UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

or

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 a large accelerated filed,filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filerfiler” and largelarger accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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 9,November 6, 2006, 2,166,089,1952,176,588,834 shares of Class A Common Stock, par value $0.01 per share, and 987,948,111986,520,953 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,News Corporation, a new Delaware corporation, named News Corporation (for periods after November 12, 2004,with its subsidiaries (together “News Corporation” or the “Company”) 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”). These transactions are collectively referred to 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”), 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, 2004.

News Corporation is a diversified entertainment company. The Companycompany, which manages and reports its businesses in eight segments, which are:segments: Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite Television (“DBS”), 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, 2006.2007.

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, 20052006 as filed with the Securities and Exchange Commission (“SEC”) on September 1, 2005.August 23, 2006.

The financial statements include the accounts of News Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.

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 20052006 amounts have been reclassified to conform to the fiscal 20062007 presentation.

The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to each reporting date. As such, all references to March 31,September 30, 2006 and March 31,September 30, 2005 relate to the three and nine month periods ended April 2,October 1, 2006 and March 27,October 2, 2005, respectively. For convenience purposes, the Company continues to date its financial statements as of March 31September 30^stth.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation (continued)

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income,” total comprehensive income for the Company consists of the following:

Recent Accounting Pronouncements

In October 2004, the American Jobs Creation Act (the “Act”) was signed into law. The Act includes a temporary incentive for U.S. multinationals to repatriate foreign earnings at the favorable effective tax rate of 5.25%. 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 Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”). FSP 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 requires explanatory disclosures from those who need the additional time.

Under the Act, the maximum amount that the Company can repatriate under the favorable tax treatment is $500 million, which results in a tax benefit to the Company of approximately $150 million. Through March 31, 2006, the Company has provided deferred taxes on a portion of undistributed earnings of its foreign subsidiaries, at the statutory federal rate, in anticipation of repatriating these earnings in the future. As of March 31, 2006, approximately $380 million of this income is planned to be repatriated at the favorable effective tax rate of 5.25%. This has resulted in a tax benefit of approximately $113 million which is included in the unaudited consolidated statements of operations for the nine months ended March 31, 2006. The Company is still evaluating the repatriation of the remaining balance of approximately $120 million allowed under the Act. If the Company does repatriate the full amount, it will recognize an additional $37 million tax benefit due to the favorable tax rate. The amounts repatriated will be used to compensate non-executive U.S. employees for services performed within the United States.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). This standard establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 will become effective for the Company for accounting changes and corrections of errors beginning in fiscal 2007.

In November 2005, the FASB issued FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” (“FSP 115-1”) which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation (continued)

impairment loss. FSP 115-1 also includes accounting considerations subsequent toRecent Accounting Pronouncements

In June 2006, the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in FSP 115-1 amends FASB StatementFinancial Accounting Standards Board (the “FASB”) issued Interpretation No. 115,48, “Accounting for Certain InvestmentsUncertainty in Debt and Equity Securities,” and Accounting Principles Board (“APB”) Opinion No. 18, “The Equity MethodIncome Taxes, an interpretation of FAS 109, Accounting for InvestmentsIncome Taxes” (“FIN 48”), to create a single model to address accounting for uncertainty in Common Stock.” FSP 115-1tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for reporting periodsfiscal years beginning after December 15, 2005.2006. The Company will adopt FIN 48 as of July 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. The Company has not determined the effect, if any, the adoption of FSP 115-1 did notFIN 48 will have a material impact on the Company’s consolidated financial statements.position and results of operations.

In FebruarySeptember 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments”157, “Fair Value Measurements” (“SFAS No. 155”157”), providing a framework to improve the comparability and consistency of fair value measurements in applying GAAP. SFAS No. 157 also expands the disclosures regarding fair value measurement. SFAS No. 157 will become effective for the Company beginning in fiscal 2009. The Company is currently evaluating what effects the adoption of SFAS No. 157 will have on the Company’s future results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 155 amends158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the fiscal year in which the changes occur through comprehensive income. SFAS No. 133, “Accounting158 is effective for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicingthe Company as of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155, among other things: permits the fair value remeasurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject tofiscal year ending June 30, 2007. The Company is currently evaluating what effects the requirementsadoption of SFAS No. 133; and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS No. 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. SFAS No. 155 is not expected to158 will have a material impact on the Company’s consolidatedresults of operations and financial statements.condition.

Note 2—Acquisitions, Disposals and Other Transactions

Fiscal 2007 Transactions

Acquisitions

In July 2006, the Company entered into an agreement with an independent third party to acquire TGRT, a national, general interest broadcast television station in Turkey, for approximately $102 million. The closing was subject to customary closing conditions, including Turkish regulatory approval. In November 2006, Turkish regulatory approval was received and the transaction closed.

In September 2006, the Company and VeriSign, Inc. (“VeriSign”) announced a joint venture to form a new provider of mobile entertainment. The Company will pay approximately $188 million for a controlling interest in VeriSign’s wholly-owned subsidiary, Jamba, and will combine Jamba with the Company’s Fox Mobile Entertainment assets. The closing of this transaction is subject to customary closing conditions, including regulatory approval.

Other Transactions

In August 2006, the Company announced that its Fox Interactive Media (“FIM”) division entered into a multi-year search technology and services agreement with Google, Inc. (“Google”), pursuant to which Google

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions, Disposals and Other Transactions (continued)

will be the exclusive search and keyword-targeted advertising sales provider for a majority of FIM’s web properties. Under the terms of the agreement, Google will be obligated to make guaranteed minimum revenue share payments to FIM of $900 million based on FIM’s achievement of certain traffic and other commitments. These guaranteed minimum revenue share payments are expected to be made over the period beginning the first quarter of calendar 2007 and ending in the second quarter of calendar 2010.

Fiscal 2006 Transactions

Acquisitions

In September 2005, the Company acquired the 25% stake in News Out of Home (“NOOH”) that it did not already own from Capital International Global Emerging Markets Private Equity Fund, L.P. for approximately $175 million in cash. This acquisition increased the Company’s ownership of NOOH to 100%. The excess purchase price over the fair value of the net assets acquired of approximately $133$130 million has been preliminarilyof which, $51 million was allocated to goodwill with the remaining $79 million allocated to certain identifiable indefinite-lived intangible assets, which in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,”Assets” (“SFAS No. 142”), are not being amortized. The allocation of the excess purchase price is not final and is subject to changes upon completion of final valuations of certain assets and liabilities.

In order to increase the Company’s Internet presence, the Company purchased several Internet companies during fiscal 2006 through its recently formed Fox Interactive Media (“FIM”)FIM division. The amount of goodwill resulting from Internet acquisitions during the nine months ended March 31,fiscal 2006 was approximately $1.2$1.3 billion and primarily related to the following fiscal 2006 transactions:

In September 2005, the Company acquired all of the outstanding common and preferred stock of Intermix Media, Inc. (“Intermix”) for approximately $580 million in cash. Under an existing stockholders’ agreement between Intermix, MySpace, Inc. (“MySpace”), an Internet entertainment company, and certain other stockholders of MySpace, in July 2005 Intermix exercised its option in July 2005 to acquire the outstanding 47% equity interest of MySpace that it did not already own for approximately $70 million in cashcash. This transaction, which closed in October 2005. This transaction2005, increased Intermix’s ownership in MySpace to 100%. In a related intercompany restructuring, the Company issued approximately 19 million shares of Class A Common Stock, which are considered treasury shares, to one of its subsidiaries. The excess purchase price over the fair value of the net assets acquired from Intermix was approximately $642$644 million, of which approximately $570$567 million has been preliminarily allocated to goodwill.goodwill¸ with the remaining $77 million preliminarily allocated to definite-lived intangible assets.

In September 2005, the Company acquired Scout Media, Inc., the parent company of Scout.com, the country’s leading independent online sports network, and Scout Publishing, producer of widely read local sports magazines in the United States, for approximately $60 million, substantially all of which $59 million has been preliminarily allocated to goodwill.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions and Disposals (continued)

In October 2005, the Company acquired IGN Entertainment, Inc., a leading community-based Internet media and services company for video games and other forms of digital entertainment, for approximately $620 million in cash and approximately $30 million to be paid in cash pending the satisfaction of certain conditions. The excess purchase price over the fair value of the net assets acquired including acquisition related costs was approximately $619$622 million, of which approximately $550$551 million has been preliminarily allocated to goodwill.goodwill, with the remaining $71 million preliminarily allocated to definite-lived intangible assets.

In May 2006, the Company acquired a U.S. regional cable sports and entertainment channel in the southeast region for approximately $375 million. This channel has broadcast rights to the National Hockey League’s Atlanta Thrashers and shares broadcast rights to Major League Baseball’s (“MLB”) Atlanta Braves and the National Basketball Association’s Atlanta Hawks together with one of the Company’s existing regional sports networks. The purchase price preliminarily allocated to goodwill was $295 million, with the remaining $80 million preliminarily allocated to definite-lived intangible assets.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions, Disposals and Other Transactions (continued)

In accordance with SFAS No. 142, the excess purchase price that has been allocated or has been preliminarily allocated to goodwill is not being amortized for all of the acquisitions noted above. TheWhere the allocation of the excess purchase price is not final, andthe amount allocated to goodwill 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 ten years.

The aforementioned acquisitions were all accounted for in accordance with SFAS No. 141, “Business Combinations.”

Fiscal 2006 Disposals

In October 2005, the Company sold its TSL Education Ltd. division (“TSL”), which includedThe Times Educational Supplement and other newspapers, magazines, websites and exhibitions aimed at teachers and education professionals in the United Kingdom to Exponent Private Equity for cash consideration of approximately $395 million. In connection with this transaction, the Company recorded a gain of $381 million, in Gain on dispositionnet of discontinued operationstax of $0.

In April 2006, the Company sold Sky Radio Limited (“Sky Radio”), a commercial radio station group in the unaudited consolidated statementsNetherlands and Germany for cash consideration of operations. approximately $215 million. In connection with this transaction, the Company recorded a gain of approximately $134 million, net of tax of $0.

The net income, assets, liabilities and cash flow attributable to the TSL and Sky Radio operations are not material to the Company in any of the periods presented and accordingly have not been presented separately. TheThere was no provision for income taxes of $0 reported in discontinued operations differs from the amount computed using the statutory incomerelated to these transactions as any tax rate, due to the tax beingwas offset by a release of a valuation allowance that was applied to an existing deferred tax asset established for capital losses, which because of the sale of TSL transaction can nowand Sky Radio was able to be utilized. Therefore, there will bewas no resulting tax liability.provision.

In February 2004, the Company sold the Los Angeles Dodgers (“Dodgers”) and related properties to entities owned by Frank McCourt (the “McCourt Entities”) for $421 million in consideration. Part of the consideration delivered by the McCourt Entities at closing was a $125 million note secured by certain real estate in Boston, Massachusetts. In March 2006, the McCourt Entitiesentities remitted the real estate to the Company in full satisfaction of the note, including accrued interest of $20 million. This real estate consists of approximately 23 acres located in the Seaport District of Boston, Massachusetts. In conjunction with this transfer, the Company assumed $36 million in debt and the obligation to purchase an adjacent parcel of land.debt. The Company recorded the assets and liabilities received at fair value upon closing. No gain or loss was recognized as the net fair value of the land approximated the value of the note. In September 2006, the Company sold this property for $202 million in cash. The Company currently intends to further develop this real estate for sale.

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 (the “Board”) 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.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions and Disposals (continued)

On November 12, 2004, the proposed 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 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 charges in the Other segment in the consolidated statements of operations.

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 the Company. 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 $1.0 billion and the assumption of approximately $400 million of debt. Alldischarged all of the debt assumed was retired in November 2004. The excess purchase price overon the fair valueproperty at the time 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 approximately 78 million shares of Class A Common Stock and approximately 247 million shares of Class B Common Stock owned directly through the Cruden Group and indirectly (through QPL) by the Cruden Group, the Harris Trust received shares of News Corporation in the same exchange ratio as all other TNCL stockholders in the Reorganization. The shares of News Corporation non-voting stock that the Harris Trust received were 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. The shares issued to the Harris Trust were approximately 61 million shares of Class A Common Stock and approximately 247 million shares of Class B Common Stock with an approximate aggregate value of $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 61 million shares of Class A Common Stock issued to the Harris Trust were based on agreed estimates. The Company agreed to compensate the Harris Trust for any difference between the estimated amounts and the actual amounts (the “Adjustment Amount”) aftersale. Upon the completion of the Company’s reincorporation to the United States, and it was subsequently agreed thatMarch 2006 transaction, the Company would issue torecorded the Harris Trust additional shares of Class A Common Stock of approximately equivalentassets and liabilities received at fair value to the Adjustment Amount. The Adjustment Amount owed to the Harris Trustand accordingly no gain or loss was approximately an additional $32 million. Following approval by stockholders on October 21, 2005, a total of approximately two million additional shares of Class A Common Stock were issued to the Harris Trust on October 27, 2005 to provide for the difference between the estimated and actual amounts. The number of shares was determined basedrecognized on the New York Stock Exchange closing price of the Class A Common Stock on October 25, 2005.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions and Disposals (continued)

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 interestsale 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 at March 31, 2006 were approximately 109 million and 314 million, respectively. Immediately following the Reorganization, the Harris Trust owned approximately 29.5% of the voting shares of News Corporation.

Fox Entertainment Group Acquisition

In March 2005, Fox Acquisition Corp., a direct wholly-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 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 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 merger into 2.04 shares of the Company’s Class A 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 stock, resulting in an excess purchase price of approximately $2.9 billion. After the consummation of the Offer and the subsequent merger, Fox Acquisition Corp. 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”). The Company has allocated the purchase price of $2.9 billion to finite-lived intangible assets, indefinite-lived intangibles, goodwill and deferred tax liabilities which are included in the Filmed Entertainment, Television, Cable Network Programming and Other segments.

In connection with the Offer and subsequent merger, a wholly-owned subsidiary of the Company tendered the shares of Fox Class A common stock and Fox Class B common stock that it owned prior to the acquisition to Fox Acquisition Corp. in exchange for News Corporation Class A Common Stock at the same exchange ratio as was provided in the Offer for shares of Fox Class A common stock. As a result of the exchange, the wholly-owned subsidiary owns 1,631 million shares of News Corporation’s Class A Common Stock, with an approximate value of $8 billion, which are reflected as treasury shares. The treasury shares are accounted for using the par value method.

The following unaudited pro forma consolidated results of operations for the fiscal years ended June 30, 2005 and 2004 assume that the acquisitions of FEG and QPL were completed as of July 1, 2003.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Acquisitions and Disposals (continued)

Pro forma data may not be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented, nor does it intend to be a projection of future results.

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, thereby increasing the Company’s ownership interest in SKY Italia to 100%.2006.

Note 3—United Kingdom Redundancy Program

In fiscal 2005, the Company announced its intention to invest in new printing plants in the United Kingdom to take advantage of technological and market changes. As the new automated technology comes on line, the Company expects lower production costs and improved newspaper quality, including expanded color.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3—United Kingdom Redundancy Program (continued)

In conjunction with this project, during the three months ended December 31, 2005,second quarter of fiscal 2006, the Company received formal approval for the construction of the main new plant which was the last contingency, thereby committing the Company to a redundancy program (the “Program”) for certain production employees at the Company’s U.K. newspaper operations. The Program is in response to the reduced workforce that will be required as new printing presses and the new printing facilities eventually come on line. As a result of this Program, the Company expects to reduce its production workforce by approximately 65%, and as of March 31,September 30, 2006, approximately 700 employees in the United Kingdom havehad already voluntarily accepted severance agreements and are expected to leave the Company primarily in fiscal 2007 and 2008.

In accordance with SFAS No. 88, “Employers’ Accounting for Settlements & Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” the Company recorded a redundancy provision of approximately $102 million, which includes accretion expense of $3$109 million during the nine months ended March 31,fiscal 2006 in Other operating charges. During the three months ended September 30, 2006, the Company recorded an additional $4 million relating to the Program, which was comprised of accretion and retention expenses, in Other operating charges in the unaudited consolidated statements of operations. As of September 30, 2006, the remaining liability balance relating to the Program was approximately $112 million, of which approximately $44 million was included in other current liabilities and Non-current$68 million was included in non-current other liabilities in the unaudited consolidated financial statements.balance sheet. The Company expects to record an additional provision of approximately $30$20 million through fiscal 2008 to record accretion on the redundancy provision and to recognize any retention bonuses earned. A majority of the Program’s costs are expected to be paid in cash to employees in fiscal 2008.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Inventories, net

The Company’s inventory was comprised of the following:

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Investments

The Company’s investments were comprised of the following:

During the ninethree months ended March 31,September 30, 2006, Gemstar-TV Guide’s common stock has experienced significant volatility in its market value fromtrading between a low of $2.59 per share on July 25, 2006 and a high of $3.76$3.58 per share to a low of $2.40 per share. Subsequent to March 31,on July 3, 2006, through May 8, 2006, Gemstar-TV Guide’s common stock traded between $3.65 per shareapproximately 69% and $3.03 per share which represented a market value that represented approximately 100% and 83%96% of the Company’s carrying value at March 31,September 30, 2006, respectively. As a result of this volatility,September 30, 2006, the Company’s carrying value in Gemstar-TV Guide exceeded its market value by approximately $105 million at March 31, 2006 and approximately $18 million at May 8, 2006.$75 million.

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; (5) the Company’s intent and ability to hold the investment for a period of time sufficient to allow

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Investments (continued)

for a recovery in fair valuevalue; and (6) the recent volatility of Gemstar-TV Guide’s share price. Upon review, the Company has determined that at this time the impairment in the value of its investment in Gemstar-TV Guide is temporary.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Investments (continued)

Due to the volatility of Gemstar-TV Guide’s common stock, the Company will continue to monitor this investment for possible future impairment.

Fiscal Year 2007 Acquisitions and Disposals

In August 2006, the Company sold a portion of its equity investment in Phoenix Satellite Television Holdings Limited (“Phoenix”), representing a 19.9% stake for approximately $164 million. The Company recognized a pre-tax gain of approximately $136 million on the sale included in Other, net in the unaudited consolidated statement of operations for the three months ended September 30, 2006. The Company will retain a 17.6% stake in Phoenix after this transaction, which will be accounted for under the cost method of accounting and accordingly the carrying value will be adjusted to market value each reporting period as required under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Prior Fiscal Years Acquisitions and Disposals

In July 2005, the Company sold its entire cost investment in China Netcom Group Corporation (“China Netcom”). The Company’s 1% investment in China Netcom was sold for total consideration of approximately $112 million. The Company recognized a pre-tax gain of approximately $52 million on this sale included in Other, net in the unaudited consolidated statement of operations for the ninethree months ended March 31, 2006.

Fiscal Year 2005 Acquisitions and DisposalsSeptember 30, 2005.

In October 2004, the Company and its then 34% investee, DIRECTV, announced a series of transactions with Grupo Televisa, Globopar and Liberty Media International, Inc. (“Liberty”) that would result in the reorganization of the companies’ direct-to-home (“DTH”) satellite television platforms in Latin America. The transactions would 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 would acquire News Corporation’s interests in Sky Brasil,Multi-Country Partners, Innova and Sky Multi-Country Partners. Brasil.

The Sky Multi-Country Partners transaction closed during fiscal 2005 and the Company recognized a pre-tax loss of approximately $55 million on this transaction at that time. transaction.

In February 2006, the Company completed its previously announced sale of its investment in Innova, a Mexican DTH platform, to DIRECTV for $285 million. As a result of this transaction, the Company recognized a pre-tax gain during the three months ended March 31, 2006 of approximately $206 million, which is included in Other, net in the unaudited consolidated statementsthird quarter of operations.fiscal 2006. The balanceCompany deferred a portion of theits total gain is deferredon sale due to its indirect retained interest through the Company’s investment in DIRECTV, the acquirerownership of Innova.DIRECTV. Upon the closing of the Innova transaction, the Company was released from both its Innova transponder lease guarantee and its guarantee under Innova’s credit agreement.

In December 2004,August 2006, the Company soldcompleted the sale of its 20% investment in Rogers SportsnetSky Brasil, a Brazilian DTH platform, to Rogers Broadcasting LimitedDIRECTV for $41 million. Rogers Sportsnet operates regional sports networksapproximately $300 million in Canada covering local sports events plus national programming. For the nine months ended March 31, 2005, thecash which was received in fiscal 2005. The Company recognized a pre-tax gain of $39approximately $261 million, on this salewhich is included in Other, net in the unaudited consolidated statementsstatement of operations.

Inoperations for the three months ended September 30, 2006. The Company deferred a portion of its total gain on sale due to its indirect retained interest through the Company’s ownership of DIRECTV. As a result of the transaction, the Company was released from its Sky Brasil transponder lease guarantee and will be released from its Sky Brasil credit agreement guarantee on or before 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, Mumbai31, 2007. (See Note 10 Commitments and the National Stock Exchange of India.Guarantees)

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Investments (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 6—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 non-cash charge of $1.6 billion ($1.0 billion net of tax, or ($0.33)0.32) per diluted share of Class A common stock, par value $0.01 per share (“Class A Common StockStock”) and ($0.27) per diluted share of the Company’s Class B common stock, par value $0.01 per share (“Class B Common Stock)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.

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. At March 31, 2006, 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.

Note 7—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 were redeemable at the option of the holders on February 28, 2006 at a price of $594.25. The LYONs are also redeemable at the option of the holders on February 28, 2011 and February 28, 2016 at a price of $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.

On February 28, 2006, 92% of the LYONs were redeemed for cash at the specified redemption amount of $594.25 per LYON. Accordingly, the Company paid an aggregate of approximately $831 million to the holders of the LYONs that had exercised this redemption option. LYONs with a carrying value of approximately

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 7—Borrowings (continued)

$69 million remained outstanding as of March 31, 2006. The pro-rata portion of unamortized deferred financing costs relating to the redeemed LYONs approximating $13 million was recognized and included in Other, net in the unaudited consolidated statements of operations for the three and nine months ended March 31, 2006.

Notes due 2035

In December 2005, the Company issued $1,150 million of 6.40% Senior Notes due 2035. The Company received proceeds of approximately $1,133 million on the issuance of this debt, net of expenses. These notes were issued under the Amended and Restated Indenture, dated as of March 24, 1993, as supplemented, among News America Incorporated, the Company, the subsidiary guarantors named therein and The Bank of New York, as Trustee.

Note 8—Stockholders’ Equity

Rights of Holders of Common Stock

The Company has two classes of Common Stock that are authorized and outstanding, non-voting Class A Common Stock and voting Class B Common Stock. Class A Common Stock carry the right to dividends in the amount equal to 120% of the aggregate of all dividends declared on a share of Class B Common Stock. Class A Common Stock retain this right through fiscal year 2007. Subsequent to the final fiscal 2007 dividend payment, shares of Class A Common Stock will cease to carry any rights to a greater dividend than shares of Class B Common Stock.

In the event of a liquidation or dissolution of the Company, or a portion thereof, holders of Class A Common Stock and Class B Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its shareholders, ratably in proportion to the number of shares held by Class A Common Stock stockholders and Class B Common Stock stockholders, respectively. In the event of any merger or consolidation with or into another entity the holders of Class A Common Stock and the holders of Class B Common Stock shall be entitled to receive substantially identical per share consideration.

In August 2005, the Company announced that its Board determined to extend the expiration date of the Company’s stockholder rights plan that it had adopted in November 2004 for an additional two-year period. On April 13, 2006, the Company agreed to a settlement of a lawsuit regarding the extension of its stockholder rights plan. (See Note 11 Contingencies for more information on the settlement).

Preferred Stock Authorization

The Company is authorized to issue 100,000,000 shares of preferred stock, par value $0.01, of which 9,000,000 preferred shares have been designated as Series A Junior Participating Preferred Stock, par value $0.01 per share. As of March 31, 2006, there were no shares of preferred stock, including Series A Junior Participating Preferred Stock, issued and outstanding. The Board has the authority, without any further vote or action by the stockholders, to issue preferred stock in one or more series and to fix the number of shares, designations, relative rights (including voting rights), preferences, qualifications and limitations of such series to the full extent permitted by Delaware law.

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 the three months ended September 30, 2005,2005.

The direct valuation method used for FCC licenses requires, among other inputs, the use of published industry data that are based on subjective judgments about future advertising revenues in the markets where the Company owns television stations. This method also involves the use of management’s judgment in estimating an appropriate discount rate reflecting the risk of a market participant in the U.S. broadcast industry. The resulting fair values for FCC licenses are sensitive to these long-term assumptions and any variations to such assumptions could result in an impairment to existing carrying values in future periods.

Note 7—Borrowings

The Company previously entered into two loan agreements with the European Bank for Reconstruction and Development (the “EBRD”) and had an outstanding balance of $154 million under these loans at June 30, 2006. In August 2006, the Company entered into a loan agreement with Raiffeisen Zentralbank Österreich AG (“RZB”) for $300 million and repaid all amounts outstanding under the Company’s loan agreements with the EBRD with the remaining balance available for future use. The RZB loan bears interest at LIBOR for a period equal to each one, three or six month interest period, plus a margin of up to 2.85% dependent upon certain financial metrics. Principal amounts under the RZB loan are to be repaid in equal amounts every six months starting on the second anniversary of the date of the agreement until the fifth anniversary of the date of the agreement. The remaining available amount under the RZB loan, which was paidmay be drawn prior to the second anniversary of the date of the agreement, will be used to expand the Company’s outdoor advertising business primarily in October 2005 to stockholdersRussia and Eastern Europe. The loans are secured by certain guarantees, bank accounts and share pledges of record on September 14, 2005. The total aggregate dividend paid in October 2005 to stockholders was approximately $240 million.the Company’s Russian operating subsidiaries.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 8—Stockholders’ Equity (continued)

Rights of Holders of Common Stock

On August 8, 2006, the Company announced that, in accordance with the terms of the settlement of a lawsuit regarding the Company’s stockholder rights plan, the Company’s Board of Directors (the “Board”) had approved the adoption of an Amended and Restated Rights Plan, extending the term of the Company’s existing stockholder rights plan from November 7, 2007 to October 20, 2008. The Board has the right to extend the term for an additional year if the situation with Liberty has not, in the Board’s judgment, been resolved. The terms of the Amended and Restated Rights Plan remain the same as the Company’s existing stockholder rights plan in all other material respects. Pursuant to the terms of the settlement, on October 20, 2006, the Amended and Restated Rights Plan was presented for a vote of the Company’s Class B stockholders at the Company’s 2006 annual meeting of stockholders and the stockholders voted in favor of its approval. (See Note 11 Contingencies and Note 17 Subsequent Events for more information on the settlement of the lawsuit).

Dividends

The Company declared a dividend of $0.06 per share of Class A Common Stock and a dividend of $0.05 per share for the Company’s Class B Common Stock in the three months ended March 31,September 30, 2006, which waswere paid in AprilOctober 2006 to stockholders of record on March 15,September 13, 2006. The total aggregate dividend paid in AprilOctober 2006 to stockholders was approximately $180 million.

Repurchase Program

In June 2005, the Company announced a stock repurchase program under which the Company iswas authorized to acquire from time to time up to an aggregate of $3 billion in Class A Common Stock and Class B Common Stock. In May 2006, the Company announced that the Board had authorized increasing the total amount of the stock repurchase program to $6 billion. The remaining authorized amount at March 31, 2006, excluding commissions under the Company’s stock repurchase program isat September 30, 2006, excluding commissions, was approximately $658$3,383 million. (See Note 17 Subsequent Events for update to repurchase program authorization.)

Note 9—Equity Based Compensation

In December 2004, the FASB issued SFAS 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 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 stock-based payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for stock-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all stock-based payment transactions with employees.

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

Under the News Corporation 2005 Long-Term Incentive Plan (the “2005 Plan”), stock-based compensation, including stock options, restricted stock, restricted stock units (“RSUs”) 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 (the “Compensation Committee”) 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 stock 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 remaining shares available for issuance under the 2005 Plan at March 31, 2006 were approximately 149 million. The Company will issue new shares of Class A Common Stock for award exercises.

The fair value of stock based compensation under the 2005 Plan will be calculated according to the type of award issued.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 9—Equity Based Compensation (continued)

Stock options and Stock Appreciation Rights (“SARs”) issued under the 2005 Plan or under the NDS Group plc (“NDS”), executive share option schemes 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 or NDS’s Series A ordinary shares, as applicable; expected term of awards granted is derived from the historical activity of the Company’s or NDS’s awards, as applicable, 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 U.S. government bonds with similar lives on the dates of the option grants; and dividend yield is calculated as an average of a ten year history of the Company’s yearly dividend divided by the fiscal year’s closing stock price.

RSU awards are grants that entitle the holder to shares of Class A Common Stock as the award vests, subject to the 2005 Plan and such other terms and conditions as the Compensation Committee may establish. RSUs issued under the 2005 Plan are fair valued based upon the fair market value of Class A Common Stock on the grant date. Any person who holds RSUs shall have no ownership interest in the shares of Class A Common Stock to which such RSUs relate until and unless shares of Class A Common Stock are delivered to the holder. All shares of Class A Common Stock reserved for cancelled or forfeited RSU awards or for awards that are settled in cash become available for future grants. Certain RSU awards are settled in cash and are subject to terms and conditions of the 2005 Plan and such other terms and conditions as the Compensation Committee may establish.

During the nine months ended March 31, 2006, the Company issued 15.9 million RSUs which primarily vest over four years. The RSUs will be payable in shares of the Company’s Class A Common Stock, par value $0.01 per share, upon vesting, except for approximately 3.0 million RSUs that will be settled in cash.

The following table summarizes the activity related to the Company’s RSUs to be settled in stock:equity-based compensation transactions:

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

As a result of the Reincorporation, all preferred limited voting ordinary shares which the Company issued stock options over were cancelled and holders received in exchange stock 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 Reincorporation, stock options were granted to employees with Australian dollar exercise prices.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 9—Equity Based Compensation (continued)

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 exceed the market price at the date of grant in Australian dollars. No future grants will be issued under the 2004 Plan and the 2004 Plan automatically terminates in 2014.

The fair value of each outstanding stock 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 stock options granted was derived from the historical activity of the Company’s stock options and represented the period of time that stock 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 stock 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 closing stock price.

Other

The Company operates an employee share ownership scheme in the United Kingdom (“UK Sharesave Scheme”). This scheme 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. During the three months ended March 31, 2006 and 2005, the Company granted approximately 341 thousand stock options and approximately 1.4 million stock options under this scheme, respectively.

The following table summarizes information about the Company’s stock option transactions for all News Corporation’s stock option plans:

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

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 9—Equity Based Compensation (continued)

No stock options were granted in the nine months ended March 31, 2006 and 2005, other than under the UK Sharesave Scheme, as noted above.

The company issued 1,325,000 SARs in both fiscal 2005 and fiscal 2004 at strike prices of $15.20 and $12.99, respectively. As of March 31, 2006, none of the SARs have been exercised and 331,250 of the SARs issued in fiscal 2005 and 662,500 of the SARs issued in fiscal 2004 were vested and exercisable. No SARs have been issued in fiscal 2006.

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 share options to purchase Series A ordinary shares in NDS with a maximum term of ten years. Share options granted under the NDS Plans vest over a four-year period. The NDS Plans authorize share 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 share options are granted.

A summary of the NDS options:

The aggregate intrinsic value of options exercised for all of the Company’s plans, including the NDS plans, presented during the first nine months of fiscal 2006 and 2005 was $68 million and $39 million, respectively.

Equity based compensation recorded for the three and nine months ended March 31, 2006 was $37 million and $88 million, respectively. During the nine months ended March 31, 2006, the Company received $110 million in cash from stock option exercises and recognized a tax benefit of $17 million on stock options exercised for all plans presented.

At March 31,September 30, 2006, the Company’s total compensation cost related to non-vested stock options, RSUsrestricted stock units (“RSUs”) and SARsstock appreciation rights not yet recognized for all plans presented iswas approximately $257$243 million, a portionthe majority of which is expected to be recognized within the current fiscal year, with the remainder to be recognized over the next three fiscal years. Compensation expense on all stock-basedequity-based awards is recognized on a straight linestraight-line basis over the vesting period of the entire award.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 9—Equity Based Compensation (continued)

Compensation Expense

On May 3,Options exercised during the three months ended September 30, 2006 and September 30, 2005 the Compensation Committee approved the acceleration of vesting of unvested out-of-the-money stock options granted underresulted in the Company’s 2004 Stock Option Plan. The affected stock options are those with exercise prices greater than A$19.74 per share, which was the closing priceissuance of the Company’s4.7 million and 2.1 million shares of Class A Common Stock, (as tradedrespectively. The Company recognized a tax benefit on the Australian Stock Exchange in the form of CHESS Depositary Interests) on May 2, 2005. Prior to the Reorganization, stock options were granted to employees with Australian dollar exercise prices. As a resultexercised of this action,$11 million and $4 million for the vesting of approximately 19,862,000 previously unvested stock options were acceleratedthree months ended September 30, 2006 and were immediately exercisable. None ofSeptember 30, 2005, respectively.

During the unvested stock options held by directors, some of whom have stock options with exercise prices in excess of A$19.74, were accelerated.

The Compensation Committee’s decision to accelerate the vesting of these stock options was in anticipation of the related compensation expense that would be recorded subsequent to the Company’s adoption of SFAS 123R. In addition, the Compensation Committee considered that because these stock options had exercise prices in excess of the prevailing market value on May 2, 2005, they were not fully achieving their original objectives of incentive compensation and employee retention, and it believed that the acceleration would have a positive effect on employee morale. Incremental expense of approximately $100 million ($65 million, net of tax) associated with the acceleration was recorded in the fourth quarter fiscal 2005 pro forma disclosure.

The following table reflects the effect on net income and earnings per share as ifthree months ended September 30, 2006, the Company had appliedissued 1.7 million RSUs. These RSUs will be payable in shares of Class A Common Stock upon vesting, except for approximately 0.5 million RSUs that will be settled in cash.

During the fair value recognition provisions for stock-based employee compensation prior to the adoptionthree months ended September 30, 2006, approximately 4.0 million RSUs vested, of SFAS 123R on July 1, 2004. These pro forma effects may not be representative of future amounts since the estimated fair value ofwhich approximately 3.4 million were settled in stock, options on the date of grant is amortized to expense over the vesting period. Additional stock options may be granted in future yearsbefore statutory tax withholdings, and the vesting of certain options was accelerated on May 3, 2005 (see above).

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSremaining RSUs were settled for cash.

Note 10—Commitments and Guarantees

Commitments

As a result of the FIM acquisitions that occurred in September and October 2005, the Company has commitments under certain contractual arrangements to make future payments of up to a maximum of $148 million as of March 31, 2006. These commitments are comprised of operating leases, capital expenditures and contractual employee obligations.

In December 2005,July 2006, the Company signed a new broadcastcontract with MLB for rights agreement with the National Association of Stock Car Auto Racing (“NASCAR”) forto telecast certain racesregular season and post season games, as well as exclusive rights for certain ancillary content for an eight year term, commencing in calendar year 2007 in the amount of $1.7 billion.

Sky Italia entered into a new operating lease agreement in January 2006to telecast MLB’s World Series and All-Star Game for a newly developed property in Milan, Italy currently under construction for an initial 12-year term which is expected to commence in fiscal 2007 with an automatic renewal option for an additional 12-yearseven-year term through fiscal 2031.the 2013 MLB season. The lease includes an annual increase based on a costCompany will pay approximately $1.8 billion over the term of living index as defined by the contract commencingfor these rights.

The Company has commenced a project to upgrade its printing presses with the payment of the rental fee in the second year. Total payments relating to this leasenew automated technology, that once on line, are expected to approximate $375 million.

Other than previously disclosedlower production costs and improve newspaper quality, including expanded color. As part of this initiative, the Company entered into several third party printing contracts in the notes to these unaudited consolidated financial statements, the Company’s commitments have not changed significantly from disclosures includedUnited Kingdom totaling approximately $463 million and expiring in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005 filed with the SEC on September 1, 2005.2022.

Guarantees

The Company had guaranteed a transponder lease for Innova,Sky Brasil, an equity affiliate of the Company. The Company also guaranteed $46$210 million of the obligationsobligation of InnovaSky Brasil under a credit agreement. Upon the closing of the sale of Innova duringSky Brasil in the thirdfirst quarter of 2006,fiscal 2007, the Company was released from these guarantees.

Other than previously disclosed in the notes to these unaudited consolidated financial statements,transponder lease and will be released from the Company’s guarantees have not changed significantly from disclosures included in the Company’s Annual Reportcredit agreement guarantee on Form 10-K for the fiscal year ended June 30, 2005 filed with the SEC on September 1, 2005.or before January 31, 2007.

Note 11—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, captionedUnisuper et al. v. News Corp., C.A. No. 1699-N, raised claims of breach of contract, promissory estoppel, fraud, negligent misrepresentation and breach of fiduciary duty relating to the Board’s policy of the Board concerning the Company’s stockholder rights plan, and the August 2005 decision of the Board to extend the expiration of the existing stockholder rights plan until November 8, 2007.

On April 13, 2006, the Company announced that it had entered into a settlement agreement with the plaintiffs. Under the terms of the settlement agreement, the trial and all remaining proceedings in the litigation will bewere postponed pending a stockholder vote on a rights plan to be held at the Company’s annual stockholders meeting in October 2006 (the “Annual Meeting”). If stockholders vote in favor of the rights plan, the litigation will be dismissed. If stockholders vote against the rights plan, the Company has the right to treat the vote as advisory and proceed with the litigation.

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Contingencies (continued)

At the Annual Meeting, an extension of the existing rights plan tomeeting in October 2008 will be proposed, with the Company having the right to extend the rights plan for one year if the situation with Liberty Media Corporation, which led to the adoption2006 (the “Annual Meeting”). If stockholders voted in favor of the rights plan, remains unresolved.the litigation was to be dismissed. If stockholders voted against the rights plan, the Company had the right to treat the vote as advisory and proceed with the litigation.

Under the terms of the settlement agreement, if the Company’s stockholders votevoted in favor of the rights plan, then at the expiration of the existing rights plan or any other rights plan, the Company may adopt subsequent rights plans of one-year duration without stockholder approval, subject to interim periods of nine months between rights plans. If during or prior to any interim period, any stockholder (i) acquires 5 percent or more of the Company’s voting stock, (ii) offers to purchase voting stock or assets that would result in their owning 30 percent or more of the Company’s voting stock or assets or (iii) in certain other circumstances, the Company may immediately adopt a new rights plan of one-year duration. The Company may, of course, also adopt new rights plans or extend existing rights plans of unlimited duration with stockholder approval. The provisions discussed in this paragraph shall be in effect until the twentieth anniversary of the Annual Meeting. The terms of the settlement agreement are not intended to limit, restrict or eliminate the ability of the Company’s stockholders under applicable Delaware law to amend the Company’s certificate of incorporation in any manner. As part of the settlement, the Company has agreed to pay the plaintiffs’ attorneys fees and expenses in the litigation.

On April 18, 2006, the Delaware Court of Chancery entered a scheduling order (the “Scheduling Order”) (i) preliminarily approving the lawsuit as a class action on behalf of the class of Plaintiffs (the “Class”) set forth in the Stipulation of Settlement and (ii) setting the date for a hearing for the purposes of: (a) determining whether the action should be certified as a class action, (b) determining whether the terms of the proposed settlement are fair, reasonable and in the best interests of the Class, and (c) considering the application of Plaintiffs’ counsel for an award of attorneys’ fees and expenses. The settlement hearing is scheduled forwas held on May 23, 2006. Liberty filed an objection to the settlement. Before approving the settlement, the Court instructed the parties to clarify the terms of the releases that they were providing each other in order to make them easier to read, and to make express that claims against the parties based on future conduct were not being released. On June 1, 2006, the Court issued its order and final judgment approving the settlement.

DIRECTV

TNCL was named asAt the Annual Meeting on October 20, 2006, the Company’s stockholders approved the extension of the existing rights plan to October 2008, with the Company having the right to extend the rights plan for a defendant in a Revised Amended Consolidated Complaint filed on May 7, 2004 in a lawsuit captionedIn re General Motors (Hughes) Stockholders Litigation, filedyear if the situation with Liberty has not, in the Court of Chancery of the 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 aidedBoard’s judgment, been resolved, and abetted an alleged breach of fiduciary duty by the Board of Directors of General Motors (“GM”) allegedly owed to a class of certain GM stockholders. The plaintiffs allegedly seek “appropriate equitable relief… including rescissory remediespursuant 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 supportStipulation 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 decisionSettlement and the CompanyCourt’s order, this action has cross-appealed on jurisdictional and improper service issues. Oral argument on the appeal took place on December 21, 2005. The Delaware Supreme Court affirmed the decision on March 20, 2006.been dismissed, with prejudice.

NDS

The International Electronic Technology Corp.Sogecable Litigation

On April 18, 1997, International Electronic Technology Corp. (“IETC”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 suitan action against NDS in the United States District Court for the Central District of California against NDS’s customers, Hughes, DIRECTV, Inc.California. Sogecable filed an amended complaint on October 9, 2003, which purported to allege claims for violation of the Digital Millennium Copyright Act and Thomson Consumer Electronics, Inc., alleging infringement of one U.S. patentthe federal Racketeer Influenced and seekingCorrupt Organizations (“RICO”) Act. 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 injunction.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 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.

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Although not a party to this case, NDS has assumed the defense and agreed to indemnify the named defendants. The defendants have raised defenses, including non-infringement and invalidity. On September 22, 2005,October 1, 2004, Sogecable notified the court issued an order construing certain terms inthat it would not be filing a third amended complaint, but would appeal the patent as a mattercourt’s entry of law, after an extensive delay due tofinal judgment dismissing the death of two judges previously assigned to the case. Following receipt of the claim construction order, defendants notified IETC that they intended to file a motion for summary judgment of non-infringement based on the claim construction. During a status conference with the court on January 9, 2006, IETC requested that defendants’ motion be deferred to permit it to seek additional document discovery. The court denied this request, and ordered IETC to make its request in response to defendants’ summary judgment motion. Defendants’ motion for summary judgment was filed on January 30, 2006. On March 9, 2006, the court granted defendants’ motion, and judgment for defendants was entered on March 24, 2006. IETC has filed a notice of appealsuit to the United States Ninth Circuit Court of AppealsAppeals. 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. The court has scheduled oral arguments for the Federal Circuit.November 14, 2006.

Intermix

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’ 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 would pay a total of $7.5 million to the State of New York and would be prohibited from resuming 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 had voluntarily suspended 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’ 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’ violation of provisions of Canada’s 1985 Competition Act in connection with Intermix’ 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 alleged claims are frivolous and vexatious. 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 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,

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plaintiff amended his complaint. On November 14, 2005, Intermix filed a motion to dismiss plaintiff’s first amended complaint. This motion to dismiss was granted in part, and denied in part. The Judge denied Intermix’ request to dismiss all class allegations and claims for trespass to chattels and violation of California Penal Code section 502 but dismissed with prejudice the claims for unjust enrichment and violation of California Business and Professions Code section 17200. Trial has been set for January 23, 2007.

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 or about 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. On November 17, 2005, the City filed a complaint against Intermix for equitable relief and civil penalties pursuant to California Business and Professions Code sections 17200 and 17500. On November 23, 2005, Intermix filed a verified answer denying the City’s allegations. The City Attorney filed a motion for judgment on the pleadings as to Intermix’s sixth affirmative defense (lack of standing/jurisdiction). That motion is set for hearing on May 19, 2006. The City Attorney also filed a motion for judgment on the pleadings as to Intermix’s first and third affirmative defenses (release and equitable estoppel). That motion is set for hearing on May 23, 2006. Intermix filed a motion for summary judgment or, in the alternative summary adjudication, seeking dismissal of the City Attorney’s causes of action for false/misleading advertising and unfair business practices. Intermix’s motion is set for hearing on May 23, 2006. Trial has been set for November 6, 2006. Intermix believes the City’s claims are without merit and intends to vigorously defend itself.

FIM Transaction

On August 26, 2005 aand August 30, 2005, two purported class action lawsuit,lawsuits captioned, respectively,Ron Sheppard v. Richard Rosenblatt et. al., wasandJohn Friedmann v. Intermix Media, Inc. et al., were filed in the California Superior Court, County of Los Angeles. In addition toBoth lawsuits named as defendants all of the then incumbent members of the Intermix Board, including Mr. Rosenblatt, Intermix’ former Chief Executive Officer, and a former Intermix director, the lawsuit names as defendants all of the other then incumbent members of the Intermix Board and certain entities affiliated with VantagePoint Venture Partners, a former major Intermix stockholder. The complaintcomplaints alleged that, in pursuing the transaction whereby Intermix was to be acquired by FIM Transaction(the “FIM Transaction”) and approving the related merger agreement, the director 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 complaintcomplaints further alleged that the merger agreement resulted from a flawed process and that the defendants tailored the terms of the merger to advance their own interests. On August 30, 2005, a similar purported class action lawsuit, captionedJohn Friedmann v. Intermix Media, Inc. et. al.,was filed in the same Court naming as defendants all of the same individuals and entities named in theSheppard action, as well as Intermix. TheFriedmann complaint included substantially similar claims and allegations as those asserted in theSheppard action. The FIM Transaction was consummated on September 30, 2005. TheFriedmannandSheppardlawsuits were subsequently consolidated and, on January 17, 2006, a consolidated amended complaint was filed (the “Intermix“Intermix Media Shareholder Litigation”Litigation”). The plaintiffs in the consolidated action are seeking various forms of declaratory relief, damages, disgorgement and fees and costs. On March 20, 2006, the court ordered that substantially identical claims asserted in a separate state action filed by Brad Greenspan, captionedGreenspan v. Intermix Media, Inc., et al., be severed and related to theIntermix Media Shareholder Litigation. The defendants have filed demurrers seeking dismissal of all claims in the Intermix Media Shareholder Litigation. Intermix believes that the Intermix Media Shareholder Litigation is meritless and intendsthe severed Greenspan claims, which were heard by the Court on July 6, 2006. On October 6, 2006, the Court sustained the demurrers without leave to vigorously defend against the claims and allegations in the complaints.amend.

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In November 2005, plaintiff in a derivative action captionedLeBoyer v. Greenspan et al. pending against various former Intermix directors and officers in the United States District Court for the Central District of California, filed a First Amended Class and Derivative Complaint (the “Amended Complaint”). The original derivative action was filed in May 2003 and arose out of Intermix’ restatement of quarterly financial results for its fiscal year ended March 31, 2003. PlaintiffThe plaintiff asserted breach of fiduciary duty and related claims in connection with the restatement. Until the filing of the Amended Complaint, the action had been stayed by mutual agreement of the parties since its inception pending determination of whether plaintiffs in a related securities class action lawsuit (the “Securities Litigation”) would be able to state a claim against the defendants. The Securities Litigation was dismissed pursuant to a class settlement in September 2005. In addition, a substantially similar derivative action filed in Los Angeles Superior Court was dismissed based on inability of the plaintiffs to adequately plead demand futility. In thePlaintiff LeBoyer’s November 2005 Amended Complaint in addition to the previously pleaded restatement-related allegations and derivative claims, plaintiff includesadded various allegations and purported class claims arising out of the FIM Transaction which are substantially similar to those asserted in theIntermix Media Shareholder Litigation.Litigation. The Amended Complaint also adds as defendants the individuals and entities named in theIntermix Media Shareholder Litigation that were not already defendants in the matter. PlaintiffThe plaintiff seeks unspecified damages, disgorgement, costs and fees. Intermix believes that the plaintiff in the action lacks standing to pursue any claims in a derivative capacity and notwithstanding, that the lawsuit is generally without merit andmerit. Intermix intends to vigorously defend itself, and expects that the individual defendants will vigorously defend themselves in the matter. On July 14, 2006, the parties filed their briefing on defendants’ motion to dismiss and stay the matter. On October 16, 2006, the court dismissed the fourth through seventh

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claims for relief, which related to the 2003 restatement, finding that the plaintiff is precluded from relitigating demand futility. At the same time, the court asked for further briefing regarding the standing issues and the effect of the judge’s dismissal of the claims in theGreenspan case and theIntermix Media Shareholder Litigation on the remaining claims, which include two direct class action claims related to alleged breaches of fiduciary duty leading up to the FIM Transaction and a third claim under Section 14a of the Exchange Act asserted as a derivative claim and alleging material misstatements and omission in the FIM Transaction proxy statement. The court has scheduled a November 27, 2006 hearing on the remaining issues.

On June 14, 2006, a purported class action lawsuit, captionedJim Brown v. Brett C. Brewer, et al., was filed against certain former Intermix directors and officers in the United States District Court for the Central District of California. The plaintiff asserts claims for alleged violations of Section 14a of the Exchange Act and SEC Rule 14a-9, as well as control person liability under Section 20a. The plaintiff alleges that certain defendants disseminated false and misleading definitive proxy statements on two occasions: one on December 30, 2003 in connection with the shareholder vote on January 29, 2004 on the election of directors and ratification of financing transactions with certain entities of VantagePoint Venture Partners (“VantagePoint”), a former large stockholder of Intermix, and another on August 25, 2005 in connection with the shareholder vote on the FIM Transaction. The complaint names as defendants certain Vantage Point related entities and the members of the Intermix Board who were incumbent on the dates of the respective proxy statements. Intermix is not named as a defendant, but has certain indemnity obligations to the former officer and director defendants in connection with these claims and allegations. Intermix believes that the claims are without merit and expects that the individual defendants will vigorously defend themselves in the matter. On August 25, 2006, plaintiff amended his complaint to add certain investment banks (the “Investment Banks”) as defendants. Intermix has certain indemnity obligations to the Investment Banks as well. After conferring with defendants concerning deficiencies in the amended complaint pursuant to local rule and entering a stipulation with defendants regarding a briefing schedule, plaintiff amended his complaint again on September 27, 2006. On October 19, 2006, defendants filed motions to dismiss all claims in the Second Amended Complaint. These motions will be heard on December 18, 2006. Intermix believes that the claims are without merit and expects the individual defendants will vigorously defend themselves in the matter.

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 a 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.

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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. On October 31, 2005, the defendants filed motions seeking dismissal of the lawsuit on the grounds that the complaint fails to state any

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cause of action. Instead of responding to these motions, Mr. Greenspan filed an amended complaint on February 21, 2006, in which Mr. Greenspan omitted certain previously named defendants and added two other former directors as defendants. In this amended complaint, Mr. Greenspan asserts seven causes of action. The first two causes of action, for intentional interference with prospective economic advantage and violation of California’s Business & Professions Code section 17200, generally related to Intermix’ decision to consummate its Series C Preferred Stock financing with VantagePoint in October 2003 and allege that Mr. Greenspan was “forced” to resign. The third through sixth causes of action assert various claims for breach of fiduciary duty related to the FIM Transaction and substantially mirror the allegations in the Intermix Media Shareholder Litigation. By Order of March 20, 2006, the court ordered that Mr. Greenspan’s claims based on the FIM Transaction be severed from the rest of his complaint and coordinated with the claims asserted in the Intermix Media Shareholder Litigation. The seventh cause of action is asserted against Intermix for indemnification. In his amended complaint, Mr. Greenspan seeks compensatory and consequential damages, punitive damages, fees and costs, injunctive relief and other remedies. Motions to dismiss the first six causes of action have been filed.were filed and, on October 6, 2006, granted without leave to amend. Intermix as well as News Corporation with respect to certain claims, is obligated to defend and indemnify the defendantsonly remaining defendant in the matter.action and the only remaining cause of action is the seventh action for indemnification. Intermix believes that the claims and allegations in the complaint arethis claim is without merit and expects that the defendants in the matter willintends to vigorously defend themselves.

Patent Litigation

In October 2005, Beneficial Innovations, Inc. (“BII”) filed a first amended patent infringement complaintitself against an Intermix subsidiary and another unaffiliated company in the United States District Court for the Central District of California. BII alleged, 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 sought to enjoin the Intermix subsidiary from infringing the 702 Patent and sought unspecified compensatory damages, fees and costs. On April 21, 2006, the parties entered into a settlement agreement pursuant to which BII’s lawsuit will be dismissed with prejudice. In consideration for such dismissal with prejudice, Intermix paid $100,000 to BII on May 1, 2006, for a non-exclusive, perpetual patent license for use of all BII’s patents by News Corporation and all of its subsidiaries.this claim.

News America Marketing

On January 18, 2006, Valassis Communications, Inc. (“Valassis”) filed a complaint against News America Incorporated, News America Marketing FSI, Inc. and News America Marketing Services, In-Store, Inc. (collectively “News America”) in the United States District Court for the Eastern District of Michigan. Valassis alleges that News America possesses monopoly power in a claimed in-store advertising and promotions market (the “in-store market”) and has used that power to gain an unfair advantage over Valassis in a purported market for coupons distributed by free standing inserts (“FSIs”). Valassis alleges that News America has entrenched its monopoly power in the alleged in-store market by entering into exclusive contracts with retailers. Valassis further alleges that News America has unlawfully bundled the sale of in-store marketing products with the sale of FSIs and that such bundling constitutes unlawful tying in violation of Sections 1 and 3 of the Sherman Antitrust Act of 1890, as amended (the “Sherman Act”). Valassis also asserts that News America has violated Section 2 of the Sherman Act, various state antitrust statutes and has tortiously interfered with Valassis’ actual or expected business relationships. Valassis’ complaint seeks injunctive relief, damages, fees and costs. On April 20, 2006, News America moved to dismiss Valassis’ complaint in its entirety for failure to state a cause of action. Simultaneously,On September 28, 2006, the Magistrate Judge issued a Report and Recommendation granting the motion. On October 16, 2006, Valassis filed an Amended Complaint, alleging the same causes of action. Pursuant to agreement among the parties, discovery has not yet commenced. News America movedAmerica’s deadline to stay discovery until resolution of the motionanswer or otherwise respond to dismiss.Valassis’ Amended Complaint is November 17, 2006. News America believes Valassis’ claims are without merit and intends to vigorously defend itself in this matter.

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Other

The Company is party to several purchase and sale arrangements, which become exercisable over the next ten years by the Company or the counter-party to the agreement. Total contingent receipts/payments under these agreements (including cash and stock) have not been included in the Company’s financial statements. In the next twelve months, none of these arrangements that become exercisable are material.

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.

The Company’s operations are subject to tax in various domestic and international jurisdictions.jurisdictions and as a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.

Note 12—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, 2006 and 2005, the Company made discretionary contributions of $112$4 million and $127$29 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.

The components of net periodic benefit costs were as follows:

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Note 13—Other, net

Other, net consisted of the following:

Note 14—Segment Information

The Company is a diversified entertainment company, which manages and reports its businesses in eight segments:

Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production of original television programming in the United States and Canada.

Television, which principally consists of the operation of 35 full power broadcast television stations, including nine duopolies, in the United States (of(Of these stations, 25 are affiliated with the FOX network, and ten are affiliated with the MyNetworkTV network. Prior to September 2006, nine areof the MyNetworkTV stations were affiliated with the UPN network until September 2006 and one iswas an independent station); the broadcasting of network programming in the United States; and the development, production and broadcasting of television programming in Asia.

Cable Network Programming, which principally consists of the productionlicensing and licensingproduction of programming distributed through cable television systems and direct broadcast satelliteDBS operators in the United States.

Direct Broadcast Satellite Television, which principally consists of the distribution of premium programming services via satellite directly to subscribers in Italy.

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Note 14—Segment Information (continued)

Magazines and Inserts,, which principally consists of the publication of free standing inserts, which are promotional booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United States and providing in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States and Canada.

Newspapers, which principally consists of the publication of four national newspapers in the United Kingdom, the publication of more than 110 newspapers in Australia, and the publication of a mass circulation, metropolitan morning newspaper in the United States.

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Book Publishing, which principally consists of the publication of English language books throughout the world.

Other, which includesincludes: NDS Group plc, a company engaged in the business of supplying open end-to-end digital technology and services to digital pay-television platform operators and content providers; News Outdoor, an advertising business which offers display advertising in locations primarily throughout Russia and Eastern Europe; FIM, which operates the Company’s Internet activities; and Global Cricket Corporation, which has the exclusive rights to broadcast the Cricket World Cup and other related International Cricket Council cricket events through 2007; News Outdoor, an advertising business which offers display advertising in locations throughout Russia and Eastern Europe; and Fox Interactive Media, which operates the Company’s Internet activities.2007.

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Note 14—Segment Information (continued)

The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment operating income (loss) and Operating income (loss) before depreciation and amortization.