certain plaintiffs in the Delaware lawsuits filed a motion that seeks to consolidate the Delaware actions. In addition, the Company filed motions to dismiss and to stay discovery, and the plaintiffs have filed a motion for expedited proceedings. On February 3, 2005, the Court of Chancery denied News Corporation’s motion to stay discovery, and granted the plaintiffs’ motion for expedited discovery and motion to consolidate. The consolidated Delaware complaint was styledIn re Fox Entertainment Group, Inc. Stockholders Litigation, Consol. C.A. No. 1033-N.

Each of the consolidated Delaware complaints and the New York Supreme Court complaints generally alleges, among other things, that News Corporation and the members of the FEG Board of Directors purportedly breached fiduciary duties owed to the public stockholders of FEG in connection with the FEG Offer by: (1) offering to acquire their shares at an unfair price; (2) offering to acquire their shares at a time that disadvantages the public stockholders; (3) having FEG appoint directors who are neither independent nor disinterested to a special committee created to consider the FEG Offer; and (4) failing to adequately disclose information material to the FEG Offer, including disclosure with respect to the FEG 2005 budget. The Southern District of New York Complaint also generally alleges, among other things, some of the foregoing matters. The plaintiffs filed an amended complaint on February 24, 2005 in the US Southern District of New York alleging violations of the federal securities laws in addition to the foregoing matters. On February 24, 2005, the US Southern District of New York denied the plaintiffs’ motion for expedited proceedings.

As for relief, the plaintiffs sought, among other things: (1) an order that the complaints are properly maintainable as a class action; (2) a declaration that defendants have breached their fiduciary duties and other duties to the plaintiffs and other members of the purported class; (3) injunctive relief; (4) unspecified monetary damages; (5) attorneys’ fees, costs and expenses; and (6) such other and further relief as the Court may deem just and proper. News Corporation believes that these claims are without merit and intends to vigorously contest these allegations.

A memorandum of understanding setting forth the terms of a settlement with respect to the aforementioned litigation was entered into by the plaintiffs and the named defendants as of March 2, 2005. The New York actions

were dismissed. On or about June 15, 2005, the parties entered into a stipulation of settlement in the consolidated Delaware action. In an Order dated June 23, 2005, the Chancellor, among other things, (i) preliminarily approved the stipulation of settlement; (ii) preliminarily certified the class for settlement purposes; and (iii) set a hearing for September 19, 2005. Among other conditions, the settlement is subject to final court approval of the settlement and dismissal with prejudice of the litigation. The court approved the settlement on September 16, 2005 and the case has been dismissed with prejudice.

NDS

On June 6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies Corporation and Nagrastar L.L.C. (collectively, “Echostar”) filed an action against NDS in the United States District Court for the Central District of California. Echostar filed an amended complaint on October 8, 2003, which purported to allege claims for violation of the Digital Millennium Copyright Act (“DMCA”), the Communications Act of 1934 (“CA”), the Electronic Communications Privacy Act, The Computer Fraud and Abuse Act, California’s Unfair Competition statute and the federal RICO statute. The complaint also purported to allege claims for civil conspiracy, misappropriation of trade secrets and interference with prospective business advantage. The complaint sought injunctive relief, unspecified compensatory and exemplary damages and restitution. On December 22, 2003, all of the claims were dismissed by the court, except for the DMCA, CA and unfair competition claims, and the court limited these claims to acts allegedly occurring within three years of the filing of the complaint. Echostar filed a second amended complaint. NDS filed a motion to dismiss the second amended complaint on March 31, 2004. On July 21, 2004, the court issued an order among other things directing Echostar to file a third amended complaint within ten days correcting various deficiencies in the second amended complaint noted by the court. Echostar filed its third amended complaint on August 4, 2004. On August 6, 2004, the court ruled that NDS was free to file a motion to dismiss the third amended complaint, which NDS did on September 20, 2004. The hearing occurred on January 3, 2005. On February 28, 2005, the court issued an order treating the motion as a motion for a more definite statement, granted the motion and gave Echostar until March 30, 2005 to file a fourth amended compliant correcting various deficiencies in the third amended complaint noticed by the court. On March 30, 2005, Echostar filed a fourth amended complaint. NDS filed a motion to dismiss the fourth amended complaint which Echostar opposed. On July 27, 2005, the court granted the motion in part and denied the motion in part. NDS believes the remaining claims are without merit and intends to vigorously defend against them. On October 24. 2005, NDS filed its Amended Answer with Counterclaim, alleging that Echostar misappropriated NDS’s trade secrets, violated the Computer Fraud and Abuse Act and engaged in unfair competition. Echostar has not yet filed a reply.

On July 25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L., Spanish satellite broadcasters and customers of Canal+ Technologies SA (together, “Sogecable”), filed an action against NDS in the United States District Court for the Central District of California. Sogecable filed an amended complaint on October 9, 2003, which purported to allege claims for violation of the DMCA and the federal RICO statute. The amended complaint also purported to allege claims for interference with contract and prospective business advantage. The complaint sought injunctive relief, unspecified compensatory and exemplary damages and restitution. On December 22, 2003, all of the claims were dismissed by the court. Sogecable filed a second amended complaint. NDS filed a motion to dismiss the second amended complaint on March 31, 2004. On July 23, 2004, the court heard oral argument on the motion and advised that a formal ruling should be issued by early August. On August 4, 2004, the court issued an order dismissing the second amended complaint in its entirety. Sogecable had until October 4, 2004 to file a third amended complaint. On October 1, 2004, Sogecable notified the court that it would not be filing a third amended complaint, but would appeal the court’s entry of final judgment dismissing the suit to the United States Ninth Circuit Court of Appeals. Sogecable has filed a brief on appeal, NDS’s opposition was filed on August 22, 2005, and Sogecable filed its reply on September 6, 2005.

On April 18, 1997, International Electronics Technology Corp. filed suit in the United States District Court for the Central District of California against NDS’s customers, DIRECTV, Inc. and Thomson Consumer Electronics, Inc., alleging infringement of one U.S. patent and seeking unspecified damages and injunction.

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Although not a party to this case, NDS has assumed the defense and agreed to indemnify the named defendants. The defendants have raised defenses of non-infringement and/or invalidity. On August 2, 2004, the court stayed the case indefinitely pending decision by the Federal Circuit in another case. The Federal Circuit’s decision was issued on July 12, 2005, and the court held a status conference on August 8, 2005.

Intermix

Greenspan Litigation

On February 10, 2005, Brad Greenspan, Intermix’s former Chairman and Chief Executive Officer who was asked to resign as CEO and was removed as Chairman in the fall of 2003, filed in derivative complaint in Los Angeles Superior Court against Intermix, various of its former directors and officers, VantagePoint Venture Partners, a former large stockholder of Intermix (“VantagePoint”), and certain of VantagePoint’s principals and affiliates. The complaint alleged claims of libel and fraud against Intermix and various of its then current and former officers and directors, claims of intentional interference with contract and prospective economic advantage, unfair competition and fraud against VantagePoint and certain of its affiliates and principals and claims alleging that Intermix’s forecasts of profitability leading up to its January 2004 annual stockholder meeting and associated proxy contest waged by Mr. Greenspan were false and misleading. These claims generally related to Intermix’s decision to consummate its Series C Preferred Stock financing with VantagePoint in October 2003, Mr. Greenspan’s contemporaneous separation from Intermix and matters arising during the proxy contest. The complaint also alleged that Intermix’s acquisition of the assets of a company known as Supernation LLC (“Supernation”) in July 2004 involved breaches of fiduciary duty. Mr. Greenspan sought remittance of compensation received by the various then current and former Intermix director and officer defendants, unspecified damages, removal of various Intermix directors, disgorgement of unspecified profits, reformation of the Supernation purchase, punitive damages, fees and costs, injunctive relief and other remedies. Intermix and the other defendants filed motions challenging the validity of the action and Mr. Greenspan’s ability to pursue it. Mr. Greenspan voluntarily dismissed this action in October 2005.

Prior to dismissing his derivative lawsuit, in August 2005, Mr. Greenspan filed another complaint in Los Angeles Superior Court against the same defendants. The complaint, for breach of fiduciary duty, included substantially the same allegations made by Mr. Greenspan in the above-referenced lawsuit. Mr. Greenspan further alleged that defendants’ actions have, with the FIM Transaction, culminated in the loss of Mr. Greenspan’s interest in Intermix for a cash payment allegedly below its value. Mr. Greenspan seeks compensatory and consequential damages, punitive damages, fees and costs, injunctive relief and other remedies. The defendants in the matter have filed motions seeking dismissal of the lawsuit on the grounds that the complaint fails to state any cause of action. Intermix believes that the claims and allegations in the complaint are without merit and expects that the defendants in the matter will vigorously defend themselves. Intermix, as well as News Corporation with respect to certain claims, is obligated to defend and indemnify the defendants in the matter.

Downloads

On April 28, 2005, the Attorney General of the State of New York (the “NY AG”) commenced an action against Intermix for allegedly unlawful and deceptive acts and practices associated with Intermix’s distribution of toolbar, redirect and contextual ad serving applications (“downloads”). The NY AG asserted that Intermix and/or third parties distributed downloads that were installed by users without sufficient notice or consent and in a manner that made it difficult to locate and remove the programs. The petition sought disgorgement of profits, civil penalties and other remedies. In June 2005, Intermix announced an agreement in principle with the NY AG pursuant to which Intermix agreed to pay a total of $7.5 million to the State of New York and to discontinue

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

distribution of its adware, redirect and toolbar programs. In September 2005, Intermix and the NY AG entered into a stipulation for entry of a Consent Order and Judgment memorializing the terms of the settlement, and the court entered the Consent Order and Judgment in October 2005. Intermix did not admit any wrongdoing or liability in connection with settlement of the matter. Intermix voluntarily suspended any ongoing distribution of the relevant applications in April 2005, and the payments to the State of New York exceed any and all profits associated with Intermix’s distribution of the subject downloadable applications.

In May 2005, Intermix was served with a Statement of Claim filed by an individual in the Federal Court of Canada in Montreal. The plaintiff in the action purports to act on behalf of an unspecified class of individuals who have been allegedly damaged by Intermix’s violation of provisions of Canada’s 1985 Competition Act in connection with Intermix’s distribution of downloads. The plaintiff is seeking an award of unjust enrichment, civil penalties and costs in unspecified amounts. Intermix has filed a motion seeking dismissal of the lawsuit on the grounds that the court lacks jurisdiction over the alleged claims and over Intermix and that the claims of the plaintiff are factually baseless. Intermix disputes the allegations of the Statement of Claim, believes they are without merit and intends to vigorously defend itself in this matter.

A similar complaint was also filed by an individual, Thomas Kerrins, against Intermix in the United States District Court for the Central District of California. Mr. Kerrins purports to act on behalf of all United States residents who, during the period from July 25, 2002 to the present, had spyware or adware put onto their computers by Intermix. The complaint alleges claims of trespass, unjust enrichment, violation of a California penal statute concerning unauthorized access to computers, computer systems and data, and unfair and deceptive business practices. The plaintiff is seeking an order certifying a class and appointing a class representative and class counsel, injunctive relief, disgorgement of ill-gotten gains and an award of unspecified damages, attorneys’ fees, costs and expenses. Intermix has filed a motion to dismiss the lawsuit on the ground that, among others, the complaint fails to state a viable cause of action against Intermix. Prior to the hearing on the motion to dismiss, plaintiff amended his complaint. Intermix has until November 14, 2005 to file a motion to dismiss plaintiff’s first amended complaint.

In April 2005, the Los Angeles City Attorney’s Office (the “City”) approached Intermix about its downloadable software practices and threatened to file an action against Intermix. In June 2005, the City verbally informed Intermix that, in light of its proposed settlement with the NY AG, the City would not seek a monetary penalty. Then on August 31, 2005, the City provided a written offer to Intermix reiterating that it would not seek a monetary penalty in the threatened action if Intermix completed a settlement with the NY AG. On September 29, 2005, the day after Intermix finalized its settlement with the NY AG on the terms directed by the City’s August 31 proposal, the City changed its position and informed Intermix that it would seek to impose a monetary penalty. Intermix refused to agree to the imposition of a penalty. To date, no complaint has been filed.

Patents

On January 31, 2003, Arcade Planet, Inc. (“Arcade Planet”), a California corporation, filed a patent infringement complaint against Intermix in the United States District Court for the District of Nevada. Arcade Planet alleges that an online skill-based gaming business owned and operated by Intermix at the time of the filing of the lawsuit, and which Intermix subsequently sold in July 2004, infringed a patent held by Arcade Planet entitled the “918 Patent.” In its complaint, Arcade Planet seeks to prevent future infringement of the 918 Patent and compensation for lost profits or royalty damages. In April 2003, Intermix filed an answer denying Arcade Planet’s allegations and seeking declaratory judgment from the court that Intermix has not infringed the 918 Patent and that the patent is invalid and unenforceable. In July 2003, the court stayed the action pending reexamination by the United States Patent and Trademark Office (“USPTO”) of substantial new questions of patentability affecting certain claims underlying the 918 Patent. The USPTO has recently issued a final rejection of the claims of the 918 Patent asserted against Intermix.

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In October 2005, Beneficial Innovations, Inc. (“BII”) filed a first amended patent infringement complaint against an Intermix subsidiary and another unaffiliated company in the United States District Court for the Central District of California. BII alleges, on information and belief, that aspects of Intermix’s Grab.com website infringe a patent relating to a method and system for playing games on a network entitled the “702 Patent.” In the complaint, BII seeks to enjoin the Intermix subsidiary from infringing the 702 Patent and seeks unspecified compensatory damages, fees and costs. Intermix has filed an answer to the complaint denying BII’s allegations and asserting various defenses. Intermix believes that BII’s claims are without merit and intends to vigorously defend itself.

FIM Transaction

On August 26, 2005, a purported class action lawsuit, captionedRon Sheppard v. Richard Rosenblatt et. al., was filed in the California Superior Court, County of Los Angeles. In addition to Mr. Rosenblatt, the lawsuit names as defendants Intermix’s former Chief Executive Officer (Brad Greenspan), a former Intermix director, all of the other then incumbent members of the Intermix Board and entities affiliated with Venture Partners, a former major Intermix stockholder. The complaint alleges that in pursuing the FIM Transaction and approving the merger agreement, the defendants breached their fiduciary duties to Intermix stockholders by, among other things, engaging in self-dealing and failing to obtain the highest price reasonably available for Intermix and its stockholders. The complaint further alleges that the merger agreement resulted from a flawed process and that the defendants tailored the terms of the merger to advance their own interests. The complaint seeks an injunction preventing the completion of the merger, an order requiring Intermix directors to exercise their fiduciary duties to obtain a transaction in the best interests of Intermix stockholders, rescission of the proposed merger to the extent already implemented and reasonable costs and attorneys’ fees.

On August 30, 2005, a similar purported class action lawsuit, captionedJohn Friedmann v. Intermix Media, Inc. et. al.,was filed in the California Superior Court, County of Los Angeles, naming as defendants all of the same individuals and entities named in theSheppard action, as well as Intermix. The complaint makes substantially similar claims and allegations and seeks substantially similar relief as theSheppard action. Prior to the consummation of FIM Transaction on September 30, 2005, plaintiff conducted expedited discovery and filed a motion with the court seeking to enjoin the acquisition. Plaintiff withdrew his motion after Intermix filed supplemental proxy materials augmenting certain information included by Intermix in its proxy statement distributed to Intermix stockholders in connection with seeking stockholder approval of the FIM Transaction. On September 23, 2005, Mr. Greenspan announced his presentation of an alternative acquisition proposal to the Intermix board of directors which, on September 26, 2005, the board publicly rejected. Plaintiff thereafter applied to the court for an order delaying the vote by Intermix stockholders on the FIM Transaction in order to afford Intermix stockholders additional time to consider the Greenspan proposal. The Court denied the plaintiff’s request and Intermix stockholders approved the FIM Transaction on September 30, 2005.

Except as described above, there has been no activity in the foregoing matters. Intermix expects that theFriedmann andSheppard lawsuits will be consolidated under lead counsel and a lead plaintiff and that a consolidated amended complaint will be filed. Intermix further believes that the lawsuits described above are meritless and intends to vigorously defend against the claims and allegations in the complaints.

DIRECTV

TNCL was named as a defendant in a Revised Amended Consolidated Complaint filed on May 7, – 2004 in a lawsuit captioned “In re General Motors (Hughes) Stockholders Litigation,” filed in the Court of Chancery of the

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State of Delaware, Consolidated Civil Action No. 20269-NC. The lawsuit relates to TNCL’s acquisition of stock in Hughes on December 22, 2003 which was subsequently transferred to FEG. The complaint alleges that TNCL aided and abetted an alleged breach of fiduciary duty by the Board of Directors of GM allegedly owed to a class of certain GM stockholders. The plaintiffs allegedly seek “appropriate equitable relief... including rescissory remedies to the extent feasible…” The Company believes that the lawsuit is without merit and intends to vigorously defend against claims brought against TNCL in the lawsuit. The Company also believes it is entitled to indemnification by GM under the agreements related to the transaction. On August 30, 2004, TNCL filed a brief in support of its motion to dismiss the complaint. On October 18, 2004, the plaintiffs filed their opposition to the motion. The Company filed its reply on November 17, 2004. The oral argument was heard on March 7, 2005. On May 4, 2005, the court issued its decision granting the motion to dismiss. Plaintiffs have appealed the decision and the Company has cross-appealed on jurisdictional and improper service issues. Oral argument on the appeal is scheduled for December 21, 2005.

Other

The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending litigation will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.

Note 11—Pension Plans and Other Postretirement Benefits

The Company sponsors non-contributory pension plans and retiree health and life insurance benefit plans covering specific groups of employees. The benefits payable for the non-contributory pension plans are based primarily on a formula factoring both an employee’s years of service and pay near retirement. Participant employees are vested in the plans after five years of service. The Company’s policy for all pension plans is to fund amounts, at a minimum, in accordance with statutory requirements. During the ninethree months ended March 31,September 30, 2005 and 2004, the Company made discretionary contributions of $127$29 million and $90$37 million, respectively, to its pension plans. Plan assets consist principally of common stocks, marketable bonds and government securities. The retiree health and life insurance benefit plans offer medical and/or life insurance to certain full-time employees and eligible dependents that retire after fulfilling age and service requirements.

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The components of net periodic benefit costs were as follows: