Annual Report June 2005

Transcription

1 40 Annual Report June 2005

2 Sky Network Television Limited and subsidiary FINANCIAL INFORMATION Sky Network Television Limited and subsidiary Financial Trends Statements 42 Directors Responsibility Statement 44 Statements of Financial Performance 45 Statements of Movements in Equity 46 Statements of Financial Position 47 Statements of Cash Flows 48 Notes to the Financial Statements 50 Auditors Report 69 Annual Report June

3 FINANCIAL TRENDS STATEMENT Sky Network Television Limited and subsidiary The selected consolidated financial data set out below have been derived from the consolidated financial statements. The data should be read in conjunction with, and are qualified in their entirety by reference to, the consolidated financial statements and accompanying notes included in the annual report $000 Financial performance data Total revenue 489, , , , ,386 Operating expenses: Programming 177, , , , ,477 Subscriber management 18,065 17,585 13,734 12,735 9,267 Transmission 7,094 7,052 6,971 6,885 17,520 Selling general and administrative (1) 56,048 52,963 51,656 50,145 46,413 Total operating expenses 258, , , , ,677 EBITDA (2) 230, , , ,195 75,709 Less/(Plus): Depreciation and amortisation 119, , , ,050 95,387 Net interest expense and financing charges 15,238 22,160 27,971 26,744 21,296 Unrealised losses/(gains) on currency 2,130 1,713 (1,942) (1,541) 1,262 Net profit/(loss) before income tax $93,857 $35,284 $694 ($30,058) ($42,236) (1) Exclusive of unrealised losses/(gains) on currency. (2) Net profit/(loss) before income tax, interest expense, depreciation and amortisation and unrealised gains and losses on currency. As at 30 June $000 Financial position data Fixed assets 245, , , , ,957 Total assets 409, , , , ,552 Total debt and lease obligations 146, , , , ,249 Working capital (13,572) (35,085) (20,069) (34,708) (48,335) Total liabilities 262, , , , ,646 Total equity 146,892 91,425 56,205 54,930 83, $000 Other financial data (unaudited) Capital expenditure (accrual basis) 76,020 57, , , ,320 Free cash inflows/(outflows) (1) 145, ,746 31,995 (37,179) (96,808) (1) Free cash inflows/(outflows) are defined as cash flows from operating activities less cash flows from investing activities. 42 Annual Report June 2005

4 FINANCIAL TRENDS STATEMENT CONTINUED The following operating data has been taken from the Company records and is not audited: As at 30 June Total UHF, DBS and other subscribers Total number of households in New Zealand (1) 1,535,700 1,508,200 1,482,200 1,458,500 1,440,500 Subscribers - UHF: Residential 77,762 91, , , ,793 Commercial 888 1,069 1,639 1,880 2,110 Total UHF 78,650 92, , , ,903 Subscribers - DBS (Satellite): Sky Network Television Limited and subsidiary Residential 442, , , , ,195 Residential - wholesale (2) 89,654 83,890 77,973 76,588 1,234 Commercial 6,327 5,326 4,334 3,326 2,390 Total DBS 538, , , , ,819 Subscribers - Other: (3) 2, Total subscribers 619, , , , ,436 Percentage of households subscribing to SKY: Total UHF and DBS - residential 39.7% 37.8% 36.2% 34.1% 29.5% Gross churn rate (4) 15.8% 17.1% 17.6% 19.9% 22.7% (1) Based upon New Zealand Government census data as of March 2001, with estimates from Statistics New Zealand. (2) Includes subscribers receiving SKY packages via affiliate services, such as arrangements with TelstraClear and Telecom. (3) Includes subscribers to programmed music, via SKY s subsidiary company, SKY DMX Music Limited, and DVD Unlimited. (4) Gross churn refers to the percentage of residential subscribers over the twelve-month period ended on the date shown who terminated their subscriptions, net of existing subscribers who transferred their service to new residences during the period. Annual Report June

5 Sky Network Television Limited and subsidiary DIRECTORS RESPONSIBILITY STATEMENT Sky Network Television Limited and subsidiary The directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) are responsible for ensuring that the financial statements of the former Sky Network Television Limited (the Company ) (which was removed from the Companies Office Register on 1 July 2005 and its operations were transferred to Sky Network Television Limited (formerly Merger Company 2005 Limited) by way of amalgamation as at that date, as explained in Note 20 to the financial statements) give a true and fair view of the financial position of the Company and the Group as at 30 June 2005 and its financial performance and cash flows for the year ended on that date. The directors consider that the financial statements of the Company and the Group have been prepared using appropriate accounting policies, consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting standards have been followed. The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Company and the Group and facilitate compliance of the financial statements with the Financial Reporting Act The directors consider they have taken adequate steps to safeguard the assets of the Company and the Group and to prevent and detect fraud and other irregularities. The directors have pleasure in presenting the financial statements of the Company and Group for the year ended 30 June The board of directors of Sky Network Television Limited (formerly Merger Company 2005 Limited) authorise these financial statements for issue on 18 August For and on behalf of the board of directors Peter Macourt Chairman Date: 18 August 2005 Robert Bryden Director 44 Annual Report June 2005

6 Sky Network Television Limited and subsidiary STATEMENTS OF FINANCIAL PERFORMANCE Note Operating revenue Subscriptions 423, , , ,485 Advertising 35,594 26,576 35,594 26,576 Installation, programme sales and other 29,876 33,823 29,881 33,800 Total operating revenue $489,381 $440,617 $488,668 $439,861 Operating expenses Cost of services: Programming 177, , , ,591 Subscriber management 18,065 17,585 18,065 17,584 Transmission 7,094 7,052 6,965 6,924 Selling, general and administrative 58,178 54,676 57,995 54,399 Depreciation and amortisation 119, , , ,865 Total operating expenses 12 $380,286 $383,173 $379,629 $382,363 Operating profit 109,095 57, ,039 57,498 Net interest expense and financing charges 12 15,238 22,160 15,262 22,130 Net profit before income tax 93,857 35,284 93,777 35,368 Income tax (credit)/expense 9 (9,622) 64 (9,655) Net profit after income tax 103,479 35, ,432 35,368 Minority interest in profit/(loss) of subsidiary 3 51 (73) Net profit attributable to shareholders $103,428 $35,293 $103,432 $35,368 Sky Network Television Limited and subsidiary Annual Report June

7 Sky Network Television Limited and subsidiary STATEMENTS OF MOVEMENTS IN EQUITY Sky Network Television Limited and subsidiary Note Equity at the beginning of the year 91,425 56,205 91,542 56,174 Net profit 3 103,428 35, ,432 35,368 Minority interest 3 51 (73) Total recognised revenue and expenses 103,479 35, ,432 35,368 Distributions to shareholders: Dividend paid March 2005 (48,642) (48,642) Supplementary dividends (7,877) (7,877) Foreign investor tax credits 7,877 7,877 Other movements: Contributions from owners Cancellation of treasury stock 3 (7) Equity at the end of the year $146,892 $91,425 $146,955 $91, Annual Report June 2005

8 Sky Network Television Limited and subsidiary STATEMENTS OF FINANCIAL POSITION As at 30 June 2005 Note Equity Share capital 3 292, , , ,904 Accumulated deficit 3 (145,635) (200,421) (145,572) (200,362) Shareholders equity 146,892 91, ,955 91,542 Minority interest 3 (51) Total equity 146,892 91, ,955 91,542 Current liabilities Payables and accruals 4 116, , , ,147 Borrowings 5 23,737 20,039 23,737 20, , , , ,186 Non current liabilities Term borrowings 5 12,429 79,792 12,429 79,792 Capital notes 5 109, , , , , , , ,725 Total liabilities and equity $409,580 $407,560 $409,486 $407,453 Current assets Cash at bank 30,065 8,781 29,816 8,595 Receivables and prepayments 7 56,557 39,008 56,956 39,375 Programming rights 40,197 44,536 40,197 44, ,819 92, ,969 92,506 Non current assets Fixed assets 6 245, , , ,715 Intangible assets 8 27,743 31,197 27,739 31,171 Investments in subsidiaries Other non current assets 11 9,655 9, , , , ,947 Total assets $409,580 $407,560 $409,486 $407,453 Sky Network Television Limited and subsidiary Annual Report June

9 Sky Network Television Limited and subsidiary STATEMENTS OF CASH FLOWS Sky Network Television Limited and subsidiary Cash flows from operating activities Cash was provided from: Customers 465, , , ,791 Related parties 21,323 17,850 21,245 17,795 Interest received Reimbursement of tax loss offset from Independent Newspapers Limited 22,141 22, , , , ,944 Cash was applied to: Suppliers and employees (193,570) (189,955) (192,912) (189,278) Related parties (58,731) (58,083) (58,731) (58,224) Interest paid (14,252) (21,726) (14,249) (21,715) Income tax paid (22,152) (22,141) Net GST paid (803) (316) (811) (325) (289,508) (270,080) (288,844) (269,542) Net cash inflows from operating activities $220,303 $170,678 $220,183 $170,402 Cash flows from investing activities Cash was provided from: Proceeds from sale of fixed assets Cash was applied to: Purchase of fixed assets and intangibles (73,090) (53,192) (73,033) (53,127) Payment of merger-related costs (1,698) (1,698) (74,788) (53,192) (74,731) (53,127) Net cash outflows from investing activities ($74,436) ($52,932) ($74,379) ($52,867) During the year the service level of the transponders was upgraded. The cost of the upgraded service has been capitalised. The total amount capitalised, being the additional cost over the period 1 June 2005 to 31 December 2006, was $2.4 million, a non cash investing and financing activity. 48 Annual Report June 2005

10 Sky Network Television Limited and subsidiary STATEMENTS OF CASH FLOWS CONTINUED Note Cash flows from financing activities Cash was provided from: Proceeds from borrowings 5 12,000 3,000 12,000 3,000 Contributions from owners ,630 3,000 12,630 3,000 Cash was applied to: Repayment of borrowings 5 (58,000) (105,057) (58,000) (105,000) Payment of finance lease liabilities (21,354) (19,057) (21,354) (19,057) Payment of dividends (48,642) (48,642) Payment of supplementary dividends (7,877) (7,877) Payment of bank facility fees (1,340) (1,340) (137,213) (124,114) (137,213) (124,057) Net cash outflows from financing activities ($124,583) ($121,114) ($124,583) ($121,057) Net increase/(decrease) in cash held 21,284 (3,368) 21,221 (3,522) Opening cash brought forward 8,781 12,149 8,595 12,117 Closing cash carried forward $30,065 $8,781 $29,816 $8,595 Sky Network Television Limited and subsidiary Reconciliation between net profit after tax to cash flows from operating activities Net profit attributable to shareholders 103,428 35, ,432 35,368 Minority interest in profit/(loss) of subsidiary 3 51 (73) Net profit after tax 103,479 35, ,432 35,368 Plus/(Less) non cash items: Depreciation expense , , , ,489 Amortisation expense 12 3,556 3,450 3,534 3,376 Unrealised losses on currency 12 2,130 1,713 2,130 1,713 Bad debts and movement in provision for doubtful debts , ,766 Amortisation of capital notes issue costs Movement in deferred taxation 9 (9,655) (9,655) Other non cash items Movement in working capital: Increase in receivables (6,152) (1,870) (6,188) (2,047) Increase in payables and accruals 5,741 8,340 5,880 8,313 Decrease/(Increase) in programming rights 4,339 (3,581) 4,339 (3,581) Items classified as investing activities: Gain on disposal and write-off of fixed assets 12 (289) (148) (290) (148) Net cash inflows from operating activities $220,303 $170,678 $220,183 $170,402 Annual Report June

11 Sky Network Television Limited and subsidiary NOTES TO THE FINANCIAL STATEMENTS Sky Network Television Limited and subsidiary 1. PRINCIPAL ACTIVITIES AND SEGMENTAL REPORTING The Company primarily operates as a single business segment and provides a multi channel subscription television service in New Zealand. The revenue, results and carrying amounts attributable to the subsidiary s assets during the year were not significant, therefore no segmental reporting has been provided. 2. STATEMENT OF ACCOUNTING POLICIES ENTITIES REPORTING The financial statements for the Company are for Sky Network Television Limited as a separate entity. The consolidated financial statements for the Group are for the economic entity comprising Sky Network Television Limited and its trading subsidiary Sky DMX Music Limited. The Company also has various non trading subsidiaries, held for name protection purposes. STATUTORY BASE Sky Network Television Limited was a company registered under the Companies Act 1993 and was an issuer in terms of the Securities Act 1978 until 1 July 2005 (refer Note 20). The financial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act MEASUREMENT BASE The measurement base adopted is that of historical cost. SPECIFIC ACCOUNTING POLICIES The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The following specific accounting policies have a significant effect on the measurement of results and financial position: Basis of consolidation The Group consolidated financial statements are prepared using the purchase method. Subsidiaries are entities that are controlled either directly or indirectly by the parent. All material inter group transactions and balances have been eliminated on consolidation. Fixed assets Fixed assets are stated at cost less accumulated depreciation. Capitalised aerial and satellite dish installations are represented by the cost of aerials, satellite dishes, installation costs and overheads. Fixed assets are depreciated using the straight line method so as to allocate the cost of assets to their residual values over their useful lives as follows: Land Buildings Leasehold improvements Studio and broadcasting equipment Decoders and associated equipment Other plant and equipment Capitalised aerial and satellite dish installations Nil 50 years 5 50 years 5 10 years 5 6 years 3 10 years 5 years The four capitalised satellite transponder leases are being depreciated over their useful lives. Intangible assets Broadcasting rights, consisting of UHF spectrum licences, are amortised on a straight line basis over the lesser of the period of the licence term and twenty years. New channel development costs are deferred to be matched against future subscription income. This expenditure is amortised on a straight line basis over five years. Renewal rights for programmes incurred after 1 July 2003 are expensed as incurred. This was a change in policy effective 1 July Renewal rights for programmes incurred prior to this date have been capitalised as incurred and are amortised over the period to which they relate. If a contract is not expected to be renewed, the costs are expensed. Costs relating to the establishment of the direct broadcast satellite (DBS) service have been capitalised and are amortised on a straight line basis over five years from the commencement of earning subscription revenue from the service. Purchased goodwill is the excess of cost over the fair value of the net assets acquired and is amortised to the statement of financial performance over the shorter of its estimated useful life and five years. 50 Annual Report June 2005

12 Sky Network Television Limited and subsidiary 2. STATEMENT OF ACCOUNTING POLICIES CONTINUED Programming rights Programming rights are recognised in the statement of financial position provided the programme is available and the rights period has commenced at the balance date. Rights are amortised over the period they relate to, generally not exceeding twelve months. Long-term sports rights are recognised on an annual basis in the statement of financial position and are amortised over twelve months. Any rights not expected to be utilised are written off during the period. Impairment Annually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of financial performance. Total revenue Revenue represents subscription income, programming revenue, installation income, advertising sales and other sundry revenue. Revenue received in advance is recognised as unearned subscription income in the statement of financial position. Sky Network Television Limited and subsidiary Interest income Interest income is accounted for as earned. Accounts receivable Accounts receivable are carried at expected realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at balance date. Bad debts are written off during the year in which they are identified. Foreign currencies Transactions denominated in foreign currencies during the year are translated to New Zealand dollars at the rates of exchange ruling at the dates of the transactions or at forward cover rates where specifically identified. Amounts receivable and payable in foreign currencies at balance date are translated to New Zealand dollars at rates of exchange at the balance date. Foreign currency non monetary assets are translated at exchange rates in effect when the amounts of these assets were determined. Except where a foreign currency liability is designated as a hedge, the related non monetary assets are translated at the closing rate and the exchange difference is taken to the foreign currency translation reserve. Gains and losses arising from exchange fluctuations are taken to the statement of financial performance in the period in which they arise. Capitalisation of interest Interest incurred in relation to the establishment of non current assets is capitalised when there is an extended period of time required to establish the asset. The capitalisation of interest costs ceases once the asset is available for its intended use. Income tax The Group adopts the liability method of tax effect accounting on a comprehensive basis. The tax effect of timing differences, which arise from items recorded in different periods for income tax and accounting purposes, is carried forward on the statement of financial position as deferred tax assets/liabilities. Deferred tax assets arising from timing differences are not recorded unless there is virtual certainty of the realisation of the asset. Deferred tax assets, which include tax losses, are only recorded when the realisation is certain. The recovery of deferred tax assets (both recognised and unrecognised) is contingent upon sufficient taxable income being earned in future periods, the continuation of relevant tax laws and the Group continuing to comply with the appropriate legislation. Goods and Services Tax (GST) The statement of financial performance and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the statement of financial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced. Financial instruments Financial instruments carried on the statement of financial position include cash and bank balances, accounts receivable, accounts payable, borrowings and capital notes. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Where possible, financial assets are supported by collateral or other security. These arrangements are described in the individual policy statements associated with each item. The Group is also a party to financial instruments that reduce exposure to fluctuations in foreign currency exchange and interest rates and include forward foreign currency contracts, foreign currency options and interest rate swap agreements. Annual Report June

13 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 2. STATEMENT OF ACCOUNTING POLICIES CONTINUED Financial instruments continued The Group enters into forward currency contracts to limit the Group s exposure to movements in exchange rates on foreign currency denominated liabilities. Exchange gains and losses and hedging costs arising on contracts entered into as hedges of future commitments are not revalued until the underlying asset or liability is recognised. With the exception of exchange differences recognised in the foreign currency translation reserve, all other exchange gains and losses on foreign currency contracts and foreign currency denominated liabilities are recorded in the statement of financial performance. The Group enters into interest rate swap agreements with respect to specific borrowings in which the swap is designated as, and is, an effective hedge of the underlying borrowing. Differential payments made or received with respect to interest rate swap agreements are recognised as a component of interest expense in the period they relate to. Realised gains or losses on terminated swap agreements are taken to the statement of financial performance. Further information about financial instruments to which the Group is a party is provided in Note 17. Leases Finance leases Assets acquired under finance leases are included as non current assets in the statement of financial position. Finance leases effectively transfer from the lessor to the Group substantially all the risks and benefits incidental to ownership of the leased property. Where assets are acquired by means of finance leases, the present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and amortised on a straight line basis over the expected useful life of the leased asset. A corresponding liability is also established and each lease payment is allocated between the liability and interest expense. The "actuarial" method of finance charge allocation is used to determine the interest expense. Leases Operating leases Leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable. Investments Investments in subsidiaries are recorded at the lower of cost and net realisable value in the statement of financial position of the Company. Issue costs Costs associated with the issue of shares or capital notes are recognised as a reduction of the amount raised by the issue. Hence the proceeds are expressed net of issue expenses. These costs may include those in relation to the preparation of a prospectus, advertising, professional fees, underwriting premiums and commissions. Issue costs relating to the capital notes are amortised from date of issue to the earliest redemption date. Share options No compensation expense is recognised in respect of share options granted. When the options are exercised the proceeds received are recognised as share capital. Comparatives Certain comparative figures in the financial statements have been reclassified where necessary, so that all information corresponds to the classification presented in the current period. The amounts reclassified are not significant. Statement of cash flows The following are the definitions of the terms used in the statement of cash flows: a. Operating activities include all transactions and other events that are not investing or financing activities. b. Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the definition of cash. c. Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. d. Cash is considered to be cash on hand and current accounts in banks, net of bank overdrafts. 52 Annual Report June 2005

14 Sky Network Television Limited and subsidiary 2. STATEMENT OF ACCOUNTING POLICIES CONTINUED Changes In Accounting Policies In the prior year the board of directors decided, effective 1 July 2003, that renewal rights for programmes are to be expensed as incurred. The previous policy capitalised renewal rights as incurred and upon contract renewal, the rights were amortised over the period they related. If a contract was not expected to be renewed, the costs were expensed. The financial impact of the change was that $1.6 million was expensed in programming in the prior year. The reason for the change is the new policy more accurately reflects the risk associated with the costs of securing renewal rights. All other accounting policies have been applied on a consistent basis throughout the periods presented. 3. EQUITY Sky Network Television Limited and subsidiary Share capital Balance at the beginning of the year 291, , , ,904 Cancellation of treasury stock (7) (7) Contribution from owners: Shares issued on exercise of options $292,527 $291,904 $292,527 $291,904 Shares repurchased and held as treasury stock (7) Balance at the end of the year $292,527 $291,897 $292,527 $291,904 During the year, on exercise of options, 300,000 shares were issued for cash at $2.10 per share. Refer Note 18 Equity Participation Plan. Treasury stock relates to 700,000 ordinary shares paid to $0.01 held by Sky Nominees Limited which is consolidated. On 17 December 2004 Sky Nominees Limited was amalgamated with Sky Network Television Limited and 700,000 ordinary shares partly paid to $0.01 are deemed cancelled on date of amalgamation. Share issue details Ordinary shares on issue at the beginning of the year 389,539, ,539, ,539, ,539,785 Cancellation of 700,000 ordinary shares paid to 1 cent (700,000) (700,000) Shares issued on exercise of options 300, ,000 Ordinary shares on issue at the end of the year 389,139, ,539, ,139, ,539,785 As at 30 June 2005 there were 389,139,785 ( ,839,785) shares issued and fully paid. There were 700,000 shares partly paid to $0.01 as at 30 June 2004, these shares were deemed cancelled on 17 December Refer Note 18 Equity Participation Plan. Ordinary shares rank equally, carry voting rights and participate in distributions. Annual Report June

15 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 3. EQUITY CONTINUED Accumulated deficit Accumulated deficit at the beginning of the year (200,421) (236,334) (200,362) (236,350) Foreign currency translation reserve movement (1) Net profit for the year 103,428 35, ,432 35,368 Dividends paid (2) (48,642) (48,642) Accumulated deficit at the end of the year ($145,635) ($200,421) ($145,572) ($200,362) Foreign currency translation reserve Balance at the beginning of the year Movement for the year (1) (620) (620) Balance at the end of the year Minority interest Balance at the beginning of the year (51) 22 Share of profit/(loss) in subsidiary (3) 51 (73) Balance at the end of the year ($51) (1) From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability and the 30 June 2003 balance in the foreign currency translation reserve has therefore been transferred to accumulated losses during the year ended 30 June Forward currency contracts are now designated as a hedge of the lease liability, with uncovered principal being revalued and unrealised gains or losses taken to the statement of financial performance in the period they arise. (2) On 11 March 2005 a fully imputed interim dividend of 12.5 cents per share was paid, based on 389,139,785 shares, equating to $48,642,474. A supplementary dividend of 2.2 cents per share (to one decimal place) was paid to nonresident shareholders, based on 357,072,384 shares, equating to $7,876,597. The Company receives an equivalent tax credit from the Inland Revenue on the supplementary dividend, hence the net dividend paid is shown above. (3) The Company has agreed to provide continuing support for the subsidiary, Sky DMX Music Limited. 4. PAYABLES AND ACCRUALS Trade payables 39,322 40,436 39,317 40,386 Due to related parties 21,191 21,029 21,243 21,069 Unearned subscriptions 28,979 26,211 28,920 26,146 Employee entitlements 6,047 5,199 6,047 5,199 Deferred revenue 1,185 1,185 1,185 1,185 Income tax payable 1,814 1,815 Accruals and other payables 18,116 13,311 17,970 13,162 $116,654 $107,371 $116,497 $107, Annual Report June 2005

16 Sky Network Television Limited and subsidiary 5. INTEREST BEARING LIABILITIES Borrowings Current Lease liabilities $23,737 $20,039 $23,737 $20,039 Non current Bank loans 46,000 46,000 Lease liabilities 12,429 33,792 12,429 33,792 Sky Network Television Limited and subsidiary $12,429 $79,792 $12,429 $79,792 Repayment terms Bank loans are repayable: One to two years Two to three years Three to four years 46,000 46,000 Four to five years $46,000 $46,000 Lease liabilities are repayable: One to two years 12,429 22,136 12,429 22,136 Two to three years 11,656 11,656 Three to four years Four to five years $12,429 $33,792 $12,429 $33,792 Interest rates on borrowings varied in the range of 6.1% to 7.7% in 2005 ( % to 6.9%). Interest rates on the Australian dollar denominated transponder finance lease varied in the range of 6.1% to 13% ( % to 13%). The lease liabilities are secured by the leased assets. From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the lease liability, with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of financial performance in the period they arise (refer Note 6). During the year the service level of the transponders was upgraded which increased the lease liability by $2.4 million. Bank facility In May 2003 the Company refinanced its bank facility with a $200 million senior secured five year revolving credit facility provided by a syndicate of five banks comprising Toronto Dominion Bank, The Hong Kong and Shanghai Banking Corporation Limited, ANZ Banking Group (New Zealand) Limited, Bank of New Zealand and Westpac Banking Corporation. In November 2003 the Company restructured this facility into a $150 million revolving credit facility and a letter of credit facility of A$40 million. The letter of credit is in favour of Optus Networks Pty Limited ( Optus ) and is in support of the commitments the Company has made in relation to leasing a new satellite from Optus. The facility was drawn to $46 million at 30 June 2004 and was fully repaid at 30 June Interest is charged on drawings under the facility at a rate between 0.65% and 1.25% per annum above the average bid rate for the purchase of bank accepted bills of exchange. There is also a commitment fee payable on the undrawn balance of the facility at a rate of between 0.325% and 0.625% per annum. There are no required repayment tranches of the facility. The facility can be partially or fully cancelled at the Company s discretion. The bank facility includes various restrictions on the Company. Covenants in the bank facility: (i) limit the Company s ability to dispose of its assets, although certain disposals are permitted, such as the disposal of certain assets in the ordinary course of business; (ii) limit the Company s ability to enter into transactions with related persons; (iii) prohibit the Company from investing, commencing business or acquiring material capital assets outside its core business; (iv) prohibit the Company from materially changing its licensing, programming or exclusivity rights; and (v) impose limits on additional external borrowing. Annual Report June

17 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 5. INTEREST BEARING LIABILITIES CONTINUED Furthermore, the bank facility also requires the aggregate direct and indirect beneficial shareholding of News Corporation to be at least 27.5% of the outstanding ordinary shares in the Company. This condition is entirely beyond the control of the Company. If the condition is not satisfied, an event of review would be deemed to have occurred under the bank facility and if agreed to by a majority of lenders (60%), all amounts outstanding thereunder could, upon demand, become due and payable by the Company. The facility is fully secured by a first ranking fixed and floating charge over all the assets and undertakings of the Group. Capital notes In October 2001 the Company raised $111 million through a capital notes issue. The capital notes constitute unsecured obligations of the Company. The interest rate payable on the capital notes was fixed at 9.3% per annum with interest payable quarterly. Prior to the initial election date of 15 October 2006 the Company must notify noteholders of the proportion of capital notes that it intends to redeem and, if applicable, the new terms on which noteholders may elect to roll over their capital notes. Unless the Company redeems all capital notes, each noteholder must elect to either retain some or all of their capital notes for a further period on the new terms or convert some or all of the capital notes into ordinary shares in the Company at 98% of the market price. On 15 July 2005, 5,767,000 capital notes were repaid (refer Note 20). Group & Company Group & Company $000 $ ,076,000 notes at $ , ,076 Issue costs (4,646) (4,646) Amortisation of issue costs 3,438 2,503 $109,868 $108, Annual Report June 2005

18 Sky Network Television Limited and subsidiary 6. FIXED ASSETS Land 1,026 1,026 1,026 1,026 Accumulated depreciation 1,026 1,026 1,026 1,026 Buildings 12,099 11,913 12,099 11,913 Accumulated depreciation (3,194) (2,829) (3,194) (2,829) 8,905 9,084 8,905 9,084 Sky Network Television Limited and subsidiary Leasehold improvements 5, , Accumulated depreciation (414) (420) (414) (420) 5, , Broadcasting equipment 43,963 38,448 43,963 38,448 Accumulated depreciation (33,488) (29,952) (33,488) (29,952) 10,475 8,496 10,475 8,496 Satellite transponders subject to finance lease 138, , , ,339 Accumulated depreciation (104,334) (84,839) (104,334) (84,839) 33,694 49,500 33,694 49,500 Studio equipment 29,729 28,658 29,709 28,637 Accumulated depreciation (20,909) (18,990) (20,900) (18,983) 8,820 9,668 8,809 9,654 Other plant and equipment 31,596 28,442 30,892 27,796 Accumulated depreciation (22,710) (19,850) (22,240) (19,513) 8,886 8,592 8,652 8,283 Decoders and associated equipment 332, , , ,283 Accumulated depreciation (263,681) (238,744) (263,681) (238,743) 68,997 89,540 68,997 89,540 Capitalised installation costs 420, , , ,260 Accumulated depreciation (321,508) (276,208) (321,508) (276,208) 99, ,052 99, ,052 Total cost 1,015, ,870 1,014, ,202 Total accumulated depreciation (770,238) (671,832) (769,759) (671,487) Total fixed assets $245,363 $284,038 $245,118 $283,715 The latest independent valuation of land and buildings at 10 Panorama Rd, Mt Wellington, Auckland prepared by Darroch Valuations Limited, registered independent valuers, in July 2005 records a value of $13 million. The directors consider this valuation to be a reasonable basis for the assessment of fair value. During the year, the Company incurred $5.4 million on refurbishing a leased property at 16 Leonard Rd, Mt Wellington, Auckland. From July 2003 the leased satellite asset has ceased to be designated as a hedge of the foreign currency lease liability. Forward currency contracts are now designated as a hedge of the lease liability, with the uncovered principal being revalued and unrealised exchange gains or losses taken to the statement of financial performance in the period they arise (refer Note 5). The increase in cost of decoders and associated equipment has been partially offset during the year because fully depreciated analogue decoders with a cost totalling $13.1 million were written off (2004 $33.2 million), as they were broken and were not intended to be re used. Annual Report June

19 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 7. RECEIVABLES AND PREPAYMENTS Trade receivables 38,080 34,058 38,037 34,011 Less estimated doubtful debts (522) (1,515) (520) (1,514) Due from related parties 9,692 1,911 10,149 2,360 Income tax receivable 23 Other receivables and prepaid expenses 9,307 4,531 9,290 4,518 $56,557 $39,008 $56,956 $39, INTANGIBLE ASSETS Broadcasting rights 2,309 2,309 2,309 2,309 Accumulated amortisation (1,733) (1,614) (1,733) (1,614) New channel development Accumulated amortisation (229) (194) (229) (194) Renewal rights 35,480 35,480 35,480 35,480 Accumulated amortisation (9,848) (7,197) (9,848) (7,197) 25,632 28,283 25,632 28,283 Satellite service development 4,519 4,519 4,519 4,519 Accumulated amortisation (3,723) (3,164) (3,722) (3,164) 796 1, ,355 Other intangibles 1,248 1,145 1,228 1,126 Accumulated amortisation (560) (386) (545) (374) Purchased goodwill Accumulated amortisation (343) (324) 19 Total intangible assets $27,743 $31,197 $27,739 $31, Annual Report June 2005

20 Sky Network Television Limited and subsidiary 9. INCOME TAX The Company and Independent Newspapers Limited ( INL ) are members of the same group for New Zealand tax paying purposes and have an agreement for the Company to elect to transfer to the INL Group tax losses incurred after 1 July Compensation was paid as the Company became liable to pay income tax. This arrangement has received a binding ruling from Inland Revenue. At 30 June 2005 three provisional tax payments totalling $22.1 million (2004 nil) had been reimbursed by INL. No losses were offset to INL during the year (2004 $49 million). At 30 June 2005 the Group had accumulated tax losses carried forward of nil (2004 $5 million). The income tax is calculated as follows: Sky Network Television Limited and subsidiary Net profit before tax 93,857 35,284 93,777 35,368 Prima facie tax expense at statutory rate of 33% 30,973 11,644 30,946 11,671 Permanent differences: Prior year adjustments 10 Timing differences not recognised 16 1,636 1,545 Timing differences not previously recognised (6,786) (6,786) Recognition of receipts from group loss offsets (22,141) (22,141) Benefit of tax losses not previously recognised (2,133) (13,301) (2,133) (13,301) Accrued compensation receivable from group loss offsets (9,692) (9,692) Other Tax (credit)/expense ($9,622) $64 ($9,655) Split: Current tax Deferred tax (9,655) 52 (9,655) Tax (credit)/expense ($9,622) $64 ($9,655) Deferred Tax The Company has recognised net deferred tax assets in respect of timing differences for the first time during the year as there is virtual certainty of a recovery of the debit balance. Balance at beginning of the year 52 Timing differences not previously recognised 6,786 6,786 Movement recognised during the year 2,869 (52) 2,869 Balance at the end of the year $9,655 $9,655 At 30 June 2005 the Group had unrecognised deferred tax assets of $117,525 and the Company nil (2004 Group $7,229,000; Company $7,135,000). Annual Report June

21 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 9. INCOME TAX CONTINUED The following tax and tax-related assets have not been recognised in the financial statements: Benefit of tax losses carried forward unrecognised $1,808 $1,808 Benefit of group loss offset to INL 11,448 33,589 11,448 33,589 Less amount recognised (9,692) (9,692) Benefit of group loss offset unrecognised $1,756 $33,589 $1,756 $33,589 The benefit of the loss offset to INL has been recognised as tax payments fell due and were reimbursed by INL. At 30 June 2005 a further $9.7 million of the $11.4 million due from INL was recognised as it represented the balance of the tax on taxable profit that had not been reimbursed. On 1 July 2005, as part of the merger process, the balance owing under the loss offset agreement of $11.4 million was repaid to the Company by INL. Utilisation of carried forward tax losses is subject to meeting New Zealand income tax legislation and shareholder continuity requirements. Tax losses at 30 June 2004 are calculated to have been fully utilised by 30 June Imputation credits Opening balance Tax payments 22, ,141 Tax refunds (14) (76) Credits attached to dividends received Credits attached to dividends paid (16,082) (16,082) Balance at the end of the year $6,260 $191 $6,070 $11 Availability of these credits is subject to continuity of ownership requirements. 10. INVESTMENTS The Company s investment in its subsidiaries comprises shares at the lower of cost and net realisable value. Name of Entity Principal Activity Interest held by Group Sky DMX Music Limited Commercial music 50.5% 50.5% Sky DMX Music Limited has a balance date of 30 June. On 17 December 2004 Sky Nominees Limited was amalgamated with Sky Network Television Limited which has no impact on the Company s financial statements. As at 30 June 2005 the Company had the following non trading subsidiaries: Cricket Max Limited Media Finance Limited Sky Telecommunications (MR7) Limited 60 Annual Report June 2005

22 Sky Network Television Limited and subsidiary 11. OTHER NON CURRENT ASSETS Investments Football Kings Limited Octagon Sports Limited Go Auto JV Limited Advances Sky DMX Music Limited 56 Sky Network Television Limited and subsidiary Deferred tax 9,655 9,655 $9,655 $9,655 $56 Until 24 September 2004 the Company held a 10% interest in the Football Kings Limited, a professional soccer team, valued at nil. The Football Kings Limited is in the process of being liquidated. The Company acquired a 5% interest in Octagon Sports Limited on 24 September 2004 in exchange for non repayment of entitlements due from the Football Kings Limited. The investment is valued at nil. The Company acquired a 33.3% interest in Go Auto JV Limited during the year. The entity provides a multi media advertising package to the motor trade. The investment cost $300 and the Company sold its interest on 2 June 2005 for its original cost. The investment was not equity accounted during the period the investment was held as the entity made losses which were not significant. 12. OPERATING EXPENSES Operating expenses Depreciation: Buildings Broadcasting equipment 3,536 3,678 3,536 3,678 Studio equipment 2,043 3,172 2,041 3,170 Plant and equipment 3,068 3,290 2,935 3,166 Decoders 41,944 49,543 41,944 49,543 Capitalised installation costs 45,302 45,182 45,302 45,182 Satellite transponder subject to finance lease 19,495 19,314 19,495 19,314 Total depreciation $115,747 $124,615 $115,612 $124,489 Amortisation: Broadcasting rights New channel development Renewal rights 2,650 2,350 2,650 2,350 Satellite costs Other intangible assets Purchased goodwill Amortisation of intangible assets $3,556 $3,450 $3,534 $3,376 Total depreciation and amortisation $119,303 $128,065 $119,146 $127,865 Annual Report June

23 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 12. OPERATING EXPENSES CONTINUED Bad and doubtful debts: Movement in provision (993) 379 (993) 378 Net write-off 1,281 1,389 1,280 1,388 Total bad and doubtful debts $288 $1,768 $287 $1,766 Fees to auditors (1) : Audit fees paid to principal auditors Other assurance services provided by principal auditors Other advisory services provided by principal auditors Total fees to auditors $183 $155 $177 $150 Net interest and financing charges: Interest expense: Finance leases 2,375 4,423 2,375 4,423 Bank and other loans 1,212 6,851 1,215 6,850 Capital notes 10,505 9,788 10,505 9,788 Amortisation of capital notes issue costs Interest income (857) (339) (836) (368) Bank facility fees 1, , Total net interest expense and financing charges $15,238 $22,160 $15,262 $22,130 Directors fees Realised foreign exchange losses 5,031 6,610 5,031 6,610 Unrealised foreign exchange losses 2,130 1,713 2,130 1,713 Gain on disposal and write-off of fixed assets (289) (148) (290) (148) Donations Operating lease and rental expense 1,620 1,439 1,620 1,439 (1) Fees paid to auditors of $125,000 for work performed in relation to the merger of the Company and its parent company, INL, have been included in other receivables and prepaid expenses (refer Note 7). 13. OPERATING LEASE COMMITMENTS The Company and Group have operating lease commitments in respect of property and motor vehicles. These commitments fall due as follows: Group & Company Group & Company $000 $000 Year ,057 Year Year Year Year Later than 5 years 1,725 2,068 $5,415 $5, Annual Report June 2005

24 Sky Network Television Limited and subsidiary 13. OPERATING LEASE COMMITMENTS CONTINUED On 11 October 2003 the Company entered into an agreement with Optus Networks Pty Limited in Australia to obtain the use of five transponders on their D1 satellite, due to be launched in April Payments under this agreement are expected to commence around June 2006 when services from the craft and the lease will commence and payment obligations in relation to the currently used B1 satellite will cease. The commitment is for 15 years. Using an exchange rate of 1 New Zealand dollar to Australian dollars, the present value of the commitment equates to $211.4 million. 14. OTHER COMMITMENTS Group & Company Group & Company $000 $000 Contracts for transmission services: Year 1 8,627 8,258 Year 2 8,627 6,904 Year 3 7,622 6,516 Year 4 6,904 6,129 Year 5 4,810 6,128 Later than 5 years 4,270 $36,590 $38,205 Sky Network Television Limited and subsidiary Contracts for future programmes: Year 1 94, ,203 Year 2 70,501 73,520 Year 3 44,229 36,028 Year 4 30,376 13,910 Year 5 11,562 3,365 Later than 5 years $251,238 $244,026 Capital expenditure commitments: Year 1 15,411 7,759 Year 5 4,422 $19,833 $7,759 Other service commitments: Year 1 $ CONTINGENT LIABILITIES The Group s contingent liability in respect of undrawn letters of credit at 30 June 2005 amounted to $43,698,030 (2004 $43,944,459). The Group is party to litigation incidental to its business, none of which is expected to be material. No provision has been made in the Group s financial statements in relation to any current litigation and the directors believe that such litigation will not have a significant effect on the Group s financial position, results of operations or cash flows. Annual Report June

25 Sky Network Television Limited and subsidiary Sky Network Television Limited and subsidiary 16. RELATED PARTY TRANSACTIONS All members of the Group are considered to be related parties of Sky Network Television Limited. During the year $55,980 of advances (refer Note 11) made to Sky DMX Music Limited were repaid (2004 $112,130). Interest was charged at normal commercial lending rates. During the year, the Group had the following significant operating transactions in the normal course of business with its shareholders and their affiliates: Group & Company Group & Company $000 $000 News Corporation and affiliated companies Programming, smartcard and broadcasting equipment and publishing 58,226 56,610 Telecom Corporation of New Zealand Limited Wholesaling revenue 21,181 16,758 Telecommunication costs 3,692 3,600 The Company and INL are members of the same group for New Zealand tax paying purposes and have an agreement for the Company to elect to transfer to the INL Group tax losses incurred after 1 July 2001 (refer Note 9). On 28 June 2005 Telecom Corporation of New Zealand Limited sold its shareholding in INL to Nationwide News Pty Limited, an affiliated company of News Corporation. 17. FINANCIAL INSTRUMENTS The following financial assets and financial liabilities have been recognised in the financial statements: Cash and bank 30,065 8,781 29,816 8,595 Receivables 53,346 36,939 53,745 37,306 Payables and accruals (115,469) (106,186) (115,312) (105,962) Borrowings (36,166) (99,831) (36,166) (99,831) Capital notes (109,868) (108,933) (109,868) (108,933) Net amount recognised ($178,092) ($269,230) ($177,785) ($268,825) Credit risk Credit risk is the risk of loss arising from one party to a contract failing to discharge its obligations under that contract. Recognised financial instruments which potentially subject the Group to credit risk consist primarily of cash and bank and trade receivables. Cash and bank balances are placed with high credit quality financial institutions. Credit risk with respect to trade receivables is limited due to the large number of subscribers included in the Group s subscriber base. Accordingly, the directors believe the Group has no significant concentration of credit risk. With respect to forward foreign exchange contracts, the Group s exposure is on the full amount of the foreign currency receivable on settlement. The Group reduces credit risk by limiting the counterparties of the Group to major international banks and does not expect to incur any losses as a result of non performance by these counterparties. 64 Annual Report June 2005