**UNITED
                STATES**
              **SECURITIES
                AND EXCHANGE COMMISSION**
              **Washington,
                D.C. 20549**
              **FORM
                10-K**(Mark
                One)
              **x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              
              For
                the fiscal year ended June 30, 2008or** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              
              For
                the transition period from
                          to**Commission
                File Number: 000-30364**
              
              **NDS
                Group plc**
              (Exact
                name of registrant as specified in its charter)**England
                and Wales**
              (State
                or other jurisdiction of incorporation or organization)
              
              **One
                Heathrow Boulevard, 286 Bath Road, West Drayton,Middlesex, United
                Kingdom**
              (Address
                of principal executive offices)
            **Not
                applicable**
              (I.R.S.
                Employer Identification No.)
              
              
              **UB7
                0DQ**
              (ZIP
                Code)**+44
                20 8476 8000**
              (Registrant’s
                telephone number, including area code)**Securities registered pursuant to Section 12(b) of the Act:**
              ****
              **Securities registered pursuant to Section 12(g) of the Act:**
            Series
                A ordinary shares, par value $0.01 per share
              
              None.Indicate
                by check mark if the registrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act.
              **Yes****x****No**** ̈******
              
              Indicate
                by check mark if the registrant is not required to file reports pursuant
                to Section 13 or Section 15(d) of the Act.
              **Yes**** ̈****No****x******
              
              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 if disclosure of delinquent filers pursuant to Item
                405 of
                Regulation S-K is not contained herein, and will not be contained,
                to the
                best of registrant’s knowledge, in definitive proxy or information
                statements incorporated by reference in Part III of this Form 10-K
                or any
                amendment to this Form 10-K.
              **x**
              
              Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, a non-accelerated filer, or a smaller reporting
                company. See definitions of “large accelerated filer,” “accelerated
                filer,” and “smaller reporting company” in Rule 12b-2 of the Securities
                Exchange Act. (Check one):




**Large accelerated filer****x**
            **Accelerated filer**** ̈**
            **Non-accelerated filer**** ̈**
              **(do not check if a smallerreporting company)**
            **Smaller reportingcompany**** ̈**Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Act).
              **Yes**** ̈****No****x******The
                aggregate market value of the Company’s Series A ordinary shares, par
                value $0.01 per share, held by non-affiliates of the registrant as
                of
                December 31, 2007, which was the last business day of the registrant’s
                most recently completed second fiscal quarter, was approximately
                $954,359,714 (based on the closing price on such date as reported
                on The
                NASDAQ Stock Market).
              
              As
                of August 6, 2008, there were outstanding 16,263,570 Series A ordinary
                shares, par value $0.01 per share, 42,001,000 Series B ordinary shares,
                par value $0.01 per share and 42,000,002 deferred shares, par value
£1 per
                share.





**NDS
      Group plc**


**Table
      of Contents**


PART
                  I
              
              
              1Item
                  1.
              Business
              
              1Item
                  1A.
              Risk
                  Factors
              
              9Item
                  1B.
              Unresolved
                  Staff Comments
              
              16Item
                  2.
              Properties
              
              16Item
                  3.
              Legal
                  Proceedings
              
              17Item
                  4.
              Submission
                  of Matters to a Vote of Shareholders
              
              18PART
                  II
              
              
              19Item
                  5.
              Market
                  for Registrant's Common Equity, Related Stockholder Matters and
                  Issuer
                  Purchases of Equity Securities
              
              19Item
                  6.
              Selected
                  Financial Data
              
              21Item
                  7.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              23Item
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              
              40Item
                  8.
              Financial
                  Statements and Supplementary Data
              
              41Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              75Item
                  9A.
              Controls
                  and Procedures
              
              75Item
                  9B.
              Other
                  Information
              
              77PART
                  III
              
              
              78Item
                  10.
              Directors,
                  Executive Officers and Corporate Governance
              
              78Item
                  11.
              Executive
                  Compensation
              
              80Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              94Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              
              95Item
                  14.
              Principal
                  Accounting Fees and Services
              
              96PART
                  IV
              
              
              98Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              
              98Signatures
              
              
              99





**PART
      I**




**ITEM
              1.**
            **BUSINESS**




**Background**




NDS
      Group
      plc is domiciled in the United Kingdom, incorporated in Great Britain and
      registered in England and Wales. As used in this Annual Report on Form 10-K,
      references to “NDS”, the “Company”, “we”, “us” or “our” are to NDS Group plc and
      its subsidiaries. We are engaged in the business of supplying open end-to-end
      digital technology and services to digital pay-television platform operators
      and
      content providers. We have customers throughout the world and we have research
      and development facilities, customer support operations and administrative
      offices in the United Kingdom, Israel, France, Denmark, Germany, India, China,
      Hong Kong, South Korea, Australia and the United States. As of June 30, 2008,
      we
      had 3,961 employees. There is a common management structure across the Company,
      which ensures that our various subsidiary entities operate in a coordinated
      and
      complementary manner. We manage our business as a single segment.




We
      are a
      majority owned subsidiary of News Corporation, a Delaware corporation (“News
      Corporation”), which is a diversified entertainment company, and we conduct
      business transactions with a number of affiliates and subsidiaries of News
      Corporation.




On
      June
      27, 2008, our Board of Directors (the “Board”) announced the receipt of a
      proposal from News Corporation and two subsidiaries (the “Permira Newcos”) of
      funds advised by Permira Advisers LLP (“Permira”) for a transaction that, if
      consummated, would result in NDS ceasing to be a public company and the Permira
      Newcos and News Corporation owning approximately 51% and 49% of NDS’s
      outstanding equity, respectively. The Board appointed a committee of independent
      directors (the “Independent Committee”) to review the proposed transaction and
      the Independent Committee appointed its own legal and financial advisers.




On
      August
      5, 2008, we announced that the Independent Committee reached an agreement in
      principle with News Corporation and the Permira Newcos on a price at which
      they
      would acquire all of our issued and outstanding Series A ordinary shares, par
      value $0.01 per share (“Series A Ordinary Shares”), including those represented
      by American Depositary Shares (“ADSs”) traded on The NASDAQ Stock Market
      (“NASDAQ”). The price announced was $63 per share in cash. The transaction is
      subject to negotiation and execution of final legal documentation. The
      consummation of the transaction is also conditioned upon the approval of the
      transaction by holders of our Series A Ordinary Shares, the approval of the
      High
      Court of Justice of England and Wales, the receipt of certain regulatory
      approvals and certain other customary closing conditions. There can be no
      assurance that the parties will enter into final legal documentation or that
      any
      transaction will be consummated.




Our
      principal executive offices are located at One Heathrow Boulevard, 286 Bath
      Road, West Drayton, Middlesex, UB7 0DQ, England and our telephone number is
      +44 20 8476 8000. Our website is www.nds.com. We make available, free of charge
      through our website, our Annual Reports on Form 10-K, Quarterly Reports on
      Form
      10-Q, Current Reports on Form 8-K and amendments to those reports filed or
      furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”), as soon as reasonably practicable after
      such material is electronically filed with or furnished to the Securities and
      Exchange Commission (“SEC”). Such documents may also be read by the public at
      the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
      The public may obtain information on the operation of the Public Reference
      Room
      by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website
      (http://www.sec.gov) that contains reports, proxy and information statements,
      and other information regarding issuers, including the Company, that file
      electronically with the SEC.




The
      Company maintains a 52-53 week fiscal year, ending on the Sunday nearest to
      June
      30 of each year. In this Annual Report on Form 10-K, financial and statistical
      information is, unless otherwise indicated, stated on the basis of such fiscal
      year.




NDS,
      VideoGuard, VideoGuard Mobile, Value@TV, MediaHighway, MediaHighway Core,
      MediaHighway Advanced, XTV, Synamedia, NDS Metro, OpenBet, OpenRG, Visionik
      Games, Orbis and Secure Video Processor (SVP) are either trademarks or
      registered trademarks of NDS in one or more countries worldwide. This Annual
      Report on Form 10-K also includes trade names and trademarks of companies other
      than NDS. For the convenience of the reader, our customers sometimes are
      referred to by their common trading names and not the names of the specific
      legal entities with which we contract or the legal name of the parent entity
      of
      such party.


Page
          1




**Special
      Note Regarding Forward-Looking Statements**




This
      document and the documents incorporated by reference into this Annual Report
      on
      Form 10-K, including “Item 7: Management’s Discussion and Analysis of Financial
      Condition and Results of Operations,” contain statements that constitute
“forward-looking statements” within the meaning of Section 21E of the Exchange
      Act and Section 27A of the Securities Act of 1933, as amended. The words
“expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions
      and variations thereof are intended to identify forward-looking statements.
      These statements appear in a number of places in this document and include
      statements regarding the intent, belief or current expectations of the Company,
      our directors or executive officers with respect to, among other things, trends
      affecting our financial condition or results of operations. The readers of
      this
      document are cautioned that any such forward-looking statements are not
      guarantees of future performance and involve risks and uncertainties. More
      information regarding these risks, uncertainties and other factors is set forth
      below in Item 1A: “Risk Factors.” We do not ordinarily make projections of our
      future operating results and undertake no obligation (and expressly disclaim
      any
      obligation) to publicly update or revise any forward-looking statements, whether
      as a result of new information, future events or otherwise, except as required
      by law. Readers should carefully review this document and the other documents
      filed by us with the SEC. This section should be read in conjunction with our
      consolidated financial statements and related notes set forth elsewhere in
      this
      Annual Report on Form 10-K.




**Business
      Overview**




We
      supply
      open end-to-end digital technology and services to digital pay-television
      platform operators, and content providers. Our technologies include conditional
      access and microprocessor security, broadcast and broadband stream management,
      set-top box and residential gateway middleware, electronic program guides
      (“EPGs”), digital video recording (“DVR”) technologies and interactive
      infrastructure and applications. Middleware and DVR technologies are deployed
      on
      third-party hardware devices, such as set-top boxes, residential gateway devices
      and PCs; we refer to these deployments as middleware clients and DVR clients,
      respectively. We provide technologies and services supporting standard
      definition and high definition television and a variety of industry, Internet
      and Internet protocol (“IP”) standards, as well as technology for mobile
      devices. Our software systems, consultancy and systems integration services
      are
      focused on providing platform operators and content providers with technology
      to
      help them profit from the secure distribution of digital information and
      entertainment to consumer devices that incorporate various technologies supplied
      by us.




We
      consider that we operate as a single segment and our business is managed as
      such. We have no separate divisions or profit centers. We assess the financial
      performance of our business by reviewing specific revenue streams in the
      aggregate and by customer. We assess our costs by considering individual cost
      centers and their aggregation into general cost categories. An analysis and
      discussion of our various revenue streams and cost categories is provided in
      Item 7: “Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.” An analysis and discussion of our profits and losses and our
      total assets is provided in Item 8: “Financial Statements and Supplementary
      Data.” A geographic analysis of the sources of our revenues for each of the last
      three fiscal years is given in Note 16 to our consolidated financial statements,
      as is information about the location of our long-lived assets.




Our
      business has grown by a combination of new customer contracts and, to a lesser
      extent, by acquisitions. Our customer contracts typically have terms of several
      years and are frequently structured such that our revenues are related to the
      success of our customers in attracting and retaining subscribers and the use
      made of our software and services by our customers and their
      subscribers.




**Customers**




Our
      main
      customers are the digital pay-television platform operators that utilize a
      broadcast and/or broadband distribution infrastructure to deliver video and
      data
      to multiple subscribers. A broadcast distribution infrastructure consists of
      three main elements:




1)
            a
                broadcast head-end, which includes technologies that encrypt and
                package
                the video and other data into a broadcast
                stream;




2)
            a
                distribution system, which transmits the broadcast stream (*e.g*.,
                via satellite, broadband, cable or terrestrial) to an end user. The
                distribution infrastructure may contain a “return path,” which is a means
                for communications to be sent from the subscriber back to the broadcaster;
                and




3)
            a
                set-top box, which converts the broadcast signal into television
                video.
                Conditional access technologies (which may include a smart card inserted
                into the set-top box) ensure that subscribers can only decrypt content
                that they have been authorized by the platform operator to receive.
                The
                set-top box also contains the technologies, including middleware,
                that
                enable the consumer to use features such as EPGs, DVRs and interactive
                applications.




Viewers
      of a digital pay-television service, who are subscribers of the platform
      operator or the content provider, are users of our technology but are not our
      customers because we have no direct commercial relationship with
      them.


Page
          2




We
      supply
      technologies that are components within either the broadcast head-end or in
      the
      set-top box. We supply smart cards and chip security technologies for set-top
      boxes and provide security services to help monitor and maintain the security
      of
      the broadcast platform. Our technologies have been implemented for use on a
      variety of distribution systems.




A
      platform operator can broadcast to an increasing number of subscribers by adding
      additional set-top boxes and the associated smart cards, without the need to
      add
      additional components to the head-end until operating limits are reached and
      head-end upgrades required. Therefore, a broadcast platform is scalable subject
      to its operating limits. The fees we charge relate primarily to the number
      of
      subscribers and/or smart cards related to that platform operator. A part of
      our
      revenue growth is derived from platform operators’ subscribers increasing the
      number of set-top boxes in their homes and upgrading their set-top boxes to
      newer models that contain additional functionality.




Recently,
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. Should
      this
      activity become more widespread, it could materially adversely affect our
      revenues.




We
      have
      also created solutions to enable platform operators to securely deliver content
      to other platforms and devices, including personal computers, mobile telephones,
      portable media players and external storage devices. These solutions often
      include a security element, as well as middleware, EPGs and
      interactivity.




In
      addition to selling to platform operators, we may sell interactive applications
      to content providers. Such customers usually do not operate a broadcast
      platform, but provide content for transmission over a platform operator’s
      network. The applications we sell to content providers make use of the functions
      and capabilities of the broadcast infrastructure.




We
      work
      with suppliers of other components of a broadcast and broadband platform, such
      as broadcast equipment, network equipment, set-top box, and residential gateway
      device manufacturers. We integrate our technologies with the products
      manufactured by these suppliers to provide a platform operator with the required
      functionality. A particular platform operator may purchase some components
      from
      our competitors.




We
      are
      committed to developing industry co-operation by actively participating in
      many
      key standards organizations. We use these forums proactively to promote
      standards that maximize interoperability and enable broadcasters and platform
      operators to meet the challenge of integrating broadcast, information and
      telecommunications technologies.




Our
      technology is integrated into set-top boxes manufactured by most of the major
      consumer electronics manufacturers. In order to provide platform operators
      and
      subscribers with greater choice and security of supply, it is important that
      our
      technologies be integrated into as many different types of set-top boxes,
      computer chips (which are incorporated into the set-top boxes) and other
      broadcast equipment as possible. This also aids price competition to the benefit
      of our customers.




Our
      sales
      teams operate in the United Kingdom, Europe and the Middle East, the United
      States, Latin America and the Asia-Pacific region. They are supported by
      regional marketing activity designed to promote awareness of our company and
      our
      technologies and services in each region. We may bid jointly with broadcast
      equipment manufacturers, system integrators and consumer electronics
      manufacturers for projects to implement a new platform.




During
      the fiscal year ended June 30, 2008, three customers each accounted directly
      and
      indirectly for more than 10% of our revenues. These customers and the percentage
      of our fiscal 2008 revenues that they contributed were: The DIRECTV Group,
      Inc.
      (“DIRECTV”) in the United States (26.5%); British Sky Broadcasting Group plc
      (“BSkyB”) in the United Kingdom and Ireland (20.9%); and Sky Italia S.r.l. (“SKY
      Italia”) in Italy (10.8%). BSkyB and SKY Italia, as well as some other customers
      of ours, are businesses in which News Corporation has an interest. Information
      about our business transactions with related parties is provided in Note 11
      to
      our consolidated financial statements.




**Competition**




We
      compete primarily with technologies such as NagraVision (developed by Kudelski
      SA), DigiCipher (developed by Motorola, Inc.), Power Key (developed by
      Scientific-Atlanta, Inc.), OpenTV (developed by OpenTV Corp.) and Microsoft
      Mediaroom (developed by Microsoft Corporation) both to attract new customers
      and
      to retain our existing customers. In addition, some of the companies that
      currently operate in the set-top box and/or software business, but which have
      not historically been active competitors of ours, may, through acquisitions
      or
      the development of their own resources, seek to enter and obtain significant
      market share in our current or planned business areas.




Competition
      is intense and, in addition to price and commercial terms, we consider our
      key
      differentiators to be:




·
            the
                level of security that our technologies offer to a platform operator
                and
                our ability to maintain that
                security;




·
            the
                quality and ease of use of our
                systems;


Page
          3




·
            the
                availability of our other software elements, such as middleware,
                interactive software, EPG and DVR, which allow a platform operator
                to
                provide additional services;




·
            the
                availability of set-top boxes and residential gateway devices offered
                by
                manufacturers with whom our technology is integrated;
                and




·
            the
                ability of our conditional access technology to work alongside that
                of a
                competitor’s in a process known as “simulcrypt,” which allows a platform
                operator to replace one conditional access system with another in
                a
                controlled manner without disabling a legacy population of set-top
                boxes.




**Technologies
      and Services**




We
      offer
      technologies and services in the following main areas:




·
            conditional
                access systems and services;




·
            middleware;




·
            DVR
                technologies;




·
            broadband
                and IPTV;




·
            interactive
                television infrastructure and applications;
                and




·
            design,
                integration and support services.




The
      technologies deployed at the platform operator’s head-end and in the consumer
      device are tightly integrated and are an essential component of a digital
      pay-television network and the channels and other content carried. Our customers
      may purchase technologies and services from us in one or more of these main
      areas. The technologies and services we provide comprise a single business
      segment from which we derive a number of different revenue streams. A discussion
      of these revenue streams and a quantitative commentary on our business is given
      under Item 7: “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.” Our main technology solutions and services are discussed
      in more detail below.




**Conditional
      Access Systems and Services**




Conditional
      access systems are an essential component of a pay-television platform.
      Conditional access systems enable our customers to manage and control the secure
      distribution of entertainment and information, whether distributed by broadcast
      or broadband media (including cable, satellite, terrestrial, telephone network,
      the Internet, etc.). Conditional access systems provide two primary functions;
      first, they protect content from unauthorized viewing, redistribution and
      piracy, and second, they enable our customers to charge subscribers for a
      selected content package or event.




Our
      conditional access systems are marketed under the name “VideoGuard.” Our
      VideoGuard family of systems is compatible with all internationally accepted
      digital television transmission standards. VideoGuard conditional access systems
      include:




·
            software
                components that are installed on dedicated server systems at the
                platform
                operator’s head-end and which are responsible for interfacing with the
                platform operator’s subscriber management system, back-office and billing
                systems and play-out and transmission management
                systems;




·
            technologies
                that are integrated in the set-top box and which, if authorized,
                permit
                the decryption of content and which also support various functions
                essential to the EPG, DVR functionality, return path communication
                and
                interactive applications; and




·
            a
                removable smart card that is inserted into each set-top box and contains
                an embedded computer chip that, if authorized, generates code words
                used
                by the set-top box to decrypt and display the relevant content. The
                smart
                card is manufactured under strict security conditions by third-party
                manufacturers, based on proprietary designs provided by
                us.




All
      of
      our smart cards are tested, programmed and dispatched from one of our two
      facilities, which are located in the United Kingdom and in the United States,
      and together are capable of embedding computer chips in up to 60 million smart
      cards per year. During the fiscal year ended June 30, 2008, we distributed
      37.3
      million smart cards.


Page
          4




We
      maintain a proactive security policy by use of in-house security designs,
      careful selection of a variety of chip platforms for deployment by customers
      and
      by implementing, when necessary, electronic over-the-air countermeasures
      altering authorized smart cards in a manner which then renders counterfeit
      smart
      cards obsolete. We may also provide our customers with a new generation of
      smart
      cards from time to time, which enable new features and up-to-date technology
      to
      be introduced. Certain of our customers may proactively replace all their smart
      cards with the new generation of smart cards (“changeover cards”). Our smart
      cards are customized to meet each of our customers’ requirements. The security
      of our smart cards has not been compromised in recent years. Accordingly,
      certain customers have delayed or restricted plans to complete card changeovers.
      This change in approach has been reflected in recently amended contract terms
      with certain of our customers and we expect this to result in lower conditional
      access revenues in future years.




As
      of
      June 30, 2008, 90.3 million set-top boxes with VideoGuard conditional access
      technology were in use, an increase of 14.9 million since June 30, 2007.
      Our largest conditional access customers and their region of operation include
      DIRECTV (United States), BSkyB (United Kingdom), SKY Italia (Italy), DIRECTV
      PanAmericana (Latin America), Sky Mexico (Mexico), Sky Brasil (Brazil), FOXTEL
      (Australia), SkyLife (South Korea), TataSky (India), YES (Israel), HOT (Israel),
      Cablevision (U.S.), Shenzhen Media Group (China), Chonqing Cable (China), and
      Viasat (Scandinavia).




**Middleware**




In
      distributed computing systems, “middleware” is the software layer that lies
      between the operating system and the applications. In the context of digital
      television set-top boxes, middleware provides a means for a single application
      to run on set-top boxes developed by different manufacturers. It therefore
      provides the pay-television platform operator with the ability to offer
      subscribers the same application and user experience irrespective of the model
      of set-top box used by that subscriber. The combination of our conditional
      access technologies and set-top box middleware enables applications to be run
      on
      the set-top box in a standard, controlled and secure manner. This allows our
      customers to enhance their subscribers’ experience by providing a user friendly,
      always on, fast audio and video environment capable of supplying various
      interactive services, such as EPGs, shopping, e-mail, games, banking,
      advertising and other services.




We
      provide a full range of middleware solutions, which include:




·
            MediaHighway
                Core – an easily upgradeable middleware solution that allows platform
                operators to deploy a wide range of services, including EPGs, interactive
                applications and DVRs, quickly and cost effectively on low cost set-top
                boxes;




·
            MediaHighway
                Advanced – a multi-tasking middleware solution that runs on fully
                featured set-top boxes. The architecture and features of MediaHighway
                Advanced support complex systems such as home networking with broadband
                access. MediaHighway Advanced complies with the major television
                and
                Internet open standards, including DVB-MHP, HTML 4.0, OCAP and JavaScript;
                and




Jungo,
      our wholly owned subsidiary, is an Israeli-based developer and supplier of
      software for residential gateway devices under the product name OpenRG. Our
      ownership of Jungo allows us to provide the underlying software for both the
      residential gateway device, as well as the set-top box, and allows us to develop
      integrated solutions for enhanced IPTV and broadband services. In addition,
      we
      expect that the collaboration between these two devices in the home network
      will
      allow platform operators to introduce new services, such as enabling the set-top
      box to access music, video and pictures stored on personal computers in the
      home
      network, archiving of digital content stored on a DVR and video conferencing
      via
      VoIP.




Approximately
      30.7 million middleware clients, which include both MediaHighway middleware
      solutions and OpenRG residential gateway devices, were deployed during the
      fiscal year ended June 30, 2008, bringing the cumulative total number of
      middleware clients deployed as of June 30, 2008 to 92.5 million. Our largest
      middleware customers and their regions of operation include: DIRECTV (United
      States); Canal Satellite (France); Digital Plus (Spain); Canal Digital
      (Scandinavia); Sky Mexico (Mexico); Sky Brasil (Brazil); DIRECTV Latin America
      (Latin America); Premiere (Germany); Astro/Measat (Malaysia); TataSky (India);
      and YES (Israel). We are working on projects for deployment of our middleware
      and residential gateway devices to other customers in fiscal 2009.




**DVR
      Technologies**




We
      have
      developed a DVR technology called “XTV” which extends the television viewing
      experience by integrating mass-storage devices, such as hard drives, in set-top
      boxes. The XTV-enabled set-top boxes and head-end systems are tightly integrated
      with our conditional access technologies, ensuring that the content in the
      subscriber’s set-top box is stored in encrypted form so that viewing, copying or
      distribution can be controlled by the platform operator or content
      owner.




XTV
      uses
“meta-data” (data about data) embedded in the broadcast stream to provide
      services and functionality that are not readily available in other products
      that
      focus only on managing the hard disk that is integrated in the set-top box
      or
      digital television. We do not manufacture or market the set-top box which forms
      the basis of the DVR, but we license our technology to platform operators and
      consumer electronics manufacturers who supply the markets in which our platform
      operator customers operate.


Page
          5




Our
      XTV
      technology is being deployed by the following customers: DIRECTV (United
      States), BSkyB (United Kingdom), FOXTEL (Australia), Sky Brasil (Brazil), Sky
      Mexico (Mexico). SKY Television (New Zealand), SKY Italia (Italy), Viasat
      (Scandinavia), DIRECTV Latin America (Latin America), YES (Israel) and HOT
      (Israel). We are working on projects for deployment of our XTV technologies
      to
      other customers in fiscal 2009.




We
      also
      have a DVR technology that is an extension of our MediaHighway middleware but
      which is sold independently of our conditional access technologies. This
      technology is used by Canal Satellite in France and Sogecable in
      Spain.




As
      of
      June 30, 2008, we estimate that a cumulative 13.1 million DVR clients have
      been
      deployed, an increase of 5.8 million since June 30, 2007.




**Broadband
      and IPTV**




Our
      technologies and systems for broadband and IPTV are marketed under the
“Synamedia” and “NDS Metro” names. Synamedia incorporates our technologies for
      IPTV middleware, user interfaces, personalization, content protection and rights
      management. It provides a broadband platform operator with the ability to offer
      television services, such as video-on-demand (“VOD”), multi-cast television,
      video streaming, content guides, interactive applications, secure commerce
      and
      DVR-type functionality.




In
      conjunction with our broadband and IPTV technologies, our VideoGuard security
      system protects content at all stages of delivery, from the broadband access
      point to the set-top box in the home. Once content is received inside the home,
      VideoGuard protects the valuable digital content from piracy, whether it is
      stored locally or routed through a home network. VideoGuard uses content
      encryption and a secure key management system that allows IPTV set-top boxes
      to
      be used for viewing content on a television screen.




Our
      broadband and IPTV technologies provide content protection for:
      telecommunications companies wanting to introduce new video and television
      services; content providers and broadband broadcasters considering IPTV
      broadcasting and VOD services; cable television companies considering phone
      networks or Fiber To The Home as an alternative to digital cable; and satellite
      or terrestrial broadcasters considering VOD over IPTV to complement their
      traditional broadcast business.




In
      August
      2007, we acquired CastUp, Inc. (“CastUp”), an Israeli provider for the hosting,
      management and distribution of video over the Internet. We believe that the
      acquisition of CastUp will provide us with substantial know-how and experience
      in online video delivery and will afford us access to technologies that will
      help our current pay-TV customers expand their broadband video distribution
      services as well as potentially attracting new customers. We believe that
      CastUp’s rich media technology will also help us to develop new enhanced
      services and applications for broadband enabled set-top boxes.




Among
      our
      broadband and IPTV customers are Sebia Broadband (Serbia), CYTA (Cyprus),
      Sistema (Russia), Viasat (Scandinavia), RomTelecom (Romania), Korea Telecom
      (Korea), Telekom Austria (Austria) and SES-Americom (United States). Some of
      these systems are being trialed and there is no assurance that they will be
      widely deployed.




Numerous
      companies offer competing technologies in the area of broadband and IPTV,
      including telecommunications companies and businesses which supply software
      to
      the personal computer market.




**Interactive
      Television Infrastructure and Applications**




Our
      “Value@TV” set of solutions provide a suite of tools supporting the creation,
      packaging, delivery and management of interactive content and applications
      for
      broadcast content. We also offer a suite of standardized applications that
      can
      be licensed by, or customized for, a particular application. These applications
      include EPG, games and gaming (which we sell under the “Visionik Games” and
“Orbis” brand names), voting, sports applications, news, commerce, interactive
      advertising and other enhanced television applications. Our Value@TV solutions
      are integrated with our VideoGuard technologies to enable secure communication
      from the set-top box to the head-end via the return path where security is
      essential to the application, for example where purchase transactions are
      initiated.




Most
      of
      our major broadcast platform operator customers use aspects of our Value@TV
      solution. We also supply technology and applications to numerous channel and
      content providers operating on these platforms.




Our
      “OpenBet” software is used by licensed bookmakers and gaming organizations as a
      platform for Internet and television-based bookmaking and gaming operations.
      Although such bookmaking and gaming operations are generally prohibited in
      the
      United States, their use is permitted in several other jurisdictions, including
      the United Kingdom. OpenBet allows a single operator to create multiple betting
      sites ( *e.g* .,
      retail
      locations, Internet and television) all powered by the same OpenBet server.
      It
      has two main elements: the OpenBet database engine and the OpenBet game
      framework. The OpenBet database engine is the core of the system. It contains
      all the central features required by any gambling site, including customer
      accounts, registration and identity validation, electronic payment, event
      management, liability management and monitoring, multi-currency and
      multi-lingual functions, regulatory compliance, administration and reports.
      The
      OpenBet game framework allows operators to offer games, which may be developed
      by us or by third parties. Different types of games can be offered, such as
      sports betting, casino games, lottery games and fantasy
      competitions.


Page
          6




OpenBet
      is used by many of the major bookmakers in the United Kingdom and some companies
      in the Asia-Pacific region. OpenBet is also used by several bookmakers and
      gaming companies that operate specialist channels or applications on the BSkyB
      platform. We do not sell OpenBet to companies that to our knowledge offer
      bookmaking and gaming operations in the United States or accept bets from the
      United States, and only sell OpenBet to companies that operate in tightly
      regulated markets. We include in each of our licensing arrangements appropriate
      measures and undertakings to protect against bets being accepted from persons
      in
      the United States or any other jurisdiction where such activities are or may
      be
      prohibited by law. This policy limits the potential market for
      OpenBet.




**Design,
      Integration and Support Services**




We
      complement our technologies with a wide range of services, including consulting,
      broadcast system design and integration, support and maintenance and, in some
      cases, on-site operation and management of systems we have supplied to our
      customers. Our experience in implementing large and complex systems has enabled
      us to provide services to assist companies in planning and designing new
      platforms. System integration involves both the selection of appropriate vendors
      and the integration of various components, including those of third-party
      manufacturers, into a single operational broadcast system. In some cases, we
      may
      act as prime integrator and subcontract aspects of the work to third parties.
      In
      other cases, we may be a subcontractor to a third-party prime integrator. Once
      our customers’ systems are operational, we offer them after-sale services,
      including ongoing support and maintenance.




**Intellectual
      Property**




Our
      technology and intellectual property are critical to our success. We need to
      protect our intellectual property rights, both in our proprietary technology
      and
      in technology which is licensed to us. We rely on a combination of patent,
      copyright and trademark laws, trade secrets, licenses, confidentiality
      agreements and contractual provisions to protect our proprietary rights. We
      generally enter into confidentiality and non-disclosure agreements with our
      employees, customers and suppliers.




We
      have a
      worldwide non-exclusive license to use certain patents owned by Thomson SA
      which
      support our MediaHighway middleware technologies. We are also a non-exclusive
      licensee of intellectual property rights owned by various third parties. These
      rights have been acquired by the payment of a fixed sum or ongoing
      royalty.




We
      work
      on the development of high security encryption algorithms. These are
      mathematical procedures implemented in hardware or software that are used to
      accomplish a specific function, such as encrypting or decrypting data, messages
      or video signals by means of secret keys and code words. Our security research
      team has developed a number of proprietary high-security encryption algorithms
      used in our conditional access systems.




Our
      computer chip design team has developed a number of proprietary improvements
      to
      the security and functionality of computer chips that we integrate into our
      smart cards and which are located in set-top boxes. Such improvements include,
      for example, functions that hinder the unauthorized duplication of our smart
      cards or hinder the use of counterfeit smart cards in a set-top
      box.




We
      have
      developed a number of techniques that allow us to send specially disguised
      and
      encoded messages that disable or alter the operating characteristics of our
      smart cards. These technologies allow our customers to disable the smart cards
      of delinquent subscribers. In addition, they allow our customers to combat
      signal theft more effectively by altering the operating characteristics of
      all
      valid smart cards in a way which makes counterfeit smart cards incompatible
      with
      the signals transmitted by our customers. We have developed sophisticated
      protocols for transmitting authorization, entitlement and other control messages
      to smart cards. These protocols allow control messages to be compressed in
      a way
      which consumes only a small fraction of the broadcaster’s bandwidth, allowing
      the broadcaster to transmit more programs and channels to its subscribers
      without having to compromise its ability to control each individual subscriber’s
      viewing entitlements.




We
      actively consider how to best protect our technology, which may include patents.
      We then analyze the particular technology and consider a number of criteria,
      including the business case and feasibility, in determining whether to apply
      for
      a patent for the technology. If we deem it appropriate, we proceed with the
      patent application process. In addition, we implement policies and procedures
      to
      safeguard our intellectual property. We continually review our patent decisions,
      as well as our security policies and procedures, in order to ensure that our
      intellectual property is protected appropriately. As of June 30, 2008, we had
      309 patents issued and 444 patent applications pending throughout the
      world.


Page
          7




**Research
      and Development**




Our
      total
      expenditure on research and development in the three fiscal years ended June
      30,
      2008, 2007 and 2006 was $198.9 million, $174.4 million, and $145.5
      million, respectively. This includes the cost of research into new technologies
      that may be of future benefit to us and our customers and the cost of developing
      prototype applications for demonstration to customers and potential
      customers.




The
      largest research and development projects have been on set-top box software,
      particularly the development of advanced middleware, EPG and DVR technologies
      and the adaptation of these technologies for high definition
      services.




We
      are
      also investigating how aspects of our technology may be applied to content
      protection more generally. Consumers are increasingly expecting more flexibility
      as to the place and time they view digital content. A key issue for content
      owners and distributors is that once the digital content is moved to an
      unprotected environment outside their control, it can be copied, redistributed
      and viewed in its original quality, illegally or without the content owners’
ability to generate revenues from such use.




Our
      Secure Video Processor (“SVP”) technology addresses this issue by providing a
      rights management standard scheme using hardware based security such that
      content may be transferred to an authorized device which has an SVP chip in
      it.
      The SVP chip is created by incorporating SVP technologies into an existing
      video
      processor chip which can then be integrated into a consumer electronics device,
      such as a digital television, set-top box, personal video recorder, DVD or
      MP3
      player, mobile phone and other portable or storage devices. An SVP-enabled
      chip
      controls both the content and the license to use that content.




Our
      technologies and systems for mobile digital rights’ management (“DRM”) solutions
      are marketed under the “VideoGuard Mobile” name. VideoGuard Mobile is a head-end
      to handset secure content solution for mobile phones, aimed at assisting
      companies who wish to distribute valuable content to mobile phones in protecting
      the content revenues from threats of piracy and providing flexible business
      models that raise revenues and increase network traffic. Our solutions are
      compliant with the main technology standards and support multiple delivery
      mechanisms, including downloading, streaming, unicasting, multicasting,
      broadcasting, secure billing and payments.




The
      market for technologies which extend the use of digital content in a secure
      way
      beyond broadcast television is in the early stages of development and we may
      be
      unsuccessful in earning significant revenues from our content protection
      technologies.




**Regulation**




Our
      technology is used by broadcasters and our customers may therefore be subject
      to
      regulation in the jurisdictions in which they offer their services. Applicable
      regulations, which differ from jurisdiction to jurisdiction, and future changes
      or additions to such regulations, may affect our ability to sell technologies
      and services.




In
      certain jurisdictions, applicable regulations may require cable television
      operators to accommodate CableCARD technology. NDS technology supports CableCARD
      and we have already deployed such solutions in Korea. We do not believe these
      regulations will have a material impact on our business.




We
      do not
      operate as a bookmaker. However, our OpenBet software is a betting and gaming
      application supplied to bookmakers. Our customers are therefore subject to
      regulation in the jurisdictions in which they offer their services. This may
      involve the independent certification of our software. In many jurisdictions,
      betting and gaming regulations are being reviewed, specifically to address
      betting and gaming on the Internet and television. It is possible that our
      customers will become subject to new regulations in this area. The current
      regulations, which differ from jurisdiction to jurisdiction, and any future
      changes in such regulations, may affect our ability to sell our technologies
      and
      services related to betting and gaming. Internet betting and gaming operations
      are generally prohibited in the United States, and we do not offer our OpenBet
      software to customers that to our knowledge offer bookmaking or gaming
      operations in the United States or accept bets from the United
      States.




**Raw
      Materials**




We
      do not
      manufacture smart cards, but our engineers design the computer chips which
      are
      embedded in our smart cards. We arrange for the computer chips to be
      manufactured and assembled by third-party suppliers. Smart card costs are
      dependent upon the costs of raw materials, including the cost of computer chips,
      plastic and assembly, and the quantity of smart cards purchased and processed
      in
      any period.


Page
          8




We
      purchase the computer chips which are contained within our smart cards from
      third-party manufacturers. There are very few companies with the manufacturing
      skills and capacity to supply our requirements for smart card chips, especially
      given the sophistication of our designs. Additionally, we often use a single
      manufacturer for a particular generation of smart card for a particular
      customer. Accordingly, any disruption to supply or lack of availability of
      manufacturing capacity at our computer chip suppliers could harm our ability
      to
      deliver smart cards to our customers or could negatively affect our operating
      margins.




**Order
      Backlog**




Our
      customer contracts are typically long-term arrangements for the supply of smart
      cards, security and other services, initial systems, subsequent system
      enhancements and other aspects of our technologies. Therefore, we do not
      consider it material to an understanding of our business to quantify order
      backlog.




**Seasonality**




Our
      business is not seasonal. However, demand for smart cards can be influenced
      by
      the consumer marketing activities of our broadcast platform customers and the
      timing of delivery of technology enhancements can also be influenced by such
      activities.




**Working
      Capital**




We
      hold
      inventory of smart cards and their components in anticipation of demand from
      our
      customers. Because smart cards supplied to different platform operators are
      unique or contain unique features, particular types of smart cards held in
      inventory may not be useable for any customer other than the one for which
      they
      were purchased. The lead times for smart card procurement are frequently much
      longer than the period covered by firm order commitments from our customers.
      Accordingly, we may have to make inventory purchases in anticipation of customer
      orders that may never be received and we may purchase inventory some months
      in
      advance of smart cards being supplied to our customers.




Certain
      of our security maintenance contracts include an obligation for us to provide
      additional smart cards in the future. Revenue received but deferred in respect
      of this security maintenance obligation amounted to $135.2 million as of June
      30, 2008. We will make inventory purchases in future periods in order to satisfy
      our smart card supply obligations in respect of these cards. As of June 30,
      2008
      we had received other payments in advance of meeting other customer contract
      obligations of approximately $72.2 million.




**ITEM
              1A.**
            **RISK
                FACTORS**




Prospective
      investors should consider carefully the risk factors set out below before making
      an investment in our securities.




**Our
      business will suffer if we do not respond to commercial and technological
      changes affecting the broadcasting industry.**




Our
      business and the market in which we operate are characterized by rapid
      commercial and technological change, evolving industry standards and frequent
      product enhancements. Many digital broadcasters are seeking more sophisticated
      software that will afford them greater flexibility in delivering content such
      as
      news, films and sports. They are also seeking to offer additional services,
      such
      as middleware, EPGs, games, gaming and other interactive applications, DVR
      functionality, home networking and other services.




Our
      continued success will depend, in part, upon our ability to develop and market
      products and services that respond to technological changes and evolving
      industry standards in a timely and cost-effective manner. If the market in
      which
      we operate develops more slowly than we anticipate, or if we should fail to
      develop and introduce products and services that are compatible with industry
      standards, satisfy customer requirements and compete effectively with products
      and services offered by our competitors, our business, operating results and
      financial condition could be materially adversely affected.


Page
          9




**Our
      business may suffer if we and our customers do not respond to commercial and
      technological changes affecting** **the
      business of delivering information and entertainment, especially the threat
      of
      the Internet and broadband and IPTV** **technologies.**




Our
      customers are mainly pay-television platform operators. As technologies develop,
      other means of delivering information and entertainment to consumers’
televisions are evolving. In particular, telecommunication companies and
      Internet service providers are competing with traditional television companies.
      Cable television and mobile telephone companies are now also marketing packages
      that combine television, telephone and high-speed Internet access to consumers.
      As a result, our largest customers are facing increased competition that could
      affect their ability to attract and retain subscribers. If we and our customers
      do not address these commercial and technological changes, our business,
      operating results and financial condition could be materially adversely
      affected.




**Our
      operating results and growth could decline if our customers’ subscriber bases do
      not continue to increase or if our customers otherwise purchase fewer smart
      cards or purchase smart cards on less favorable terms to
      us.**




A
      significant portion of our revenue is derived from the sale of smart cards
      to
      our customers and ongoing fees paid by our customers on a monthly basis based
      on
      the number of active subscribers or authorized smart cards. We may also receive
      royalties based on each set-top box manufactured or deployed that incorporates
      our technologies. Therefore, a significant portion of our revenue is dependent
      upon our customers’ subscriber numbers, the growth in subscriber and set-top box
      numbers, the degree to which set-top boxes are replaced with enhanced models
      and
      the number of set-top boxes in each subscriber’s home. If our customers’
subscriber numbers do not continue to increase, we may be unable to generate
      substantial revenue growth or sustain our current revenue levels and, as a
      consequence, our business, operating results and financial condition could
      be
      materially adversely affected.




Recently,
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. Should
      this
      activity become more widespread, it could materially adversely affect our
      revenues. In addition, the security of our smart cards has not been compromised
      in recent years. Accordingly, certain customers have delayed or restricted
      plans
      to complete card changeovers. This change in approach has been reflected in
      recently amended contract terms with certain of our customers and we expect
      this
      to result in lower conditional access revenues in future years.




**Our
      business could be harmed if the security provided by our conditional access
      systems and products is compromised.**




We
      face
      risks relating to the failure of our conditional access systems to protect
      platform operators and content providers from signal theft. An important
      component of our conditional access systems is the smart cards we provide for
      the platform operators’ individual subscribers. Unauthorized viewing and use of
      content may be accomplished by counterfeiting the smart card or otherwise
      thwarting the security features of the conditional access system. Any
      significant increase in the incidence of signal theft could require us to
      replace a population of a platform operator’s smart cards or take other remedial
      action. In those cases where we have accepted specific responsibilities for
      maintaining the security of a platform operator’s conditional access system,
      significant costs could be imposed on us if a security breach requires us to
      replace a population of smart cards or take other action to rectify the problem.
      To the extent that signal theft may result in the cessation of all, or some
      portion of, the per-subscriber fees paid to us by a broadcaster while the
      security breach is being remedied or, in the event of termination by the
      broadcaster of our agreement if the breach is not satisfactorily remedied,
      the
      resultant loss of revenue could have a material adverse effect on our business,
      operating results and financial condition. A significant increase in the level
      of signal theft, whether or not resulting from a failure of our conditional
      access systems, could also injure the reputation of our conditional access
      systems among our customers and potential customers and, as a consequence,
      our
      business, operating results and financial condition could be materially
      adversely affected.




**A
      substantial part of our expected future revenue and income growth is based
      on
      our aim to sell advanced technologies and services to our existing customers
      and
      to sell end-to-end systems to new customers.**




We
      expect
      over the next several years to sell advanced technology solutions for the
      television market, including DVR functionality, games, gaming and other
      interactive applications, home networks services and other services. The market
      for advanced television technology solutions is still new and evolving.
      Historically, we have derived only a relatively small percentage of our total
      revenue from these offerings. We cannot be certain that the demand for or the
      market acceptance of these technologies will develop as we anticipate, and
      even
      if they do, we cannot be certain that we will be able to market these solutions
      effectively and successfully respond to changes in consumer preferences. In
      addition, our ability to market those solutions will be affected to a large
      degree by platform operators. If platform operators determine that our solutions
      do not meet their business or operational expectations, they may choose not
      to
      offer our applications to their customers. To the extent that platform operators
      and content providers fail to renew or enter into new or expanded contracts
      with
      us for provision of advanced technologies, we will be unable to maintain or
      increase the associated revenue from those offerings. Moreover, due to global
      economic conditions, platform operators may slow the pace of their deployment
      of
      these advanced services and such action would negatively impact our revenue.
      Accordingly, our ability to generate substantial revenue from our advanced
      technology solutions offerings is uncertain.


Page
          10




**Our
      business could be harmed if a defect in our software or technology interferes
      with, or causes any failure in, our customers’ systems.**




Our
      software and technology are integrated into the broadcast infrastructure of
      our
      customers. As a result, any defect, error or performance problem with our
      software or technology could interfere with a critical component of one or
      more
      of our customers’ systems, or potentially cause a critical component of one or
      more of our customers’ systems to fail for a period of time. This could result
      in claims for substantial damages against us, regardless of whether we are
      responsible for such failure. Any claim brought against us could be expensive
      to
      defend and require the expenditure of a significant amount of resources,
      regardless of whether we prevail. Although we have not experienced any such
      material interference or failure in the past, any future problem could cause
      severe customer service and public relations problems for our customers and
      as a
      consequence, our business, operating results and financial condition could
      be
      materially adversely affected.




**We
      depend upon key personnel, including our senior executives and technical and
      engineering staff, to operate our business effectively, and we may be unable
      to
      attract or retain such personnel.**




Our
      future success depends largely upon the continued service of our senior
      executive officers and other key management and technical personnel. If certain
      of our senior executives were to leave the Company, we may be placed at a
      competitive disadvantage. In addition, we may also need to increase the number
      of our technical, consulting and support employees to support new customers
      and
      the expanding needs of our existing customers. We have, in the past, experienced
      difficulty in recruiting sufficient numbers of qualified personnel. If we are
      not successful in these recruiting efforts, our business may be adversely
      affected.




**Intense
      competition could reduce our market share and harm our financial
      performance.**




We
      compete with numerous companies both to attract new customers and to retain
      our
      existing customers. Such competition may cause us to lose market share and
      may
      result in reduced profit margins. It may also hinder our ability to develop
      our
      business in areas such as DVRs, middleware, interactive television services
      and
      broadband and IPTV. In addition, some of the companies that currently operate
      in
      the software business, but that have not historically been active competitors
      of
      ours may, in the future, through acquisitions or the development of their own
      resources, seek to enter and obtain significant market share in our current
      or
      planned business areas. Increased competition from existing or new competitors
      could result in price reductions, reduced margins or loss of market share,
      any
      of which could materially and adversely affect our business, operating results
      and financial condition.




**We
      derive a significant portion of our revenues from a limited number of large
      customers. Our revenues could decline significantly if any of these customers
      significantly reduces its purchases of our technology or services or terminates
      its relationship with us.**




Our
      growth has depended historically on large digital satellite broadcasters
      introducing, marketing and promoting products and services that utilize our
      technology. We currently derive, and we expect to continue to derive, a
      significant portion of our revenue from a limited number of large customers.
      Our
      three largest customers are BSkyB, DIRECTV and SKY Italia. During the fiscal
      year ended June 30, 2008, these three customers accounted directly and
      indirectly for approximately 58.2% of our total revenue. News Corporation,
      which
      holds approximately 72% of our total and issued outstanding share capital,
      currently owns approximately 39% and 100% of BSkyB and SKY Italia, respectively.
      News Corporation previously owned a 41% interest in DIRECTV, but divested of
      its
      entire interest in February 2008. We have a number of contracts with DIRECTV,
      its subsidiaries and affiliates, covering the supply of conditional access,
      middleware and DVR technologies, which expire at various dates through 2013
      and
      which contain various terms covering renewal and termination. We expect to
      continue to be dependent upon a limited number of customers for a significant
      portion of our revenue, although the particular customers may vary from period
      to period. If a large customer purchases significantly less of our products
      or
      services, defers or cancels orders, or fails to renew or terminates its
      relationship with us or renews with us on less favorable terms, our revenue
      could decline significantly and as a result, our business, operating results
      and
      financial condition could be materially adversely affected.


Page
          11




**The
      nature of our business is such that our operating results may fluctuate from
      period to period.**




Our
      operating results have varied in the past from quarter to quarter and from
      year
      to year and are likely to vary from period to period in the future.
      Historically, our revenue has reflected a small number of relatively large
      orders for our technology and services, which generally have long sales and
      order cycles. Additionally, our accounting policies may require us to defer
      revenue until all elements of an arrangement have been delivered to and accepted
      by our customers. As a result, we believe that period-to-period comparisons
      of
      our operating results may not be a good indication of our future performance.
      Our actual results may differ from expectations, which could adversely affect
      the price of our securities.




**Changes
      to current accounting policies or in how such policies are interpreted or
      applied to our business could have a significant effect on our financial
      results.**




New
      accounting pronouncements or a change in how U.S. generally accepted accounting
      principles (“GAAP”) are interpreted or applied to our business could have a
      significant effect on our financial results. Our accounting policies that
      recently have been or may in the future be affected by changes in the accounting
      rules include revenue recognition, accounting for income taxes and accounting
      for goodwill and other intangible assets.




Our
      revenue recognition policy, in particular, is a key component of our results
      of
      operations and is based on complex rules that require us to make judgments
      and
      estimates. In applying our revenue recognition policy, we must determine what
      portions of our revenue are recognized currently and which portions must be
      deferred. Because different contracts may require different accounting
      treatment, it may be difficult for investors to properly assess our financial
      condition or operating results unless they carefully review all of our financial
      information, including our consolidated financial statements and notes
      thereto.




**Failure
      to protect the intellectual property rights upon which we depend could harm
      our
      business.**




We
      rely
      primarily on a combination of patent, trademark and copyright laws, trade
      secrets, confidentiality procedures and contractual provisions to protect our
      intellectual property rights and the obligations we have to third parties from
      whom we license intellectual property rights. However, we may not be able to
      detect unauthorized use of, or take appropriate steps to enforce, our
      intellectual property rights and this could have a material adverse effect
      on
      our business, operating results and financial condition.




**Defending
      against intellectual property infringement claims could harm our
      business.**




We
      may be
      subject to an increased risk of infringement claims as the number of products
      and competitors grows and the functionality of products in different industry
      segments overlaps. It may be alleged that products that we have developed or
      technology that we have licensed from third parties infringes the rights of
      others. Intellectual property claims could be time consuming to defend, result
      in costly litigation, divert management’s attention and resources and cause
      product shipment delays. Such claims could also require us to seek to enter
      into
      royalty or license agreements, redesign our products or potentially cease using
      aspects of technology, which could have a material adverse effect on our
      business, operating results and financial condition.




We
      grant
      certain indemnification rights to our customers when we license our software
      technologies. We may, therefore, become subject to third-party infringement
      claims through those commercial arrangements. In addition, the damages to which
      we are subject may be increased by the use of our technologies in our customers’
products.




Many
      of
      our agreements with customers contain an indemnification obligation, which
      could
      be triggered in the event that a customer is named in an infringement suit
      involving their products or involving the customer’s products or services that
      incorporate or use our products. If it is determined that our products infringe
      as alleged in any of the asserted claims in such a suit, we may be prevented
      from distributing certain of our products and we may incur significant
      indemnification liabilities, which may adversely affect our business, operating
      results and financial condition.




In
      addition, while damage claims in respect of an alleged infringement may, in
      many
      cases, be based upon a presumed royalty rate to which the patent holder would
      have otherwise been entitled, it is possible that our liability may increase
      as
      a result of the incorporation of our technology with our customer’s products. In
      some cases, potential damages payable by us could be based on the profits
      derived by our customers from a product that infringes through the use of our
      software even though we receive a relatively moderate economic benefit from
      the
      licensing arrangement.




**Any
      significant disruption in our processing of smart cards could adversely affect
      our business.**




We
      process all of our smart cards at two facilities, one located in the United
      Kingdom and the other in the United States. A significant disruption in the
      processing of smart cards at either facility could result in delays in the
      delivery of smart cards to our customers. The sale of smart cards that we have
      processed is a material portion of our business. Although our smart card
      processing facilities are designed to provide sufficient capacity to meet
      expected demand if one facility becomes inoperable for a limited period of
      time,
      any significant disruption to our smart card processing facilities could result
      in the loss of revenue, customers and future sales.


Page
          12




**We
      may be unable to process sufficient quantities of smart cards because we obtain
      certain components from, and depend upon, a limited number of
      suppliers.**




We
      currently obtain the computer chips used in our smart cards from a limited
      number of suppliers. In the event of a disruption of supply, including a
      shortage of manufacturing capacity, we may be unable to develop an alternative
      source in a timely manner or at favorable prices. Such failure could harm our
      ability to deliver smart cards to our customers or could negatively affect
      our
      operating margins. This could have a material adverse effect on our business,
      operating results and financial condition.




**Political,
      regulatory and economic risks associated with our international customers could
      harm our business.**




Our
      customers are located throughout the world. Inherent risks of doing business
      in
      international markets include changes in legal and regulatory requirements,
      export restrictions, exchange controls, tariffs and other trade barriers, longer
      payment cycles, political disruption, wars, acts of terrorism and civil unrest.
      We may incur substantial expense as a result of the imposition of new
      restrictions or changes in the existing legal and regulatory environments in
      the
      territories where we conduct our business or due to political and economic
      instability in these territories.




The
      telecommunications, media, broadcast, cable television and gaming and gambling
      industries are subject to extensive regulation by governmental agencies. These
      governmental agencies continue to oversee and adopt legislation and regulation
      over these industries, particularly in the areas of user privacy, consumer
      protection, online content distribution and the characteristics and quality
      of
      online products and services, which may affect our business, the development
      of
      our products, the decisions by market participants to adopt our products and
      services or the acceptance of interactive television by the marketplace in
      general. In particular, governmental laws or regulations restricting or
      burdening the exchange of personally identifiable information could delay the
      implementation of interactive services or create liability for us or any other
      manufacturer of software that facilitates information exchange. These
      governmental agencies may also seek to regulate interactive television directly.
      Future developments relating to any of these regulatory matters may adversely
      affect our business.




A
      portion
      of our business involves the licensing of software used to conduct betting
      and
      gaming applications. The regulation of the gambling industry is complex,
      intensive and constantly changing. The adoption or modification of laws or
      regulations relating to Internet gambling in various jurisdictions could
      adversely affect the manner in which we currently conduct this portion of our
      business.




**Fluctuations
      in foreign exchange rates could harm our financial
      condition.**




A
      risk
      inherent in our international operations is the exposure to fluctuations in
      currency exchange rates. In the fiscal year ended June 30, 2008, approximately
      46% of our revenues and approximately 75% of our total expenses were denominated
      in currencies other than the U.S. dollar. Additionally, as of June 30, 2008,
      approximately 38% of our cash balances were denominated in currencies other
      than
      the U.S. dollar. As a result, we are exposed to fluctuations in foreign exchange
      rates that may have a material adverse effect on our business, operating results
      and financial condition.




Additionally,
      although most of our contracts with customers in Latin America, India and the
      Asia-Pacific region are denominated in U.S. dollars, those customers are
      affected by fluctuations in their local currencies and by exchange control
      regulations that may restrict their ability to remit payments to
      us.




**We
      are subject to certain risks relating to our operations in
      Israel.**




We
      have
      research and development facilities in Israel and we have customers in Israel.
      Therefore, we are directly influenced by the political, economic and security
      conditions affecting Israel. Any major hostilities involving Israel, or the
      interruption or curtailment of trade or the movement of people within Israel
      or
      between Israel and other countries, could significantly harm our business,
      operating results and financial condition. Additionally, certain of our
      employees are currently required to perform annual reserve duty in the Israeli
      Defense Force, and are subject to being called for active military duty at
      any
      time. We have, in the past, operated effectively under these requirements.
      We
      cannot predict the effect of these obligations on us in the
      future.


Page
          13




**We
      are controlled by, and are dependent upon our relationship with, News
      Corporation.**




We
      are
      controlled by News Corporation. As of June 30, 2008, News Corporation
      beneficially owned approximately 72.1% of our total issued and outstanding
      share
      capital. Because News Corporation beneficially owns 100% of our Series B
      ordinary shares, par value $0.01 per share (“Series B Ordinary Shares”), which
      have ten votes per share (as opposed to our Series A Ordinary Shares, which
      have
      one vote per share), it controls approximately 96.3% of our voting power. By
      reason of such ownership, unless it is excluded or recuses itself from the
      vote,
      News Corporation is able to control the composition of our entire Board of
      Directors, to influence our decisions to take or refrain from taking certain
      actions and to control the votes on matters submitted to a vote of our
      shareholders. Four of our seven current Directors have been appointed by News
      Corporation, including Dr. Abe Peled, our Chairman and Chief Executive Officer,
      who from time to time advises News Corporation with respect to various
      technology matters.




Businesses
      in which News Corporation has an interest currently account for, and are
      expected to continue to account for, a significant portion of our revenue,
      although the proportion of such revenue has declined following News
      Corporation’s divestiture of its interest in DIRECTV in February 2008. During
      the fiscal year ended June 30, 2008, approximately 37% of our total revenues
      were derived from businesses in which News Corporation has a continuing
      interest. Those businesses include two of our three largest customers. Although
      we believe the terms of our contracts with such related parties are no less
      favorable to us than those that we could obtain from unrelated third parties,
      we
      cannot assure you that this is the case.




In
      addition, because a number of major broadcasters around the world are owned
      or
      controlled by entities that compete with News Corporation or entities in which
      News Corporation has an interest, our ability to attract customers in which
      News
      Corporation does not have an interest may be affected by their perception of
      our
      relationship with News Corporation.




**Because
      we are controlled by News Corporation, we are exempt from certain listing
      requirements of NASDAQ relating to corporate governance
      matters.**




Over
      the
      past several years, the National Association of Securities Dealers has adopted
      certain listing requirements for companies listed on NASDAQ. As a result of
      News
      Corporation’s beneficial ownership of our Series B Ordinary Shares, we are
      deemed to be a “controlled company” and accordingly are not subject to some of
      these requirements, including the requirement that a majority of our Board
      of
      Directors be “independent” under the guidelines established by the National
      Association of Securities Dealers and certain requirements regarding the
      determination of our Chairman and Chief Executive Officer’s compensation and our
      director nominees. While we do not believe that our exemption from those
      requirements affects the manner and method by which we manage and operate the
      Company, investors should be aware that we are not subject to those provisions
      and may have no obligation to comply with those requirements in the future
      unless our ownership profile changes.




**Since
      we are a public limited company organized under the laws of England and Wales,
      your rights as a shareholder differ from the rights of shareholders under U.S.
      law.**




NDS
      Group
      plc is a public limited company organized under the laws of England and Wales.
      The rights of holders of our ordinary shares and, indirectly, many of the rights
      of holders of our ADSs are governed by English law and by our Memorandum and
      Articles of Association. These rights differ from the rights of shareholders
      in
      U.S. companies. In particular, English law significantly limits the
      circumstances under which shareholders of English companies may bring derivative
      actions. Under English law generally, only the Company can be the proper
      plaintiff in proceedings in respect of wrongful acts committed against us.
      In
      addition, it may be difficult for you to enforce liabilities predicated upon
      U.S. securities laws.




**Our
      share price could be affected by our ordinary shares becoming available for
      sale
      in the future or by the dilutive effect of the issue of new
      shares.**




If
      investors or News Corporation sell substantial amounts of our ADSs or ordinary
      shares in the public market, the market price of our ADSs could fall. The
      negative effect of such sales on the market price of our ADSs could be more
      pronounced given the relatively small number of our ordinary shares in ADS
      form
      relative to the total number of shares outstanding. In addition, such sales
      could create the public perception of difficulties or problems with our
      technologies and services. These sales may also make it more difficult for
      us to
      sell equity or equity-related securities in the future at a time and price
      that
      we deem appropriate if we require additional financing.




Interests
      of existing shareholders may also be diluted due to the existence of stock
      options granted to certain employees and any equity awards that we may grant
      to
      our Directors, executive officers and employees in the future.


Page
          14




**The
      proposed transaction with News Corporation and Permira may have an adverse
      impact on, or cause significant fluctuations in, the market price or liquidity
      of our ADSs.**




On
      June
      27, 2008, our Board announced the receipt of a proposal from News
      Corporation **** and
      the
      Permira Newcos for a transaction that, if consummated, would result in NDS
      ceasing to be a public company and the Permira Newcos and News Corporation
      owning approximately 51% and 49% of NDS’s outstanding equity, respectively. The
      Board appointed the Independent Committee to review the proposed transaction.
      On
      August 5, 2008, we announced that the Independent Committee reached an agreement
      in principle with News Corporation and the Permira Newcos on a price at which
      they would acquire all of our issued and outstanding Series A Ordinary Shares,
      including those represented by ADSs traded on NASDAQ. The price announced was
      $63 per share in cash. The transaction is subject to negotiation and execution
      of final legal documentation and is also conditioned upon the approval by
      holders of our Series A Ordinary Shares, approval by the High Court of Justice
      of England and Wales, the receipt of certain regulatory approvals and certain
      other customary closing conditions. There can be no assurance that the parties
      will enter into final legal documentation or that any transaction will be
      consummated. The proposed transaction, or the consummation or abandonment
      thereof, may have an adverse impact on, or cause significant fluctuations in,
      the market price or liquidity of our ADSs.


Page
          15




**ITEM
              1B.**
            **UNRESOLVED
                STAFF COMMENTS**




None.




**ITEM
              2.**
            **PROPERTIES**




We
      operate from a number of facilities, principally located in the United Kingdom,
      Israel, France, India and the United States.




All
      of
      our facilities are leased. Our main facilities are as follows:




·
            Heathrow,
                England – Executive and administrative
                offices;




·
            Staines,
                England – Set-top box software development and system
                integration;




·
            Maidenhead,
                England – Smart card processing and
                distribution;




·
            Chandlers’
                Ford, England – Set-top box software development and system
                integration;




·
            Chiswick,
                England – Development of betting
                applications;




·
            Jerusalem,
                Israel – Research and development, conditional access system
                support;




·
            Costa
                Mesa, California – Principal offices for our U.S. operations,
                including smart card processing and
                distribution;




·
            Issy-les-Moulineaux,
                France – Software development;
                and




·
            Bangalore,
                India – Software development.




In
      addition, we have leased premises in Hong Kong; Beijing, China; Copenhagen,
      Denmark; Seoul, South Korea; Netanya, Israel; Sydney, Australia and
      Unterföhring, Germany.


Page
          16




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**




**Echostar
      Litigation**




On
      June
      6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation,
      Echostar Technologies Corporation and Nagrastar L.L.C. (collectively,
“Echostar”) filed an action against us in the United States District Court for
      the Central District of California. That complaint purported to allege claims
      for violation of the Digital Millennium Copyright Act (“DMCA”), the
      Communications Act of 1934 (“Communications Act”), the Electronic Communications
      Privacy Act, the Computer Fraud and Abuse Act, California’s Unfair Competition
      Law (“UCL”) and the federal Racketeer Influenced and Corrupt Organizations
      (“RICO”) statute. The complaint also purported to allege claims for civil
      conspiracy, misappropriation of trade secrets and interference with prospective
      business advantage. The complaint sought injunctive relief, unspecified
      compensatory and exemplary damages and restitution. Extensive motion practice
      ensued regarding this complaint, regarding subsequent complaints filed by
      Echostar and regarding counterclaims asserted by us.




The
      trial
      of this case began April 9, 2008. Echostar’s claims under the DMCA, the
      Communications Act, the California Penal Code, and RICO were tried to the jury,
      Echostar’s UCL claim was tried to the court and our counterclaim under the
      California Uniform Trade Secrets Act was tried to the jury. All other claims
      were either dismissed by the court or abandoned by the parties.




On
      May
      15, 2008, the jury returned its verdict. The jury found us not liable on three
      counts and awarded minimal damages on the remaining three counts. On those
      latter three counts, the jury awarded Echostar actual damages of $45.69 or,
      in
      the alternative, statutory damages of $1,000. We believe that these awards
      relate to a single incident involving a test of a card during the course of
      our
      anti-piracy efforts. The jury found Echostar not liable on our
      counterclaim.




One
      claim, Echostar’s UCL claim, has not yet been decided. By law, this claim must
      be decided by the judge rather than the jury. Any ruling on that claim must
      be
      consistent with the jury’s verdict, however, and the court has not yet provided
      a decision on the UCL claim. A hearing on the UCL claim has been set for August
      19, 2008.




Echostar
      has expressed publicly an intention to seek an award of attorneys’ fees and
      costs. We believe that any such claim by Echostar would be without merit and
      intend to vigorously defend against any such claim.




**Sogecable
      Litigation**




On
      July
      25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L.,
      Spanish satellite broadcasters and customers of Canal+ Technologies SA
      (together, “Sogecable”), filed an action against us in the United States
      District Court for the Central District of California. Sogecable filed an
      amended complaint on October 9, 2003, which purported to allege claims for
      violation of the DMCA and the RICO statute. The amended complaint also purported
      to allege claims for interference with contract and prospective business
      advantage. The complaint sought injunctive relief, unspecified compensatory
      and
      exemplary damages and restitution. On December 22, 2003, all of the claims
      were
      dismissed by the court. Sogecable filed a second amended complaint. We 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. On October 1, 2004, Sogecable notified the court that it would not
      be
      filing a third amended complaint, but would appeal the court’s entry of final
      judgment dismissing the suit to the United States Ninth Circuit Court of
      Appeals. On December 14, 2006, the appellate court issued a memorandum decision
      reversing the district court’s dismissal. On January 26, 2007, we filed our
      petition for rehearing by an en banc panel of the United States Ninth Circuit
      Court of Appeals. On February 21, 2007, the petition was denied. On June 11,
      2007, we filed a petition for a Writ of Certiorari in the United States Supreme
      Court seeking reversal of the Ninth Circuit Court of Appeals’ decision. On
      August 27, 2007, we renewed our motion to dismiss the second amended complaint
      on grounds not previously decided. On October 1, 2007, the petition for Writ
      of
      Certiorari was denied. On January 25, 2008, the court issued an order
      granting-in-part and denying-in-part our renewed motion to dismiss Sogecable’s
      second amended complaint. The court dismissed Sogecable’s claim for tortuous
      interference with prospective economic advantage, but allowed Sogecable to
      proceed on its RICO and DMCA claims, as well as its claim for tortuous
      interference with contract. The court has set February 16, 2010 as the trial
      date. We believe that Sogecable’s claims are without merit and we will continue
      to vigorously defend ourselves in this matter.




**Barry
      Thomas Litigation**




On
      November 28, 2005, Barry W. Thomas filed a complaint alleging infringement
      of
      United States Patent No. 4,777,354 by DIRECTV, Inc., its parent The DIRECTV
      Group, Inc., and the National Rural Telecommunications Cooperative in the United
      States Distinct Court for the Western District of North Carolina, Charlotte
      Division, captioned Barry W. Thomas v. DIRECTV, Inc., et al., No. 3:05CV496-K
      (W.D.N.C.). Although not a party to this case, we have assumed a share in the
      cost of DIRECTV, Inc.’s defense. The asserted patent expired on January 27,
      2006.


Page
          17




On
      February 24, 2006, Mr. Thomas voluntarily dismissed his complaint against The
      DIRECTV Group, Inc., but not his complaint against DIRECTV, Inc. On February
      27,
      2006, DIRECTV, Inc. filed an Answer and Counterclaims where, among other things,
      DIRECTV, Inc. denied Mr. Thomas’s allegations of infringement and alleged that
      the patent is invalid, unenforceable, and that Mr. Thomas’s cause of action is
      barred by the equitable doctrine of laches.




DIRECTV,
      Inc. filed a motion for summary judgment barring pre-suit damages based on
      its
      laches defense on September 12, 2006. The court granted DIRECTV, Inc.’s
      motion on December 19, 2006, limiting DIRECTV, Inc.’s potential liability to the
      two-month period between the filing of the complaint and the expiration of
      the
      patent. The court held a patent claim construction hearing on November 17,
      2006.
      On February 28, 2008, the Court issued its Order and Memorandum on Claim
      Construction, which adopted the constructions proposed by DIRECTV, Inc. and
      the
      other defendants sued by Mr. Thomas for the claim terms in dispute.




On
      June
      26, 2008, all of the parties to the Barry Thomas Litigation entered into a
      settlement agreement and mutual release, pursuant to which Mr. Thomas agreed
      to
      a voluntary dismissal of his various complaints, with prejudice. As a result,
      the action against DIRECTV, Inc. was dismissed with prejudice as contemplated
      in
      the settlement agreement and mutual release, without any admission of liability
      or payment to Mr. Thomas.




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF
                SHAREHOLDERS**




Not
      applicable.


Page
          18


**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**




**Market
      Information**




ADSs,
      each representing one Series A Ordinary Share are traded on NASDAQ. The ADSs
      are
      evidenced by American Depositary Receipts (“ADRs”) issued by The Bank of New
      York as depositary, under a Deposit Agreement, dated November 26, 1999, by
      and
      among us, The Bank of New York and the owners and beneficial owners of the
      ADRs.




The
      high
      and low closing prices for our ADSs for each quarterly period within the two
      most recent fiscal years are as follows:




**High Price per ADS**
            
            **Low Price per ADS**Fiscal
                year ended June 30, 2008First
                quarter
            
            $
            50.00
            
            $
            41.71Second
                quarter
            
            $
            62.04
            
            $
            51.78Third
                quarter
            
            $
            57.44
            
            $
            44.01Fourth
                quarter
            
            $
            59.20
            
            $
            46.51Fiscal
                year ended June 30, 2007First
                quarter
            
            $
            48.15
            
            $
            41.64Second
                quarter
            
            $
            49.77
            
            $
            42.33Third
                quarter
            
            $
            51.29
            
            $
            44.86Fourth
                quarter
            
            $
            53.70
            
            $
            46.95




As
      of
      August 6, 2008, there were 25 holders of record of our ADSs.




**Dividends**




It
      has
      been our policy to retain profits for the future development of the business
      and, accordingly, no dividends have been paid since our initial public offering
      in November 1999. Except in extraordinary circumstances, there are no plans
      to
      pay any dividends to shareholders. We intend to keep this policy under review
      and will consider whether it is appropriate to pay dividends in the
      future.




**Equity
      Compensation Plan Information**




The
      following table shows the number of stock options outstanding as of June 30,
      2008, and the weighted-average exercise price of those stock options granted
      under our equity schemes:




**Plan Category**
            
            **Number of securities**
              **to be issued upon**
              **exercise of**
              **outstanding options,**
              **warrants and rights**
            
            **Weighted-average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
            
            **Number of securities**
              **remaining available**
              **for future issuance**
              **under equity**
              **compensation plans****(1)**Equity
                compensation plans approved by shareholders
            
            
            2,287,773
            
            $
            30.72
            
            
            9,938,484
            (2)Equity
                compensation plans not approved by shareholders
            
            
            ─
            
            
            ─
            
            
            ─Total
            
            
            2,287,773
            
            $
            30.72
            
            
            9,938,484
            (2)







(1)
                Excludes
                    securities reflected in column titled “Number of securities to be issued
                    upon exercise of outstanding options, warrants and
                    rights.”




(2)
              Relates
                  to Series A Ordinary Shares available for issuance under the NDS
                  Group plc
                  2006 Long-Term Incentive
                  Plan.


Page
          19




**Purchase
      of Equity Securities by the Issuer and Affiliated
      Purchaser**




Neither
      we, nor any purchaser affiliated with us, purchased any of our ADSs during
      the
      fourth quarter of the fiscal year ended June 30, 2008.


Page
          20




**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**




These
      selected consolidated financial data have been derived from our consolidated
      financial statements and should be read in conjunction with Item 7:
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” and Item 8: “Financial Statements and Supplementary Data” and the
      other financial information included elsewhere in this Annual
      Report.




**Statement
      of operations data** **(1)**




**For the fiscal years ended June 30,**(in
                thousands, except per share amounts)
            
            **2008****(2)**
            
            **2007****(2)**
            
            **2006****(2)**
            
            **2005**
            
            **2004****(3,4,5)**Revenue
            
            $
            850,148
            
            $
            709,492
            
            $
            600,123
            
            $
            556,330
            
            $
            356,663Cost
                of goods and services sold
            
            
            (318,540
            )
            
            (268,484
            )
            
            (242,622
            )
            
            (218,938
            )
            
            (84,387
            )Gross
                margin
            
            
            531,608
            
            
            441,008
            
            
            357,501
            
            
            337,392
            
            
            272,276Operating
                expenses
            
            
            (336,224
            )
            
            (280,652
            )
            
            (226,772
            )
            
            (245,201
            )
            
            (223,851
            )Operating
                income
            
            
            195,384
            
            
            160,356
            
            
            130,729
            
            
            92,191
            
            
            48,425Other
                income
            
            
            27,103
            
            
            25,296
            
            
            15,446
            
            
            9,160
            
            
            6,848Other
                expenses
            
            
            (2,498
            )
            
            ─
            
            
            ─
            
            
            ─
            
            
            ─Income
                tax expense
            
            
            (59,894
            )
            
            (49,925
            )
            
            (45,225
            )
            
            (27,353
            )
            
            (19,061
            )Minority
                interests in subsidiaries, net of tax
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            843Net
                income
            
            $
            160,095
            
            $
            135,727
            
            $
            100,950
            
            $
            73,998
            
            $
            37,055Basic
                net income per share
            
            $
            2.76
            
            $
            2.37
            
            $
            1.80
            
            $
            1.35
            
            $
            0.69Diluted
                net income per share
            
            $
            2.72
            
            $
            2.33
            
            $
            1.74
            
            $
            1.29
            
            $
            0.67





**Balance
      sheet data** **(1)**





**As of June 30,**(in thousands)
            
            **2008****(2)**
            
            **2007****(2)**
            
            **2006****(2)**
            
            **2005**
            
            **2004****(3)**Cash,
                cash equivalents and short-term investments
            
            $
            734,992
            
            $
            592,750
            
            $
            505,037
            
            $
            339,791
            
            $
            228,620Other
                current assets
            
            
            281,845
            
            
            252,703
            
            
            196,198
            
            
            159,877
            
            
            164,791Non-current
                assets
            
            
            359,312
            
            
            299,400
            
            
            195,886
            
            
            172,230
            
            
            183,748Total
                assets
            
            $
            1,376,149
            
            $
            1,144,853
            
            $
            897,121
            
            $
            671,898
            
            $
            577,159Current
                loans
            
            $
            ─
            
            $
            ─
            
            $
            ─
            
            $
            ─
            
            $
            ─Other
                current liabilities
            
            
            294,230
            
            
            202,526
            
            
            161,151
            
            
            129,245
            
            
            176,138Non-current
                loans
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            ─Other
                non-current liabilities
            
            
            151,514
            
            
            204,054
            
            
            168,276
            
            
            115,900
            
            
            67,677Shareholders’
                equity
            
            
            930,405
            
            
            738,273
            
            
            567,694
            
            
            426,753
            
            
            333,344Total
                liabilities and shareholders’ equity
            
            $
            1,376,149
            
            $
            1,144,853
            
            $
            897,121
            
            $
            671,898
            
            $
            577,159








(1)
                All
                    income, expenses, assets and liabilities are derived from continuing
                    operations.




(2)
              See
                  Note 4 to our consolidated financial statements for information
                  with
                  respect to acquisitions during the fiscal years ended June 30,
                  2008, 2007
                  and 2006.


Page
          21




(3)
            The
                results of the MediaHighway business have been consolidated from
                the date
                of acquisition on December 16,
                2003.




(4)
            Effective
                November 12, 2004, News Corporation changed its corporate domicile
                from
                Australia to the United States and as a result, we ceased to qualify
                as a
                foreign private issuer under U.S. securities laws. Accordingly, the
                financial information presented in this Annual Report on Form 10-K
                is
                stated in U.S. dollars, and has been prepared in accordance with
                GAAP.
                Prior to November 12, 2004, we published our financial information
                in
                accordance with U.K. generally accepted accounting practice (“UK GAAP”) in
                pounds sterling. Financial information for periods ending on, and
                as of,
                dates prior to the beginning of the fiscal year ended June 30, 2005,
                has
                been derived from previously audited UK GAAP financial information
                by
                adjusting for differences between UK GAAP and GAAP and then translating
                that information into U.S. dollars. The foreign exchange rates used
                for
                translation were as follows:




·
            Statement
                of operations data for fiscal year ended June 30, 2004:
                £1=$1.7449




·
            Balance
                sheet data as of June 30, 2004: £1 =
                $1.8277




(5)
            Operating
                expenses for the fiscal year ended June 30, 2004 include a goodwill
                impairment charge of $11.4
                million.


Page
          22




**ITEM
              7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




**Introduction**




Management’s
      discussion and analysis of financial condition and results of operations is
      intended to help provide an understanding of our financial condition, changes
      in
      financial condition and results of operations, and is organized as
      follows:




·
            ***Overview
                of our business***–
                This section provides a general description of our business and
                developments that occurred during the fiscal year ended June 30,
                2008 that
                we believe are important in understanding our results of operations
                and
                financial condition or to disclose known future
                trends.




·
            ***Critical
                accounting policies and estimates***–
                This section discusses our revenue and other accounting policies
                that we
                consider important to an understanding of our results of operations,
                and
                that require significant judgment and estimates on the part of management
                in application. Note 2 to the accompanying consolidated financial
                statements summarizes our significant accounting
                policies.




·
            ***Results
                of operations***–
                This section provides an analysis of our results of operations for
                the
                three fiscal years ended June 30, 2008. In addition, a brief description
                is provided of significant transactions and events that impact the
                comparability of the results being
                analyzed.




·
            ***Liquidity
                and capital resources***–
                This section provides an analysis of our cash flows for the three
                fiscal
                years ended June 30, 2008. It includes a discussion of the financial
                capacity available to fund our future commitments and obligations,
                as well
                as a discussion of other financing
                arrangements.




**Overview
      of our Business**




We
      supply
      open end-to-end digital technology and services to digital pay-television
      platform operators and content providers. Our technologies include conditional
      access and microprocessor security, broadcast and broadband stream management,
      set-top box and residential gateway middleware, EPGs, DVR technologies and
      interactive infrastructure and applications. We provide technologies and
      services supporting standard definition and high definition television and
      a
      variety of industry, Internet and IP standards, as well as technology for mobile
      devices. Our software systems, consultancy and systems integration services
      are
      focused on providing platform operators and content providers with technology
      to
      help them profit from the secure distribution of digital information and
      entertainment to consumer devices that incorporate various technologies supplied
      by us.




Our
      main
      customers are the digital pay-television platform operators that utilize a
      broadcast and/or a broadband infrastructure to deliver video and data to
      multiple subscribers. In addition, we may sell interactive applications to
      content providers, who do not usually operate a pay-TV platform, but instead
      provide content for transmission over a platform operator’s network. The
      applications we sell to content providers make use of the functions and
      capabilities of the broadcast infrastructure.




We
      work
      with suppliers of other components of a broadcast and broadband platform, such
      as broadcast equipment, network equipment, set-top box and residential gateway
      manufacturers. We integrate our technologies with the products manufactured
      by
      these suppliers to provide a platform operator with the required functionality.
      A particular platform operator may purchase some components of their platform
      from our competitors.




Our
      customers consist of a limited number of large digital pay-television platform
      operators that are introducing, marketing and promoting products and services
      that utilize our technology. During the fiscal year ended June 30, 2008, our
      three largest customers were DIRECTV in the United States, BSkyB in the United
      Kingdom and SKY Italia in Italy. Together, these three customers contributed,
      directly and indirectly, approximately 58% of our revenue during the fiscal
      year
      ended June 30, 2008. We expect that a limited number of customers will continue
      to contribute a significant portion of our revenue. During the fiscal year
      ended
      June 30, 2008, we extended our contracts to supply conditional access services
      to DIRECTV and its Latin American subsidiaries through June 30,
      2013.




We
      compete primarily with technologies such as NagraVision (developed by Kudelski
      SA), DigiCipher (developed by Motorola, Inc.), Power Key (developed by
      Scientific-Atlanta, Inc.), OpenTV (developed by OpenTV Corp., a company
      controlled by Kudelski SA) and Microsoft Mediaroom (developed by Microsoft
      Corporation) both to attract new customers and to retain our existing customers.
      In addition, some of the companies that currently operate in the set-top box
      and/or software business, but that have not historically been active competitors
      of ours, may, through acquisitions or the development of their own resources,
      seek to enter and obtain significant market share in our current or planned
      business areas.


Page
          23




A
      significant portion of our revenue is dependent upon our customers’ subscriber
      bases, the growth in their subscriber bases and the related quantities of
      set-top boxes deployed to their subscribers. Revenue can vary from period to
      period as our revenue reflects a small number of relatively large orders for
      our
      technology and services. These generally have long sales and order cycles,
      and
      delivery and acceptance of our products and services fluctuate over the course
      of these cycles. Our accounting policies often require us to defer revenue
      until
      after our technologies have been deployed by our customers or to recognize
      contract revenue over the term of any post-contract support period.




Recently,
      certain of our customers have begun recycling set-top boxes and smart cards
      when
      a subscriber terminates its subscription by re-issuing the set-top box and
      smart
      card to a new subscriber. Such activity by our customers reduces demand for
      new
      smart cards and also reduces our incremental set-top box royalties. Should
      this
      activity become more widespread, it could materially adversely affect our
      revenues. In addition, security of our smart cards has not been compromised
      in
      recent years. Accordingly, certain customers have delayed or restricted plans
      to
      complete card changeovers. This change in approach has been reflected in
      recently amended contract terms with certain of our customers and we expect
      this
      to result in lower conditional access revenues in future years.




We
      consider that we operate and manage our business as a single segment. There
      are
      no separate divisions or profit centers. We assess the financial performance
      of
      our business by reviewing specific revenue streams in the aggregate and by
      customer. We assess our costs by considering individual cost centers and their
      aggregation into the general cost categories as described below.




**Recent
      Business Developments**




On
      June
      27, 2008, our Board announced the receipt of a proposal from News Corporation
      and the Permira Newcos for a transaction that, if consummated, would result
      in
      NDS ceasing to be a public company and the Permira Newcos and News Corporation
      owning approximately 51% and 49% of NDS’s outstanding equity, respectively.




On
      August
      5, 2008, we announced that the Independent Committee reached an agreement in
      principle with News Corporation and the Permira Newcos on a price at which
      they
      would acquire all of our issued and outstanding Series A Ordinary Shares,
      including those represented by ADSs traded on NASDAQ. The price announced was
      $63 per share in cash. The transaction is subject to negotiation and execution
      of final legal documentation. The consummation of the transaction is also
      conditioned upon the approval of the transaction by holders of our Series A
      Ordinary Shares, the approval of the High Court of Justice of England and Wales,
      the receipt of certain regulatory approvals and certain other customary closing
      conditions. There can be no assurance that the parties will enter into final
      legal documentation or that any transaction will be consummated.




**Revenue**




We
      derive
      revenue from:




1)
            *Fees
                from the sale of smart cards and the provision of security maintenance
                services*.
                These fees are typically based on the number of smart cards supplied
                and
                the number of subscribers and/or smart cards authorized for a particular
                platform. Our fees may be reduced if the security of the system is
                compromised. We refer to fees from the sales of smart cards and the
                provision of security maintenance services as “conditional access
                revenues.”




2)
            *Fees
                for the supply of an initial system and subsequent additional
                functionality and maintenance services*.
                These fees are typically based on the amount of manpower required
                to
                customize, integrate and install the system components and subsequently
                to
                maintain those components. We refer to such fees as “integration,
                development and support revenues.”




3)
            *Fees
                linked to the deployment and use of our technologies*.
                These fees are typically based on the number of set-top boxes or
                residential gateway devices manufactured or deployed that contain
                the
                relevant technologies. Other fees may be based on the extent to which
                the
                technologies are used by our customers’ subscribers. For example, we may
                receive a share of incremental revenues generated by a platform operator
                or content provider from an application that incorporates our
                technologies. We refer to such fees as “license fees and
                royalties.”




These
      different types of fees are presented as three separate revenue streams in
      “Results of Operations” because they are influenced by different external
      factors.


Page
          24




We
      distinguish between revenues from “established technologies” and revenues from
“new technologies.” We categorize as revenues from established technologies our
      revenue from conditional access, middleware and EPG technologies and fees from
      the customization and integration of those technologies into head-end systems
      and set-top boxes, together with associated support. Revenues from these
      technologies are allocated between the three different revenue streams
      identified above. We aggregate under our separate new technologies revenue
      stream all revenues that we derive from DVR technologies, advanced middleware
      technologies, technologies involving broadband and IPTV, interactive
      infrastructure and applications, and games and gaming. As our business develops,
      we will consider whether these groupings of revenue remain
      appropriate.




**Costs
      and expenses**




Our
      costs
      and expenses consist of physical and processing costs of smart cards; personnel,
      travel and facilities costs; royalties paid for the right to use and sub-license
      certain intellectual property rights owned by third parties; and the
      amortization of intangible assets, such as intellectual property rights that
      we
      have acquired for incorporation within our technologies.




The
      physical costs of smart cards include the costs of the integrated circuits
      manufactured by third-party suppliers, the micro-module that houses the computer
      chips and the plastic body of the smart cards. We do not manufacture smart
      cards, but our engineers design computer chips that are embedded into the smart
      cards. We arrange for the computer chips to be manufactured and assembled by
      third-party suppliers. Smart card costs are dependent upon the costs of raw
      materials, including the cost of computer chips, plastic and assembly, and
      the
      quantity of smart cards purchased and processed in any period.




Personnel
      and facilities costs are allocated into four categories: operations; research
      and development; sales and marketing; and general and administration. We have
      employees and facilities in the United Kingdom, the United States, Israel,
      India, France, Denmark, Germany, Hong Kong, South Korea, China and
      Australia.




We
      classify operations costs as part of cost of goods and services sold. Operations
      costs include the costs of personnel and related costs, including an allocation
      of facilities costs, associated with our customer support and with the
      integration and development activities undertaken under a customer contract.
      Operations costs include the costs of operating our two smart card processing
      plants, including the depreciation of our smart card processing
      equipment.




Research
      and development costs consist mainly of personnel and related costs, including
      an allocation of facilities costs, attributable to our technical employees
      who
      are developing our technology and adapting it for specific customer
      requirements. These costs also include consumables and the depreciation of
      equipment used in development and test activities and are stated net of the
      benefit of grants and other incentives.




Sales
      and
      marketing costs mainly consist of personnel and related costs, including an
      allocation of facilities costs, of our sales and marketing employees in the
      United Kingdom, Europe and the Middle East, the United States and the
      Asia-Pacific region. Marketing costs also include advertising, exhibitions,
      marketing communications and demonstration activities.




General
      and administration costs consist primarily of personnel, facilities and legal
      and administration costs.




**Critical
      Accounting Policies and Estimates**




Our
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with GAAP. The arrangements under which we supply technologies and
      services to our customers are complex and require us to make an assessment
      as to
      the most appropriate way to recognize revenue in accordance with
      GAAP.




An
      accounting policy is considered to be critical if it is important to our
      financial condition and results, and if it requires significant judgment and
      estimates on the part of management in its application. By their nature, these
      judgments are subject to an inherent degree of uncertainty. These judgments
      are
      based on our historical experience, terms of existing contracts, our observance
      of trends in our industry, information provided by our customers and information
      from other outside sources, as appropriate. Actual results may differ from
      the
      judgments under different assumptions or conditions. The development and
      selection of these critical accounting policies have been determined by our
      management and the related disclosures have been reviewed with the Audit
      Committee of our Board of Directors. For a summary of our significant accounting
      policies, see Note 2 to the accompanying consolidated financial
      statements.


Page
          25




**Revenue
      recognition accounting policies**




Where
      an
      arrangement includes more than incidental software elements, we follow Statement
      of Position 97-2: “Software Revenue Recognition” (“SOP 97-2”). Where an
      arrangement does not involve the supply of software and that arrangement is
      separate from an arrangement for the supply of software, we follow Staff
      Accounting Bulletin No. 104: “Revenue Recognition,” (“SAB 104”) and Emerging
      Issues Task Force Issue No. 00-21: “Revenue Arrangements with Multiple
      Deliverables” (“EITF 00-21”). Many of our arrangements cover the supply of
      multiple deliverables. We have to make an assessment of the value of any
      undelivered elements of an arrangement in the manner required by GAAP and to
      defer recognition of revenue unless and until the criteria specified by GAAP
      have been met. As our business develops, other accounting guidance may become
      applicable. A summary of our revenue recognition accounting policies is set
      out
      in Note 2 to the accompanying consolidated financial statements. We set out
      below how we apply the policies to our different types of commercial
      arrangements:




***Conditional
      access revenues***




Our
      conditional access revenue stream comprises revenues from the sale of smart
      cards and the provision of security maintenance services to customers using
      our
      established technologies. Most of the arrangements for the supply of smart
      cards
      and the provision of security services are separate from arrangements for the
      supply of the initial broadcast platform and do not involve the supply of
      software. Accordingly, they are accounted for under the principles of SAB 104
      and EITF 00-21.




*Conditional
      access – Smart cards*




Smart
      cards are hardware devices which we sell to platform operators for distribution
      to and use by their subscribers. Revenue derived from sales of smart cards
      is
      recognized upon delivery of the smart cards in accordance with contractual
      terms. Appropriate provision is made for the expected cost of warranties for
      the
      security of smart cards supplied.




*Conditional
      access – Security services*




For
      some
      contracts, we receive fees from platform operators for the maintenance of
      security of conditional access systems for a specified duration, which is
      typically the estimated useful life of each card. Such services provide the
      platform operator with a greater level of security than would be obtained by
      simply relying on the security features contained within the smart card. Fees
      are received over the duration of the agreed service period and are related
      to
      the number of subscribers or authorized smart cards of the relevant broadcast
      platform. These revenues are recognized over the term of the security contract.
      In some instances, the maintenance of security includes a requirement to replace
      a population of smart cards with a supply of “changeover cards” which is
      considered a separate unit of accounting. In such instances, an amount of
      maintenance income is deferred and recognized when the changeover cards are
      delivered. The amount of revenue to be deferred is based on the fair value
      of
      the undelivered future changeover cards. The estimate of the amount of revenue
      to be deferred requires management to make assessments of the timing of the
      card
      changeover, the volume of changeover cards to be supplied and the fair value
      per
      unit for those changeover cards. The amount of revenue deferred under this
      type
      of arrangement has decreased to $135.2 million as of June 30, 2008 from $180.0
      million as of June 30, 2007. The decrease in the amount of deferred revenue
      is
      due to our satisfying some of the obligations to deliver a supply of changeover
      cards under certain of our existing security maintenance arrangements. We
      currently expect further decreases in the amount of our deferred security
      maintenance revenues in the fiscal year ending June 30, 2009 and
      beyond.




***Integration,
      development and support revenues***




The
      arrangements under which we generate integration, development and support
      revenues typically involve the supply of software and are therefore accounted
      for in accordance with SOP 97-2. Such arrangements may involve multiple
      deliverables. In order to determine when we can recognize revenue under these
      arrangements, we have to assess whether we have delivered all the elements
      contained within the arrangement. If there are undelivered elements, we have
      to
      consider whether we have vendor specific objective evidence of the value of
      the
      undelivered elements. Where no such vendor specific objective evidence is
      available, we defer recognizing revenue until all items have been delivered.
      Where the only undelivered element relates to post-contract support and we
      do
      not have vendor-specific evidence of the value of that post-contract support,
      we
      recognize all revenue arising from the arrangement over the period over which
      post-contract support is provided. Revenue recognized is allocated to the
      appropriate revenue stream within our statement of operations. The assessment
      of
      these matters is complex and requires management to assess whether the value
      attributed to undelivered elements is supported by adequate vendor specific
      objective evidence. As a result of applying GAAP, revenue may be recognized
      after the technology has been deployed commercially by the platform operator
      or
      content owner.




***License
      fees and royalty revenues***




License
      fee and royalty revenue is earned from the supply of software and accordingly
      is
      accounted for in accordance with SOP 97-2. Royalties are generally a function
      of
      the quantity of set-top boxes or residential gateway devices manufactured or
      deployed, which in turn is dependent upon the ability of the platform operator
      or service provider to generate new subscribers. The arrangements under which
      we
      earn royalty income and the application of SOP 97-2 to those arrangements
      typically result in revenues being recognized over a period of several years
      after the underlying software has been delivered. Subject to the other criteria
      of SOP 97-2 having been met, revenues are recognized when we have sufficiently
      reliable evidence of the volumes of set-top boxes manufactured or deployed.
      This
      is typically one to three months after actual manufacture or
      deployment.


Page
          26




**Use
      of estimates**




The
      preparation of our consolidated financial statements in conformity with GAAP
      requires management to make estimates and assumptions that affect the amounts
      that are reported in the consolidated financial statements and accompanying
      disclosures. Although these estimates are based on management’s best knowledge
      of current events and actions that the company may undertake in the future,
      actual results may differ from the estimates.




***Goodwill
      and other intangible assets***




We
      have
      significant intangible assets, primarily intellectual property rights and
      goodwill arising in connection with business combinations. We account for
      business combinations under the purchase method of accounting. The total cost
      of
      acquisitions is allocated to the underlying net assets acquired, based on their
      respective estimated fair market values. Goodwill is recorded as the difference
      between the cost of acquiring an entity and the estimated fair market values
      assigned to its tangible and identifiable intangible net assets at the date
      of
      acquisition. Determining the fair market value of assets acquired and
      liabilities assumed requires management’s judgment and often involves the use of
      significant estimates and assumptions, including assumptions with respect to
      future cash inflows and outflows, discount rates, asset lives and market
      multiples. Goodwill is subject to an annual impairment test (or more often
      if
      circumstances dictate). Definite-lived intangible assets are amortized over
      their expected useful lives and the remaining useful life is re-assessed from
      time to time. Definite-lived intangible assets are subject to an impairment
      test
      when indicators of impairment exist. If we identify an impairment in value
      of
      goodwill or other intangible assets, we record an impairment charge in the
      period in which it is identified. The judgments made in determining the
      estimated fair market value assigned to each class of intangible assets
      acquired, as well as their useful lives and any potential impairment, can
      significantly impact our operating income.




***Litigation,
      indemnity and intellectual property claims***




Certain
      of our customers and other third parties have from time to time made allegations
      and/or filed claims against us or made claims under indemnities which we have
      provided in our contracts with customers. The existence of these matters require
      us to make estimates of the likely outcome of the actions or potential claims
      and to make a cost accrual for any liabilities where it is probable that we
      will
      make a settlement or be subject to an adverse court ruling. The judgments made
      in assessing the amount, if any, of cost accruals required can significantly
      impact our operating income.




***Income
      taxes***




Our
      operations are subject to tax in various domestic and international
      jurisdictions. Estimating income tax liabilities and the recoverability of
      deferred tax assets requires us to make estimates of the outcome of pending
      tax
      matters as well as the positions to be taken in the tax returns to be filed
      in
      respect of the fiscal year ended June 30, 2008, which have not yet been
      prepared. We believe that we have appropriately accrued for the expected outcome
      of all pending tax matters and we do not currently anticipate that the ultimate
      resolution of pending tax matters will have a material adverse effect on our
      consolidated financial condition, future results of operations or
      liquidity.




***Inventory***




We
      hold
      inventory of smart cards and their components in anticipation of demand from
      our
      customers. Because smart cards supplied to different platform operators are
      unique or contain unique features, particular types of smart cards held in
      inventory may not be useable for any customer other than the one for whom they
      were purchased. The lead times for smart card procurement are frequently much
      longer than the period covered by firm order commitments from our customers.
      Accordingly, we may have to make inventory purchases in anticipation of customer
      orders that may never be received and we may purchase inventory some months
      in
      advance of smart cards being supplied to our customers. We assess the need
      for
      inventory reserves as of each balance sheet date based on anticipated customer
      demand. A shortfall in future demand compared with our expectations could
      materially affect our future results of operations.




**Recent
      accounting pronouncements**




For
      a
      summary of recent accounting pronouncements, see Note 2(p) to our consolidated
      financial statements.


Page
          27




**Results
      of Operations**




***Commentary
      on the fiscal year ended June 30, 2008 versus the fiscal year ended June 30,
      2007***




*Revenue*




Revenue
      for the periods under review was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **% Change**Conditional
                access
            
            $
            463,409
            
            $
            396,420
            
            $
            66,989
            
            
            17
            %Integration,
                development & support
            
            
            56,062
            
            
            56,201
            
            
            (139
            )
            
            ─License
                fees & royalties
            
            
            119,803
            
            
            107,349
            
            
            12,454
            
            
            12
            %New
                technologies
            
            
            201,580
            
            
            143,495
            
            
            58,085
            
            
            40
            %Other
            
            
            9,294
            
            
            6,027
            
            
            3,267
            
            
            54
            %Total
                revenue
            
            $
            850,148
            
            $
            709,492
            
            $
            140,656
            
            
            20
            %




Revenue
      comparisons for the fiscal year ended June 30, 2008 to the fiscal year ended
      June 30, 2007 were affected by the relative weakness of the U.S. dollar over
      the
      periods. Approximately 46% of our revenue was denominated in currencies other
      than the U.S. dollar, principally pounds sterling and euros, during the fiscal
      year ended June 30, 2008. We estimate that the weaker U.S. dollar favorably
      impacted our total revenue for the fiscal year ended June 30, 2008 by
      approximately $27 million, or 3%, compared to what would have been achieved
      had
      foreign exchange rates been consistent with those prevailing during the fiscal
      year ended June 30, 2007.




Revenue
      from conditional access increased by 17% during the fiscal year ended June
      30,
      2008 as compared to the fiscal year ended June 30, 2007. The increase was
      principally due to recognition of a portion of security services revenue
      previously deferred as certain remaining revenue recognition criteria were
      satisfied during the fiscal year ended June 30, 2008. Additionally, conditional
      access revenue rose due to increased security fees arising from the growth
      of
      the subscriber base of our customers, offset in part by certain price
      reductions, as well as an increase in customers and a higher volume of smart
      cards delivered to customers.




Authorized
      smart card activity in each period was as follows:




**For the fiscal years ended June 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of devices protected by NDS conditional access technology, beginning
                of
                period
            
            
            75.4
            
            
            65.0Net
                additions
            
            
            14.9
            
            
            10.4Number
                of devices protected by NDS conditional access technology, end of
                period
            
            
            90.3
            
            
            75.4




The
      quantity of smart cards delivered in each period was as follows:




**For the fiscal years ended June 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of smart cards delivered for which revenue was recognized in the
                period
            
            
            32.4
            
            
            25.9Number
                of smart cards delivered for which no revenue was recognized in the
                period
            
            
            4.9
            
            
            0.4Total
                number of smart cards delivered
            
            
            37.3
            
            
            26.3


Page
          28




The
      increase in the number of smart cards delivered in the fiscal year ended June
      30, 2008 as compared to the fiscal year ended June 30, 2007, principally
      reflects higher deliveries to existing customers and to new customers. The
      volume of smart cards supplied exceeded the increase in authorized smart cards
      in use due to a mixture of churn and by the build-up of inventory by platform
      operators.




The
      number of smart cards shipped during the fiscal year ended June 30, 2008 for
      which revenue was recognized includes 0.8 million smart cards supplied as an
      integral part of a security maintenance contract and for which revenue is
      recognized over the term of the security maintenance contract. The equivalent
      number of smart cards supplied during the fiscal year ended June 30, 2007 was
      0.4 million. The number of authorized cards covered by this type of arrangement
      was 1.5 million as of June 30, 2008 and 1.2 million as of June 30, 2007. We
      currently expect a higher number of shipped and authorized cards to be covered
      by this type of arrangement in the fiscal year ending June 30, 2009 and
      beyond.




During
      the fiscal year ended June 30, 2008 we delivered 4.9 million smart cards to
      customers for which we have not recognized any revenue, as compared to 0.4
      million during the fiscal year ended June 30, 2007. These deliveries relate
      to
      new customers, primarily in Europe and Asia-Pacific, where our contractual
      arrangements include elements that were undelivered as of the balance sheet
      date
      and for which we do not have vendor-specific objective evidence of fair value.
      In accordance with our accounting policies, we are precluded from recognizing
      any revenue under such arrangements until all elements have been delivered,
      or
      until we have vendor-specific objective evidence of the fair value of any
      undelivered elements. We expect to begin recognizing revenue from these
      contracts within 12 months. The cost of smart cards delivered for which no
      revenue has been recognized is included as a separate element of inventory
      in
      our consolidated balance sheets.




Integration,
      development and support revenues in the fiscal year ended June 30, 2008 was
      consistent with that recognized in the fiscal year ended June 30, 2007. The
      recognition of revenues from new customers and from the delivery of enhancements
      to several of our major customers is dependent on the timing of satisfaction
      of
      all our revenue recognition criteria and, therefore, this component of our
      revenues tends to fluctuate from period to period; however, during the periods
      under review there was little change.




License
      fee and royalty revenues increased by 12% during the fiscal year ended June
      30,
      2008, as compared to the fiscal year ended June 30, 2007, principally as a
      result of higher middleware royalty revenues as well as higher conditional
      access and EPG royalties. The increases in royalties were due to an increase
      in
      the number of platform operators and service providers that deploy our
      technology and by the growth in the number of new set-top boxes deployed or
      manufactured. Middleware royalties are driven by the number of middleware
      clients deployed. The table below shows the number of middleware clients
      deployed by our customers during each period:




**For the fiscal years ended June 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of middleware clients deployed, beginning of period
            
            
            61.8
            
            
            41.6Acquisitions
            
            
            ─
            
            
            2.0
            (1)Additions
            
            
            30.7
            
            
            18.2Number
                of middleware clients deployed, end of period
            
            
            92.5
            
            
            61.8





(1)
                Represents
                    2.0 million OpenRGTM residential gateway middleware devices developed and
                    deployed by Jungo Limited (“Jungo”) that were recognized at the time of
                    the acquisition of Jungo on December 31,
                    2006.


Page
          29


The
      increase in revenues from new technologies of 40% in the fiscal year ended
      June
      30, 2008, compared to the fiscal year ended June 30, 2007, was principally
      due
      to higher revenues from our DVR technologies, advanced middleware, IPTV, gaming
      applications and residential gateway devices. Revenue from our DVR technologies
      and advanced middleware is driven by the number of DVR clients deployed and
      the
      level of integration and development revenue recognized. The table below shows
      the cumulative number of DVR clients deployed during each period:




**For the fiscal years ended June 30,**(in millions)
            
            **2008**
            
            **2007**Number
                of DVR clients deployed, beginning of period
            
            
            7.3
            
            
            3.5Additions
            
            
            5.8
            
            
            3.8Number
                of DVR clients deployed, end of period
            
            
            13.1
            
            
            7.3




*Cost
      of goods and services sold and gross margin*




Cost
      of
      goods and services sold and gross margin for the periods under review were
      as
      follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **% Change**Cost
                of goods and services sold
            
            $
            318,540
            
            $
            268,484
            
            $
            50,056
            
            
            19
            %Gross
                margin
            
            $
            531,608
            
            $
            441,008
            
            $
            90,600
            
            
            21
            %Gross
                margin as a percentage of revenues
            
            
            62.5
            %
            
            62.2
            %
            
            
            
            
            **




**
              Not
                  meaningful.




Cost
      of
      goods and services sold increased by 19% during the fiscal year ended June
      30,
      2008 as compared to the fiscal year ended June 30, 2007, principally due to
      an
      increase in the number of our employees working on development, integration
      and
      support activities, as well as increased royalties paid to third parties for
      the
      use of their technologies and higher deliveries of smart cards during the
      periods. The increases were partially offset by lower smart card unit
      costs.




Gross
      margin, defined as revenue less costs and expenses associated with that revenue
      ( *i.e.* ,
      cost of
      goods and services sold), is a non-GAAP financial measure. We believe that
      gross
      margin is an important measure for our management and investors. We consider
      that it gives a measure of profitability that distinguishes between those costs
      that are broadly a function of direct revenue-earning activities and costs
      that
      are of a general nature or that are incurred in the expectation of being able
      to
      earn future revenue. Cost of goods and services sold excludes charges in respect
      of amortization of intellectual property rights and other finite-lived
      intangibles that we have acquired.




Gross
      margin as a percentage of revenue was 62.5% for the fiscal year ended June
      30,
      2008 as compared to 62.2% for the prior fiscal year. The effect of an increase
      in the total amount of employee costs allocated to cost of goods and services
      sold substantially offset the revenue growth and in particular the impact of
      those elements of higher conditional access revenue and royalty revenue which
      had no associated direct costs.




*Operating
      expenses*




Operating
      expenses for the periods under review may be analyzed as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**
            
            **Change**
            
            **% Change**Research
                & development
            
            $
            198,898
            
            $
            174,400
            
            $
            24,498
            
            
            14
            %Sales
                & marketing
            
            
            48,850
            
            
            41,354
            
            
            7,496
            
            
            18
            %General
                & administration
            
            
            75,183
            
            
            53,551
            
            
            21,632
            
            
            40
            %Amortization
                of intangibles
            
            
            13,293
            
            
            11,347
            
            
            1,946
            
            
            17
            %Total
                operating expenses
            
            $
            336,224
            
            $
            280,652
            
            $
            55,572
            
            
            20
            %


Page
          30




Expense
      comparisons for the fiscal year ended June 30, 2008 to the fiscal year ended
      June 30, 2007 were affected by the relative weakness of the U.S. dollar over
      the
      periods. Approximately 75% of our total expenses were denominated in currencies
      other than the U.S. dollar, principally pounds sterling, Israeli shekels, euros
      and Indian rupees, during the fiscal year ended June 30, 2008. We estimate
      that
      the weaker U.S. dollar increased our total expenses in the fiscal year ended
      June 30, 2008 by approximately $32 million, or 5%, compared to what would have
      been achieved had foreign exchange rates been consistent with those prevailing
      during the fiscal year ended June 30, 2007. The increase in operating expenses
      was offset in part by foreign exchange gains of $17 million recognized
      during the fiscal year ended June 30, 2008 in the consolidated statement of
      operations as a result of holding cash in currencies other than the U.S. dollar
      as compared to $2 million recognized in the fiscal year ended June 30,
      2007.




Our
      main
      operating expenses are employee costs (including the cost of equity-based
      awards), facilities costs, depreciation, travel costs and legal expenses. Our
      main operating expenses have increased, primarily due to a higher number of
      employees, facilities expenses and legal costs. Employee costs were
      approximately 23% higher in U.S. dollar terms during the fiscal year ended
      June
      30, 2008 as compared to the prior fiscal year. The total cost of technical
      resources was approximately 16% higher in U.S. dollar terms during the fiscal
      year ended June 30, 2008, as compared to the fiscal year ended June 30,
      2007.




Our
      employee numbers (which include contractors) have increased over the period
      under review, as follows:




**For the fiscal years ended June 30,****2008**
            
            **2007**Number
                of employees, beginning of period
            
            
            3,572
            
            
            2,989Net
                additions
            
            
            389
            
            
            583
            (1)Number
                of employees, end of period
            
            
            3,961
            
            
            3,572Average
                number of employees during period
            
            
            3,778
            
            
            3,298








(1)
            Includes
                136 employees of Jungo, acquired on December 31,
                2006.




Research
      and development costs increased by 14% during the fiscal year ended June 30,
      2008 as compared to the fiscal year ended June 30, 2007, principally as a result
      of a higher number of employees working on an increased number of projects.
      The
      increase in the employee costs in the fiscal year ended June 30, 2008 was
      partially offset by a $6.7 million grant from the French government as a
      consequence of our being engaged in certain eligible research projects. In
      the
      fiscal year ended June 30, 2007, we received a similar grant of $5.5
      million.




Sales
      and
      marketing expenses increased by 18% in the fiscal year ended June 30, 2008,
      as
      compared to the fiscal year ended June 30, 2007, primarily as a result of higher
      employee headcount and travel costs, increased attendance at trade shows and
      a
      higher level of corporate communications activities.




General
      and administrative expenses increased by 40% in the fiscal year ended June
      30,
      2008, as compared to the fiscal year ended June 30, 2007, primarily due to
      increased legal expenses, as well as equity compensation costs and facilities
      and infrastructure costs.




Amortization
      of finite-lived intangible assets increased by 17% in the fiscal year ended
      June
      30, 2008, as compared to the fiscal year ended June 30, 2007, principally due
      to
      the acquisition of Jungo in December 2006.




*Operating
      income and other items*




As
      a
      result of the factors outlined above, and, in particular, the increase in
      conditional access and new technologies revenue and the impact of foreign
      currency exchange rate movements, operating income was $195.4 million, or 23.0%
      of revenue, for the fiscal year ended June 30, 2008, compared to
      $160.4 million, or 22.6% of revenue, for the fiscal year ended June 30,
      2007.


Page
          31


The
      principal foreign currency exchange rates that affected our consolidated results
      of operations and balance sheets were:




**Average exchange rate for the**
              **fiscal year ended June 30,**
            
            **Period-end exchange rate as of**
              **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**U.S
                dollar / U.K. pound sterling
            
            
            0.4992
            
            
            0.5178
            
            
            0.5016
            
            
            0.4984U.S.
                dollar / Euro
            
            
            0.6816
            
            
            0.7664
            
            
            0.6350
            
            
            0.7396U.S.
                dollar / Israeli shekel
            
            
            3.7962
            
            
            4.1572
            
            
            3.3719
            
            
            4.2511U.S.
                dollar / Indian rupee
            
            
            40.2190
            
            
            44.0530
            
            
            42.7800
            
            
            40.5800




We
      estimate that the weaker U.S. dollar increased our operating income in the
      fiscal year ended June 30, 2008 by approximately $12 million, or 6%,
      compared to what would have been achieved had foreign exchange rates been
      consistent with those prevailing during the fiscal year ended June 30,
      2007.




Interest
      income earned on cash deposits was $27.1 million in the fiscal year ended June
      30, 2008 as compared to $25.3 million in the fiscal year ended June 30,
      2007. These increases were principally due to higher cash balances, offset
      in
      part by lower average interest rates.




During
      the fiscal year ended June 30, 2008, we incurred other expenses of $2.5 million
      in legal and professional fees associated with the proposed transaction
      submitted by News Corporation and Permira. Further costs associated with this
      transaction may be incurred in the fiscal year ending June 30,
      2009.




Our
      effective tax rate was 27.2% for the fiscal year ended June 30, 2008 compared
      to
      26.9% for the fiscal year ended June 30, 2007. The increase in the
      effective tax rate was principally due to a higher proportion of disallowable
      expenses offset in part by lower statutory tax rates. In July 2007, the U.K.
      government enacted legislation that reduced the standard U.K. corporate tax
      rate
      to 28%, effective April 1, 2008. The statutory tax rate on the Company’s
      U.K. taxable profits is 29.5% for the fiscal year ended June 30, 2008 and 28%
      thereafter.




As
      a
      consequence of all the factors described above, net income for the fiscal year
      ended June 30, 2008 was $160.1 million, or $2.76 per share ($2.72 per share
      on a
      diluted basis), compared to $135.7 million, or $2.37 per share ($2.33 per
      share on a diluted basis), for the fiscal year ended June 30, 2007.




***Commentary
      on the fiscal year ended June 30, 2007 versus the fiscal year ended June 30,
      2006***




*Revenue*




Revenue
      for the periods under review was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **% Change**Conditional
                access
            
            $
            396,420
            
            $
            350,667
            
            $
            45,753
            
            
            13
            %Integration,
                development & support
            
            
            56,201
            
            
            46,903
            
            
            9,298
            
            
            20
            %License
                fees & royalties
            
            
            107,349
            
            
            88,686
            
            
            18,663
            
            
            21
            %New
                technologies
            
            
            143,495
            
            
            106,193
            
            
            37,302
            
            
            35
            %Other
            
            
            6,027
            
            
            7,674
            
            
            (1,647
            )
            
            (22
            )%Total
                revenue
            
            $
            709,492
            
            $
            600,123
            
            $
            109,369
            
            
            18
            %




The
      13%
      increase in conditional access revenues during the fiscal year ended June 30,
      2007 as compared to the fiscal year ended June 30, 2006, was principally due
      to
      higher security fees and a higher volume of smart cards delivered to customers.
      Higher security fees arise from increases in the number of authorized smart
      cards in use at our broadcast platform customers. In some instances, a portion
      of the security fee includes a requirement to replace a population of smart
      cards with a supply of “changeover cards,” which is considered a separate unit
      of accounting. In such instances, an amount of the security fee is deferred
      and
      recognized when the changeover cards are delivered. For the fiscal year ended
      June 30, 2007, the proportion of gross security fee revenue deferred for
      changeover cards was lower than in the fiscal year ended June 30, 2006, as
      a
      majority of customers to whom we had such obligations postponed the timing
      of
      changeover from what we had originally estimated.


Page
          32




Authorized
      smart card activity in each period was as follows:




**For the fiscal years ended June 30,**(in millions)
            
            **2007**
            
            **2006**Number
                of devices protected by NDS conditional access technology, beginning
                of
                period
            
            
            65.0
            
            
            56.7Net
                additions
            
            
            10.4
            
            
            8.3Number
                of devices protected by NDS conditional access technology, end of
                period
            
            
            75.4
            
            
            65.0




The
      quantity of smart cards delivered in each period was as follows:




**For the fiscal years ended June 30,**(in millions)
            
            **2007**
            
            **2006**Number
                of smart cards delivered
            
            
            26.3
            
            
            24.4




The
      increase in the number of smart cards delivered in the fiscal year ended June
      30, 2007 as compared to the fiscal year ended June 30, 2006, principally
      reflected deliveries to new customers in Europe, China and India. The volume
      of
      smart cards supplied exceeded the increase in authorized smart cards in use
      due
      to a mixture of churn and by the build-up of inventory by platform
      operators.




Integration,
      development and support revenues increased by 20% in the fiscal year ended
      June
      30, 2007, compared to the fiscal year ended June 30, 2006, due principally
      to
      the recognition of revenue from the delivery of conditional access, EPG and
      middleware to TataSky, which commenced broadcasting in India in August
      2006.




License
      fee and royalty revenues increased by 21% during the fiscal year ended June
      30,
      2007, as compared to the fiscal year ended June 30, 2006, principally as a
      result of higher conditional access and EPG royalties due to an increase in
      the
      number of platform operators and service providers that deploy our technology.
      This increase was partially offset by a decrease in the number of middleware
      clients deployed during the fiscal year ended June 30, 2007 as compared to
      the
      fiscal year ended June 30, 2006. The table below sets forth the number of
      middleware clients deployed by our customers during the fiscal years ended
      June
      30, 2007 and 2006:




**For the fiscal years ended June 30,**(in millions)
            
            **2007**
            
            **2006**Number
                of middleware clients deployed, beginning of period
            
            
            41.6
            
            
            20.4Acquisitions
            
            
            2.0
            (1)
            
            ─Additions
            
            
            18.2
            
            
            21.2Number
                of middleware clients deployed, end of period
            
            
            61.8
            
            
            41.6








(1)
            Represents
                2.0 million OpenRGTM residential gateway middleware devices developed and
                deployed by Jungo that were recognized at the time of the acquisition
                of
                Jungo on December 31, 2006.




The
      decrease in additions during the fiscal year ended June 30, 2007, as compared
      with the fiscal year ended June 30, 2006, was due to the fact that the volume
      of
      MediaHighway set-top boxes enabled during the fiscal year ended June 30, 2006
      was unusually high because DIRECTV commenced the initial download of our
      MediaHighway middleware and other related technologies in certain new models
      of
      set-top boxes in use by their subscribers during that period.


Page
          33




The
      increase in revenues from new technologies of 35% in the fiscal year ended
      June
      30, 2007, as compared to the fiscal year ended June 30, 2006, was principally
      due to higher revenues from our DVR technologies and advanced middleware, gaming
      applications and residential gateway devices. The higher revenues from our
      DVR
      technologies was a result of an increase in the cumulative number of DVR clients
      deployed during the fiscal year ended June 30, 2007.




The
      increase in the cumulative number of DVR clients deployed in each period was
      as
      follows:




**For the fiscal years ended June 30,**(in millions)
            
            **2007**
            
            **2006**Number
                of DVR clients deployed, beginning of period
            
            
            3.5
            
            
            1.4Additions
            
            
            3.8
            
            
            2.1Number
                of DVR clients deployed, end of period
            
            
            7.3
            
            
            3.5




In
      addition to the matters referred to above, comparisons of revenues for the
      fiscal year ended June 30, 2007 to the fiscal year ended June 30, 2006 were
      also
      affected by the relative weakness of the U.S. dollar over the periods.
      Approximately 50% of our revenues during the fiscal year ended June 30, 2007
      were denominated in currencies other than the U.S. dollar (principally pounds
      sterling and euros). We estimate that the weaker U.S. dollar has favorably
      impacted our total revenues for the fiscal year ended June 30, 2007 by
      approximately $26 million, or 4%, compared to the fiscal year ended June 30,
      2006.




*Cost
      of goods and services sold and gross margin*




Cost
      of
      goods and services sold and gross margin for the periods under review were
      as
      follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **% Change**Cost
                of goods and services sold
            
            $
            268,484
            
            $
            242,622
            
            $
            25,862
            
            
            11
            %Gross
                margin
            
            $
            441,008
            
            $
            357,501
            
            $
            83,507
            
            
            23.4
            %Gross
                margin as a percentage of revenues
            
            
            62.2
            %
            
            59.6
            %
            
            2.6
            %
            
            **








**
            Not
                meaningful.




Cost
      of
      goods and services sold increased by 11% during the fiscal year ended June
      30,
      2007 as compared to the fiscal year ended June 30, 2006, principally due to
      an
      increase in the number of our employees working on development, integration
      and
      support activities, as well as increased royalties paid to third parties for
      the
      use of their technologies and higher deliveries of smart cards during the
      periods. The increases were partially offset by lower smart card unit
      costs.




Because
      revenues increased by more than cost of goods and services sold, gross margin
      as
      a percentage of revenues was 62.2% for the fiscal year ended June 30, 2007,
      compared to 59.6% in the fiscal year ended June 30, 2006.




*Operating
      expenses*




Operating
      expenses for the periods under review may be analyzed as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**
            
            **Change**
            
            **% Change**Research
                & development
            
            $
            174,400
            
            $
            145,523
            
            $
            28,877
            
            
            20
            %Sales
                & marketing
            
            
            41,354
            
            
            30,713
            
            
            10,641
            
            
            35
            %General
                & administration
            
            
            53,551
            
            
            41,083
            
            
            12,468
            
            
            30
            %Amortization
                of intangibles
            
            
            11,347
            
            
            9,453
            
            
            1,894
            
            
            20
            %Total
                operating expenses
            
            $
            280,652
            
            $
            226,772
            
            $
            53,880
            
            
            24
            %


Page
          34




Our
      main
      operating expenses have increased in the fiscal year ended June 30, 2007,
      primarily due to a higher number of employees and the related increase in
      payroll, employee travel and facilities costs. Employee costs were approximately
      24% higher during the fiscal year ended June 30, 2007, as compared to the fiscal
      year ended June 30, 2006. The increase in operating expenses for the fiscal
      year ended June 30, 2007 also reflects the full-year impact of investments
      made
      in new facilities and infrastructure during the latter part of the fiscal year
      ended June 30, 2006.




Our
      employee numbers (including contractors) increased over the periods under
      review, as follows:




**For the fiscal years ended June 30,****2007**
            
            **2006**Number
                of employees, beginning of period
            
            
            2,989
            
            
            2,508Net
                additions
            
            
            583
            (1)
            
            481Number
                of employees, end of period
            
            
            3,572
            
            
            2,989Average
                number of employees during period
            
            
            3,298
            
            
            2,765







(1)
            Includes
                136 employees of Jungo, acquired on December 31,
                2006.




Research
      and development costs increased by 20% for the fiscal year ended June 30, 2007,
      as compared to the fiscal year ended June 30, 2006, principally as a result
      of
      higher employee headcount due to more research and development being performed,
      which was partially offset by a $5.5 million grant from the French government
      as
      a consequence of our being engaged in certain eligible research projects. In
      the
      fiscal year ended June 30, 2006, we received an equivalent grant of
      $5.3 million.




Sales
      and
      marketing expenses increased by 35% in the fiscal year ended June 30, 2007,
      as
      compared to the fiscal year ended June 30, 2006, as a result of higher employee
      headcount and travel costs, increased attendance at trade shows and a higher
      level of corporate communications activities.




General
      and administrative expenses increased by 30% in the fiscal year ended June
      30,
      2007, as compared to the fiscal year ended June 30, 2006, primarily due to
      higher equity compensation costs, higher legal expenses and business development
      costs, and higher facilities and infrastructure costs.




Amortization
      of finite-lived intangible assets increased by 20% in the fiscal year ended
      June
      30, 2007, as compared to the fiscal year ended June 30, 2006, principally due
      to
      the acquisition of Jungo in December 2006.




In
      addition to the matters referred to above, comparisons of expenses for the
      fiscal year ended June 30, 2007 to the fiscal year ended June 30, 2006 were
      also
      affected by the relative weakness of the U.S. dollar. In the fiscal year ended
      June 30, 2007, approximately 72% of our total expenses were denominated in
      currencies other than the U.S. dollar (principally pounds sterling, Israeli
      shekels and euros). We estimate that the weaker U.S. dollar has increased our
      total expenses in the fiscal year ended June 30, 2007 by approximately $28
      million, or 5%, compared to the fiscal year ended June 30, 2006.




*Operating
      income and other items*




As
      a
      result of the factors outlined above, operating income was $160.4 million,
      or
      22.6% of revenue, for the fiscal year ended June 30, 2007, compared to $130.7
      million, or 21.8% of revenue, for the fiscal year ended June 30, 2006. We
      estimate that the weaker U.S. dollar reduced our operating income in the fiscal
      year ended June 30, 2007 by approximately $2.0 million compared to the fiscal
      year ended June 30, 2006 and that this reduced our operating margin by
      approximately 1%.




Interest
      income earned on cash deposits was $25.3 million in the fiscal ended June 30,
      2007, as compared to $15.9 million in the fiscal year ended June 30, 2006.
      This
      was due to higher average cash balances and higher interest rates.




Our
      effective tax rate was 26.9% for the fiscal year ended June 30, 2007, compared
      to 30.9% for the fiscal year ended June 30, 2006. This was due to higher
      benefits from research and development incentives, the release of deferred
      tax
      asset valuation reserves and a higher portion of earnings being generated in
      jurisdictions with lower statutory tax rates. During the fiscal year ended
      June 30, 2007, we determined that it was more likely than not that certain
      net operating loss carryforwards would be recoverable and, accordingly, reversed
      the related valuation reserve.


Page
          35




As
      a
      consequence of all these factors, net income for the fiscal year ended June
      30,
      2007 was $135.7 million, or $2.37 per share ($2.33 per share on a diluted
      basis), compared to $101.0 million, or $1.80 per share ($1.74 per share on
      a
      diluted basis), for the fiscal year ended June 30, 2006.




**Liquidity
      and Capital Resources**




***Current
      financial condition***




Our
      principal source of liquidity is internally generated funds; however we also
      have access to the worldwide capital markets. As of June 30, 2008, we had an
      unused credit facility to borrow up to £30 million (equivalent to approximately
      $60 million) from a subsidiary of News Corporation. No amounts were drawn
      under this facility during the three fiscal years ended June 30,
      2008.




As
      of
      June 30, 2008, we had cash and cash equivalents of $735.0 million. Our
      accumulated cash is currently being held with the intention of using it for
      the
      future development of the business. Except in extraordinary circumstances,
      there
      are no plans to pay any dividends to shareholders. We intend to keep this policy
      under review and will consider whether it is appropriate to pay dividends in
      the
      future. We believe that we have sufficient working capital resources for our
      present requirements. Our internally generated funds are dependent on the
      continued profitability of our business.




The
      principal uses of cash that affect the Company’s liquidity position include
      purchases of smart cards, operational expenditures, capital expenditures,
      acquisitions and income tax payments.




We
      continue to invest in technical equipment for use in research and development
      and in supporting our customers. We have received payment from customers in
      advance of recognizing revenue (deferred income) of $207.4 million as of June
      30, 2008 and we expect to utilize cash to meet our obligations under our
      arrangements with our customers. We have evaluated, and expect to continue
      to
      evaluate, possible acquisitions and dispositions of certain businesses. Such
      transactions may be material and may involve cash, our securities and/or the
      assumption of indebtedness.




***Sources
      and uses of cash – fiscal year ended June 30, 2008 versus fiscal year ended June
      30, 2007***




We
      had a
      net inflow of cash and cash equivalents of $124.7 million in the fiscal year
      ended June 30, 2008, compared to a net inflow of cash and cash equivalents
      of
      $267.9 million in the fiscal year ended June 30, 2007.




Net
      cash
      provided by operating activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**Net
                cash provided by operating activities
            
            $
            141,923
            
            $
            173,953




The
      decrease in net cash provided by operating activities in the fiscal year ended
      June 30, 2008 reflected higher payments relating to payroll costs, travel
      expenses, rent and facilities costs, legal expenses and income taxes, compared
      to those in the fiscal year ended June 30, 2007, as a result of an increase
      in
      the number of employees and the legal proceedings described to in Item 3 of
      this
      Annual Report on Form 10-K. Net cash provided by operating activities includes
      receipts under security maintenance contracts where we have assumed the
      liability to procure and supply changeover cards in future periods. These
      arrangements resulted in higher cash payments for the purchase of smart cards
      in
      the fiscal year ended Jun 30, 2008 and we currently expect to purchase further
      inventory in future periods in order to satisfy our obligations. These factors
      were offset in part by higher receipts from customers. Net cash provided from
      operations in the fiscal year ended June 30, 2008 is net of payments of $33.2
      million made to customers at inception of a contract which will be repaid out
      of
      future revenues over the term of the contract. Equivalent payments made in
      the
      fiscal year ended June 30, 2007 were not material.


Page
          36




Net
      cash
      provided by / (used in) investing activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**Capital
                expenditure (net)
            
            $
            (16,823
            )
            $
            (25,149
            )Business
                acquisitions, net of cash acquired
            
            
            (10,466
            )
            
            (83,215
            )Decrease
                in short-term investments (net)
            
            
            ─
            
            
            184,401Net
                cash (used in)/provided by investing activities
            
            $
            (27,289
            )
            $
            76,037




Capital
      expenditure was lower in the fiscal year ended June 30, 2008 than in the fiscal
      year ended June 30, 2007 because of lower investments in new facilities than
      in
      the fiscal year ended June 30, 2007. We continue to invest in technical
      equipment for use in research and development and in supporting our
      customers.




In
      the
      fiscal year ended June 30, 2008, we acquired CastUp for initial consideration
      and costs of $10.4 million. In the fiscal year ended June 30, 2007, we acquired
      Jungo for initial consideration and costs of $77.6 million, net of cash acquired
      and we also acquired Interactive Television Entertainment ApS for total cash
      consideration of $3.2 million.




During
      the fiscal year ended June 30, 2007, short-term investments (cash deposits
      with
      an initial term of more than six months) of $184.4 million matured and we did
      not reinvest such funds as longer-term deposits because the differential in
      interest rates between longer- and shorter-term deposits was
      negligible.




Net
      cash
      provided by financing activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2008**
            
            **2007**Issuance
                of shares
            
            $
            8,664
            
            $
            13,889Excess
                tax benefits realized on shares issued as a result of equity compensation
                awards
            
            
            1,366
            
            
            4,033Net
                cash provided by financing activities
            
            $
            10,030
            
            $
            17,922




During
      the fiscal year ended June 30, 2008, we issued 469,638 Series A Ordinary Shares
      upon the exercise by employees, directors and executive officers of stock
      options with an average exercise price of $20.31 per share. This compares to
      the
      issuance of 845,642 Series A Ordinary Shares upon the exercise of stock options
      with an average exercise price of $16.68 per share in the fiscal year ended
      June
      30, 2007.




***Sources
      and uses of cash – fiscal year ended June 30, 2007 versus fiscal year ended June
      30, 2006***




We
      had a
      net inflow of cash and cash equivalents of $267.9 million in the fiscal year
      ended June 30, 2007, compared to a net outflow of cash and cash equivalents
      of
      $23.4 million in the fiscal year ended June 30, 2006.




Net
      cash
      provided by operating activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**Net
                cash provided by operating activities
            
            $
            173,953
            
            $
            163,908




The
      increase in net cash provided by operating activities in the fiscal year ended
      June 30, 2007 reflects higher receipts from customers. These factors were offset
      in part by higher payments relating to the purchase of smart cards, payroll
      costs, travel expenses, rent and facilities costs and income taxes, compared
      to
      fiscal year ended June 30, 2006, as a result of an increase in the number of
      employees. Net cash provided by operating activities includes receipts under
      security maintenance contracts where we have assumed the liability to procure
      and supply changeover cards in future periods.


Page
          37




Net
      cash
      provided by/(used in) investing activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**Capital
                expenditure (net)
            
            $
            (25,149
            )
            $
            (29,416
            )Business
                acquisitions, net of cash acquired
            
            
            (83,215
            )
            
            (3,118
            )Decrease/(Increase)
                in short-term investments (net)
            
            
            184,401
            
            
            (184,401
            )Net
                cash provided by/(used in) investing activities
            
            $
            76,037
            
            $
            (216,935
            )




The
      decrease in capital expenditure in the fiscal year ended June 30, 2007 compared
      to the fiscal year ended June 30, 2006 reflected the high investment in new
      facilities in the United Kingdom and the United States in the fiscal year ended
      June 30, 2006.




In
      the
      fiscal year ended June 30, 2007, we acquired Jungo for initial cash
      consideration and costs totaling $77.6 million, net of cash acquired. During
      the
      fiscal year ended June 30, 2007, and Interactive Television Entertainment ApS
      for total cash consideration of $3.2 million.




In
      the
      fiscal year ended June 30, 2006, we acquired NT Media Limited for initial cash
      consideration and costs totaling $3.1 million, net of cash acquired. A
      further $2.4 million was paid in connection with this acquisition in the fiscal
      year ended June 30, 2007..




During
      the fiscal year ended June 30, 2006, we invested $184.4 million in short term
      investments (cash deposits with an initial term of more than six months). These
      cash deposits matured during the fiscal year ended June 30, 2007 and we did
      not
      reinvest such funds as longer-term deposits because the differential in interest
      rates between longer- and shorter-term deposits was negligible.




Net
      cash
      provided by financing activities was as follows:




**For the fiscal years ended June 30,**(in thousands)
            
            **2007**
            
            **2006**Issuance
                of shares
            
            $
            13,889
            
            $
            21,769Excess
                tax benefits realized on exercise of stock options
            
            
            4,033
            
            
            7,828Net
                cash provided by financing activities
            
            $
            17,922
            
            $
            29,597




During
      the fiscal year ended June 30, 2007, we issued 845,642
      Series A Ordinary Shares upon the exercise by employees, directors and executive
      officers of stock options with an average exercise price of $16.68 per
      share. This
      compares to the issuance of 1,554,716 Series A Ordinary Shares upon the exercise
      of stock options with an average exercise price of $14.00 per share in the
      fiscal year ended June 30, 2006.




***Off-balance
      sheet arrangements***




We
      have
      no off-balance sheet arrangements, as defined in Item 303 of Regulation
      S-K.


Page
          38


***Tabular
      disclosure of contractual obligations***




We
      have
      commitments under certain firm contractual arrangements (“firm commitments”) to
      make future payments. These firm commitments secure the future rights to various
      assets and services to be used in the normal course of operations. The following
      table summarizes our material firm commitments as of
      June 30, 2008.




**Payments Due by Period**(in thousands)
            
            **Total**
            
            **Less than**
              **1 year**
            
            **1-3 years**
            
            **3-5 years**
            
            **More**
              **than 5**
              **years**Operating
                lease obligations
            
            $
            118,249
            
            $
            25,636
            
            $
            39,091
            
            $
            26,813
            
            $
            26,709Smart
                card purchase obligations
            
            
            25,540
            
            
            25,540
            
            
            ─
            
            
            ─
            
            
            ─Payments
                to vendors of businesses acquired(1)
            
            
            2,401
            
            
            2,401
            
            
            ─
            
            
            ─
            
            
            ─Other
                long-term obligations reflected on the balance sheet under
                GAAP(2)
            
            
            275,131
            
            
            128,318
            
            
            67,804
            
            
            11,296
            
            
            67,713Total
            
            $
            421,321
            
            $
            181,895
            
            $
            106,895
            
            $
            38,109
            
            $
            94,422





(1)
            Amount
                represents accrued consideration payable to the vendors of CastUp,
                which
                we acquired during the fiscal year ended June 30, 2008, and NT Media
                Limited, which we acquired during the fiscal year ended June 30,
                2006. An
                additional amount of up to $0.8 million may be payable to the vendors
                of NT Media Limited, contingent upon the revenue of the acquired
                business
                for periods up to September 1,
                2008.





(2)
            Comprising
                deferred income of $207.4 million (of which $128.3 million is included
                within current liabilities), and non-current accrued expenses of
                severance
                pay liabilities of $58.7 million and pension liabilities of $9.0
                million.




In
      the
      normal course of business, we provide, and from time to time make payments
      in
      respect of, indemnification agreements of varying scopes, including warranties
      concerning the security of our smart cards, limited product warranties and
      indemnification of customers against claims of intellectual property
      infringement made by third parties arising from the use of our products or
      services. Also, we may be subject to liquidated damages in the event of late
      delivery of goods or services. The nature of these commitments has been
      considered in determining the revenue and costs recognized in the accompanying
      consolidated financial statements. Costs are accrued for known warranty and
      indemnification issues if a loss is probable and can be reasonably estimated.
      Historically, costs related to these warranties and indemnification agreements
      have not been significant, but because potential future costs are highly
      variable, we are unable to estimate the maximum potential impact of these
      guarantees on our future results of operations.




The
      nature of our business is such that we may be subject to claims by third parties
      alleging infringements of various intellectual property rights. We intend to
      vigorously defend ourselves against any such claims. Where a liability arising
      from these claims is probable, an accrual is made based on our management’s best
      estimate. It is not considered that any resulting liability in excess of amounts
      recognized in our consolidated financial statements would materially affect
      our
      financial position.




Amounts
      payable by us under certain contracts are subject to audit rights held by third
      parties and the terms of such contracts may be open to subjective
      interpretation. We settle our liabilities under such contracts based on our
      assessment of the amounts due. However, we may be subject to claims that the
      amounts paid are incorrect. It is not considered that any resulting liability
      in
      excess of amounts recognized in the accompanying consolidated financial
      statements would materially affect our financial position.




We
      experience routine litigation in the normal course of our business. We believe
      that none of our pending litigation will have a material adverse effect on
      our
      consolidated financial condition, future results of operations or
      liquidity.




Our
      operations are subject to tax in various domestic and international
      jurisdictions and, as a matter of course, We are regularly audited by U.K.
      and
      overseas tax authorities. We believe that we have appropriately accrued for
      the
      expected outcome of all pending tax matters and do not currently anticipate
      that
      the ultimate resolution of pending tax matters will have a material adverse
      effect on our consolidated financial condition, future results of operations
      or
      liquidity.


Page
          39




**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




We
      are
      exposed to changes in foreign exchange rates. We operate in international
      markets and have an operational presence in several countries. Accordingly,
      our
      costs and revenue are primarily denominated in a mixture of U.S. dollars,
      Israeli shekels, pounds sterling, euros and Indian rupees.




Approximately
      46% of our revenue was denominated in currencies other than the U.S. dollar,
      principally pounds sterling and euros, during the fiscal year ended June 30,
      2008. We estimate that the weaker U.S. dollar favorably impacted our total
      revenue for the fiscal year ended June 30, 2008 by approximately $27 million,
      or
      3%, compared to what would have been achieved had foreign exchange rates been
      consistent with those prevailing during fiscal year ended June 30,
      2007.




Approximately
      75% of our total expenses were denominated in currencies other than the U.S.
      dollar, principally pounds sterling, Israeli shekels, euros and Indian rupees,
      during the fiscal year ended June 30, 2008. We estimate that the weaker U.S.
      dollar increased our total expenses in the fiscal year ended June 30, 2008
      by
      approximately $32 million, or 5%, compared to what would have been achieved
      had
      foreign exchange rates been consistent with those prevailing during the fiscal
      year ended June 30, 2007.




As
      a
      result of fluctuations in foreign exchange rates, we experienced net gains
      on
      cash holdings of $18 million in the fiscal year ended June 30, 2008, of which
      a
      gain of approximately $17 million was recorded within operating expenses, and
      a
      gain of approximately $1 million was recorded within other comprehensive income.
      This gain arose because we were able to purchase currencies to fund planned
      expenditure at exchange rates that proved to be more favorable than the average
      exchange rates for the period, and hence offset in part the adverse impact
      of
      foreign exchange rates on our expenses.




We
      estimate that the weaker U.S. dollar increased our operating income in the
      fiscal year ended June 30, 2008 by approximately $12 million, or 6%, compared
      to
      what would have been achieved had foreign exchange rates been consistent with
      those prevailing during the fiscal year ended June 30, 2007.




As
      of
      June 30, 2008, approximately 62% of our cash was held in U.S. dollars, 13%
      in
      pounds sterling and 3% in Israeli shekels, with most of the remaining balance
      held in euros. Our policy is to hold cash in U.S. dollar bank deposits and
      to
      hold cash in other currencies to the extent that our cash flow projections
      indicate that we have need for those other currencies. In addition, a portion
      of
      our cash holdings is held in currencies other than the U.S. dollar in order
      to
      limit the impact on changes in exchange rates on our forecast operating income
      and net income, but, as a consequence, such practice introduces an element
      of
      exposure to movements in foreign exchange rates in respect of cash balances.
      Where we require other currencies or identify a surplus of non-U.S. dollar
      cash
      balances, we may make purchases or sales on the spot market. Historically,
      we
      have not entered into free-standing derivative contracts to hedge foreign
      exchange exposure arising from operating activities. We expect to review this
      policy from time to time as circumstances change. We had no derivative
      instruments outstanding as of June 30, 2008.




Our
      cash
      holdings are in excess of our immediate operating requirements; therefore,
      we
      are exposed to changes in market interest rates on cash deposits. We estimate
      that a decline in market interest rates available for cash deposits of one
      percentage point would decrease our annual interest income by approximately
      $7
      million based on total cash on deposit of approximately $700
      million.


Page
          40






**ITEM 8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**




**Index
      to the Consolidated Financial Statements of NDS Group plc**




**Page**Report
                of Independent Registered Public Accounting Firm
            
            42Consolidated
                Statements of Operations for the fiscal years ended June 30, 2008,
                2007
                and 2006
            
            43Consolidated
                Balance Sheets as of June 30, 2008 and 2007
            
            44Consolidated
                Statements of Cash Flows for the fiscal years ended June 30, 2008,
                2007
                and 2006
            
            45Consolidated
                Statements of Shareholders’ Equity and Other Comprehensive Income for the
                fiscal years ended June 30, 2008, 2007 and 2006
            
            46Notes
                to Consolidated Financial Statements
            
            48




Page
          41


**Report
      of Independent Registered Public Accounting Firm**




The
      Board
      of Directors and Shareholders of NDS Group plc:





We
      have
      audited the accompanying consolidated balance sheets of NDS Group plc as of
      June
      30, 2008 and 2007, and the related consolidated statements of operations,
      shareholders’ equity and other comprehensive income, and cash flows for each of
      the three fiscal years in the period ended June 30, 2008. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of NDS Group
      plc
      at June 30, 2008 and 2007, and the consolidated results of its operations and
      its cash flows for each of the three years in the period ended June 30, 2008,
      in
      conformity with accounting principles generally accepted in the United
      States.





As
      described in Note 2 to the consolidated financial statements, on July 1, 2007
      the Company adopted the provisions of Financial Accounting Standards Board
      Interpretation No.48, “Accounting for Uncertainty in Income Taxes (an
      interpretation of FASB Statement No. 109).” Also, as described in Note 15 to the
      consolidated financial statements, on June 30, 2007, the Company adopted the
      provisions of Statement of Financial Accounting Standards No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Post Retirement Plans, an
      amendment to FAS 87, 88, 106 and 132(R),” and as described in Note 2 to the
      consolidated financial statements, on July 1, 2005, the Company adopted the
      provisions of Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment.”





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of NDS Group plc’s internal
      control over financial reporting as of June 30, 2008, based on criteria
      established in Internal Control─Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission, and our report dated August
      8, 2008 expressed an unqualified opinion thereon.





Ernst
                  & Young LLP





London,
      England


August
      8,
      2008





Page
          42


**NDS
      Group plc**




**Consolidated
      Statements of Operations**




**For
                the fiscal years ended June 30,**(in
                thousands, except per-share amounts)
            
            **2008**
            
            **2007**
            
            **2006****Revenue**
              (inclusive
                of $493,375, $518,238 and $458,042 from related parties)
            
            $
            850,148
            
            $
            709,492
            
            $
            600,123Cost
                of goods and services sold
              (inclusive
                of $3,812, $3,036 and $2,138 to related parties
            
            
            (318,540
            )
            
            (268,484
            )
            
            (242,622
            )Gross
                Margin
            
            
            531,608
            
            
            441,008
            
            
            357,501Operating
                expenses
              (inclusive
                of $148, $284 and $173 to related parties)
            
            
            (336,224
            )
            
            (280,652
            )
            
            (226,772
            )**Operating
                income**
            
            
            195,384
            
            
            160,356
            
            
            130,729Interest
                income, net
            
            
            27,103
            
            
            25,296
            
            
            15,446Other
                expenses
            
            
            (2,498
            )
            
            ─
            
            
            ─Income
                before income tax expense
            
            
            219,989
            
            
            185,652
            
            
            146,175Income
                tax expense
            
            
            (59,894
            )
            
            (49,925
            )
            
            (45,225
            )**Net
                income**
            
            $
            160,095
            
            $
            135,727
            
            $
            100,950**Net
                income per share:**Basic
                net income per share
            
            $
            2.76
            
            $
            2.37
            
            $
            1.80Diluted
                net income per share
            
            $
            2.72
            
            $
            2.33
            
            $
            1.74





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




Page
          43


**NDS
      Group plc**




**Consolidated
      Balance Sheets**




**As
                of June 30,**(in
                thousands, except share amounts)
            
            **2008**
            
            **2007****ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            734,992
            
            $
            592,750Accounts
                receivable, net
              (inclusive
                of $50,339 and $89,711 due from related parties)
            
            
            126,131
            
            
            134,624Accrued
                income
            
            
            46,948
            
            
            40,605Inventories,
                net
            
            
            79,659
            
            
            54,133Prepaid
                expenses
            
            
            24,904
            
            
            19,415Other
                current assets
            
            
            4,203
            
            
            3,926Total
                current assets
            
            
            1,016,837
            
            
            845,453Property,
                plant and equipment, net
            
            
            49,741
            
            
            54,801Goodwill
            
            
            134,693
            
            
            124,614Other
                intangibles, net
            
            
            55,806
            
            
            63,080Deferred
                tax assets
            
            
            17,370
            
            
            11,600Other
                non-current assets
            
            
            101,702
            
            
            45,305**Total
                assets**
            
            $
            1,376,149
            
            $
            1,144,853**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                Liabilities:**Accounts
                payable
              (inclusive
                of $4,846 and $2,165 due to related parties)
            
            $
            33,611
            
            $
            22,110Deferred
                income
            
            
            128,318
            
            
            75,777Accrued
                expenses
            
            
            87,115
            
            
            68,659Income
                tax liabilities
            
            
            24,513
            
            
            17,693Other
                current liabilities
            
            
            20,673
            
            
            18,287Total
                current liabilities
            
            
            294,230
            
            
            202,526Deferred
                income
            
            
            79,100
            
            
            157,517Accrued
                expenses
            
            
            67,713
            
            
            42,883Other
                non-current liabilities
            
            
            4,701
            
            
            3,654**Total
                liabilities**
            
            
            445,744
            
            
            406,580**Commitments
                and Contingencies:****Shareholders’
                Equity:**Series
                A ordinary shares, par value $0.01 per share
              (48,000,000
                shares authorized; 16,250,058 and 15,718,904 shares outstanding as
                of June
                30, 2008 and 2007, respectively)
            
            
            162
            
            
            157Series
                B ordinary shares, par value $0.01 per share
              (52,000,000
                shares authorized; 42,001,000 shares outstanding as of June 30, 2008
                and
                2007)
            
            
            420
            
            
            420Deferred
                shares, par value £1 per share
              (42,000,002
                shares authorized and outstanding as of June 30, 2008 and
                2007)
            
            
            64,103
            
            
            64,103Additional
                paid-in capital
            
            
            590,663
            
            
            563,388Retained
                earnings
            
            
            216,201
            
            
            56,106Other
                comprehensive income
            
            
            58,856
            
            
            54,099**Total
                shareholders’ equity**
            
            
            930,405
            
            
            738,273**Total
                liabilities and shareholders’ equity**
            
            $
            1,376,149
            
            $
            1,144,853




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




Page
          44


**NDS
      Group plc**




**Consolidated
      Statements of Cash Flows**




**For
                the fiscal years ended June 30,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2006****Operating
                activities:**Net
                income
            
            $
            160,095
            
            $
            135,727
            
            $
            100,950Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            22,368
            
            
            19,240
            
            
            17,058Amortization
                of other intangibles
            
            
            13,293
            
            
            11,347
            
            
            9,453Equity-based
                compensation
            
            
            17,128
            
            
            10,175
            
            
            6,626Other
            
            
            654
            
            
            795
            
            
            2,206Change
                in operating assets and liabilities, net of acquisitions:Inventories
            
            
            (25,526
            )
            
            (14,785
            )
            
            2,168Receivables
                and other assets
            
            
            (59,677
            )
            
            (51,407
            )
            
            (48,429
            )Deferred
                income
            
            
            (25,876
            )
            
            51,504
            
            
            45,493Accounts
                payable and other liabilities
            
            
            39,464
            
            
            11,357
            
            
            28,383Net
                cash provided by operating activities
              (inclusive
                of $443,585, $541,256 and $479,648 from related parties)
            
            
            141,923
            
            
            173,953
            
            
            163,908**Investing
                activities:**Capital
                expenditure
            
            
            (16,823
            )
            
            (25,149
            )
            
            (29,416
            )Short-term
                investments (net)
            
            
            ─
            
            
            184,401
            
            
            (184,401
            )Business
                acquisitions, net of cash acquired
            
            
            (10,466
            )
            
            (83,215
            )
            
            (3,118
            )Net
                cash (used in) provided by investing activities
            
            
            (27,289
            )
            
            76,037
            
            
            (216,935
            )**Financing
                activities:**Issuance
                of shares
              (inclusive
                of realized excess tax benefits of $1,366, $4,033 and
                $7,828)
            
            
            10,030
            
            
            17,922
            
            
            29,597**Net
                increase (decrease) in cash and cash equivalents**
            
            
            124,664
            
            
            267,912
            
            
            (23,430
            )Cash
                and cash equivalents, beginning of period
            
            
            592,750
            
            
            320,636
            
            
            339,791Currency
                exchange movements
            
            
            17,578
            
            
            4,202
            
            
            4,275**Cash
                and cash equivalents, end of period**
            
            $
            734,992
            
            $
            592,750
            
            $
            320,636





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




Page
          45


**NDS
      Group plc**




**Consolidated
      Statements of Shareholders’ Equity and Other Comprehensive
      Income**


**For
                  the fiscal years ended June 30,****2008**
              
              **2007**
              
              **2006**(in
                  thousands, except share amounts)
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount****Series
                  A ordinary shares, par value $0.01 per share:**Balance,
                  beginning of year
              
              
              15,718,904
              
              $
              157
              
              
              14,873,262
              
              $
              148
              
              
              13,318,546
              
              $
              133Shares
                  issued as equity-based compensation
              
              
              531,154
              
              
              5
              
              
              845,642
              
              
              9
              
              
              1,554,716
              
              
              15Balance,
                  end of year
              
              
              16,250,058
              
              
              162
              
              
              15,718,904
              
              
              157
              
              
              14,873,262
              
              
              148**Series
                  B ordinary shares, par value $0.01 per share:**Balance,
                  beginning and end of year
              
              
              42,001,000
              
              
              420
              
              
              42,001,000
              
              
              420
              
              
              42,001,000
              
              
              420**Deferred
                  shares, par value £1 per share:**Balance,
                  beginning and end of year
              
              
              42,000,002
              
              
              64,103
              
              
              42,000,002
              
              
              64,103
              
              
              42,000,002
              
              
              64,103**Additional
                  paid-in capital:**Balance,
                  beginning of year
              
              
              
              
              
              563,388
              
              
              
              
              
              534,668
              
              
              
              
              
              498,363Shares
                  issued as equity-based compensation
              
              
              
              
              
              8,659
              
              
              
              
              
              13,880
              
              
              
              
              
              21,754Equity-based
                  compensation, inclusive of tax benefit of $1,488, $4,665 and
                  $7,925
              
              
              
              
              
              18,616
              
              
              
              
              
              14,840
              
              
              
              
              
              14,551Balance,
                  end of year
              
              
              
              
              
              590,663
              
              
              
              
              
              563,388
              
              
              
              
              
              534,668**Retained
                  earnings (deficit):**Balance,
                  beginning of year
              
              
              
              
              
              56,106
              
              
              
              
              
              (79,621
              )
              
              
              
              
              (180,571
              )Net
                  income
              
              
              
              
              
              160,095
              
              
              
              
              
              135,727
              
              
              
              
              
              100,950Balance,
                  end of year
              
              
              
              
              
              216,201
              
              
              
              
              
              56,106
              
              
              
              
              
              (79,621
              )**Accumulated
                  other comprehensive income:**Balance,
                  beginning of year
              
              
              
              
              
              54,099
              
              
              
              
              
              47,976
              
              
              
              
              
              44,305Other
                  comprehensive income
              
              
              
              
              
              4,757
              
              
              
              
              
              11,023
              
              
              
              
              
              3,671Adjustment
                  to initially apply SFAS No. 158
              
              
              
              
              
              ─
              
              
              
              
              
              (4,900
              )
              
              
              
              
              ─Balance,
                  end of year
              
              
              
              
              
              58,856
              
              
              
              
              
              54,099
              
              
              
              
              
              47,976Retained
                  earnings (deficit) and accumulated other comprehensive income,
                  end of
                  year
              
              
              
              
              
              275,057
              
              
              
              
              
              110,205
              
              
              
              
              
              (31,645
              )**Total
                  shareholders’ equity:**Balance,
                  beginning of year
              
              
              
              
              
              738,273
              
              
              
              
              
              567,694
              
              
              
              
              
              426,753Balance,
                  end of year
              
              
              
              
              $
              930,405
              
              
              
              
              $
              738,273
              
              
              
              
              $
              567,694





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




Page
          46


**Consolidated
      Statements of Shareholders’ Equity and Other Comprehensive Income
      (continued)**




**For
                the fiscal years ended June 30,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2006****Comprehensive
                income:**Net
                income
            
            $
            160,095
            
            $
            135,727
            
            $
            100,950**Other
                comprehensive income, net of tax:**Foreign
                currency translation adjustments (nil tax effect)
            
            
            7,849
            
            
            8,785
            
            
            2,832Pension
                liability adjustment, net of tax of $1,008, ($936) and
                ($361)
            
            
            (3,092
            )
            
            2,238
            
            
            839Total
                other comprehensive income, net of tax
            
            
            4,757
            
            
            11,023
            
            
            3,671Total
                comprehensive income
            
            $
            164,852
            
            $
            146,750
            
            $
            104,621**Elements
                of accumulated other comprehensive income:***Foreign
                currency translation adjustments:*Balance,
                beginning of year
            
            $
            58,999
            
            $
            50,214
            
            $
            47,382Fiscal
                year activity (nil tax effect)
            
            
            7,849
            
            
            8,785
            
            
            2,832Balance,
                end of year
            
            
            66,848
            
            
            58,999
            
            
            50,214*Pension
                liability adjustments:*Balance,
                beginning of year
            
            
            (4,900
            )
            
            (2,238
            )
            
            (3,077
            )Fiscal
                year activity, net of tax of $1,008, ($936) and ($361)
            
            
            (3,092
            )
            
            2,238
            
            
            839Adjustment
                to initially apply SFAS No. 158, net of tax of $2,100
            
            
            ─
            
            
            (4,900
            )
            
            ─Balance,
                end of year
            
            
            (7,992
            )
            
            (4,900
            )
            
            (2,238
            )**Total
                accumulated other comprehensive income:**Total
                other comprehensive income for year, net of tax
            
            
            4,757
            
            
            11,023
            
            
            3,671Adjustment
                to initially apply SFAS No. 158, net of tax of $2,100
            
            
            ─
            
            
            (4,900
            )
            
            ─Total
                accumulated other comprehensive income, net of tax, beginning of
                year
            
            
            54,099
            
            
            47,976
            
            
            44,305Total
                accumulated other comprehensive income, net of tax,end
                of year
            
            $
            58,856
            
            $
            54,099
            
            $
            47,976


The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            47


**NDS
      Group plc**




**Notes
      to Consolidated Financial Statements**




**Note
      1.**  **Description
      of business**




NDS
      Group
      plc (the “Company”) is domiciled in the United Kingdom, incorporated in Great
      Britain and registered in England and Wales. The Company is engaged in the
      business of supplying open end-to-end digital technology and services to digital
      pay-television platform operators and content providers. The Company has
      customers throughout the world and has research and development facilities,
      customer support operations and administrative offices in the United Kingdom,
      Israel, France, Denmark, Germany, India, China, Hong Kong, South Korea,
      Australia and the United States. All reported revenue, expenses, assets,
      liabilities and cash flows relate to the continuing operations of the Company
      and its consolidated subsidiaries.





There
      is
      a common management structure across the Company, which ensures that the various
      subsidiary entities operate in a coordinated and complementary manner. The
      business is managed as a single operating unit or segment.





The
      Company is a majority owned subsidiary of News Corporation and conducts business
      transactions with a number of affiliates and subsidiaries of News
      Corporation.




**Note
      2.**  **Summary
      of significant accounting policies**




These
      consolidated financial statements of the Company are stated in U.S. dollars,
      and
      have been prepared in accordance with generally accepted accounting principles
      in the United States (“GAAP”). Unless the text indicates otherwise, all
      financial information, except share and per share amounts, is stated in
      thousands of U.S. dollars.





The
      Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
      June
      30th. Fiscal 2008 ended on June 29, 2008, fiscal 2007 ended on July 1, 2007
      and
      fiscal 2006 ended on July 2, 2006. Fiscal 2008, fiscal 2007 and fiscal 2006
      each
      comprised 52 weeks. For convenience purposes, the Company continues to date
      its
      financial statements as of June 30.





The
      significant accounting policies adopted by the Company are summarized
      below.




**a)**  **Principles
      of consolidation**




The
      Company’s consolidated financial statements include the accounts of all
      majority-owned and controlled subsidiaries. In addition, the Company evaluates
      its relationships with other entities to identify whether they are variable
      interest entities in accordance with Financial Accounting Standards Board
      (“FASB”) Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest
      Entities, an Interpretation of ARB No. 51” as revised in December 2003 (“FIN
      46R”), and to assess whether it is the primary beneficiary of such entities. If
      the determination is made that the Company is the primary beneficiary, then
      that
      entity is consolidated in accordance with FIN 46R.





All
      intercompany transactions and balances have been eliminated on consolidation.
      Acquisitions of controlled entities are accounted for using the purchase method
      of accounting. The results and cash flows of businesses acquired or sold are
      consolidated for the periods from or to the date on which control passed to
      or
      from the Company.




**b)**  **Use
      of estimates**




The
      preparation of financial statements in conformity with GAAP requires that
      management make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      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 on the financial reporting process, actual results could
      differ from those estimates.




**c)**  **Foreign
      currency**




The
      reporting currency of the Company is the U.S. dollar. The functional currency
      of
      each of the entities which are consolidated in these financial statements is
      the
      currency of the primary economic environment in which each entity
      operates.





Normal
      trading activities denominated in foreign currencies are recorded in the
      functional currency of the relevant entity at actual exchange rates as of the
      date of the transaction. Monetary assets and liabilities denominated in foreign
      currencies are reported at the rates of exchange prevailing at the balance
      sheet
      date, with any resulting gain or loss being recorded in the consolidated
      statement of operations.




Page
          48





The
      results and cash flows of entities whose functional currency is not the U.S.
      dollar are converted into U.S. dollars at the average rates of exchange during
      the period and their balance sheets at the rates prevailing at the balance
      sheet
      date. Resulting foreign exchange differences are recorded in other comprehensive
      income.




**d)**  **Cash
      and cash equivalents**




Cash
      and
      cash equivalents consist of cash on hand, cash deposits with banks repayable
      on
      demand and fixed term cash deposits with banks with original maturities of
      three
      months or less.




**e)**  **Short-term
      investments**




Short-term
      investments consist of deposits with banks with original maturities of greater
      than three months.




**f)**  **Concentration
      of credit risk**




Cash,
      cash equivalents and term deposits are maintained with several financial
      institutions. Deposits held with banks may exceed the amount of insurance
      provided on such deposits. These deposits may be redeemed upon demand or have
      original terms of up to three months. They are maintained with financial
      institutions of reputable credit and therefore bear minimal credit
      risk.




**g)**  **Inventories**




Inventories
      are valued at the lower of cost (calculated on a first in, first out basis)
      and
      market value. Cost represents purchase price and, in respect of manufactured
      or
      processed items, includes an appropriate proportion of production overheads.
      Market value is based on estimated selling price, less further costs expected
      to
      be incurred to completion and disposal. A reserve is established for obsolete,
      slow-moving or defective items where appropriate.





Contract
      work-in-progress represents the cost of purchased goods and services and the
      direct labor cost of work undertaken for customer contracts, where such costs
      can be clearly related to development and integration work for which the
      associated revenue has not been recognized.





Where
      the
      Company has supplied smart cards and other hardware as an integral part of
      a
      support and maintenance contract but has received no initial sale consideration,
      the cost of the smart cards is deferred and amortized over the term of the
      support and maintenance contract.




**h)**  **Property,
      plant and equipment**




Property,
      plant and equipment are stated at cost. Depreciation is recorded using the
      straight-line method over estimated useful lives of three to five years.
      Leasehold improvements are amortized using the straight-line method over the
      shorter of their useful lives or the life of the lease. Costs associated with
      the repair and maintenance of property are expensed as incurred.





The
      Company leases premises which it occupies under operating leases with third
      party landlords. Rentals, net of incentives, are recorded in the consolidated
      statement of operations on a straight-line basis over the primary term of the
      lease. Incentive payments related to leasehold improvements are deferred and
      recorded in the consolidated statement of operations on a straight-line basis
      over the primary term of the lease. Cash received under such incentive
      arrangements is included within net cash provided by operating
      activities.





Changes
      in circumstances, such as technological advances, changes to the Company’s
      business model or capital strategy or changes to business plans in different
      locations, could result in the actual useful lives differing from the Company’s
      estimates. In those cases where the Company determines that the useful life
      of
      buildings and equipment should be shortened, the Company would depreciate the
      asset over its revised remaining useful life thereby increasing depreciation
      expense. An impairment test is conducted if circumstances indicate that the
      carrying value may not be recoverable and any impairment is recorded in the
      consolidated statement of operations in the period in which it is
      identified.




**i)**  **Goodwill
      and other intangible assets**




The
      Company follows Statement of Financial Accounting Standard (“SFAS”) No. 142:
“Goodwill and Other Intangible Assets.” The standard requires that goodwill and
      indefinite-lived intangible assets should not be amortized. However, goodwill
      and indefinite-lived intangible assets are tested for impairment at least
      annually or more frequently if circumstances indicate that the carrying value
      is
      impaired. Any impairment is recorded in the consolidated statement of operations
      in the period in which it is identified.




Page
          49





Intellectual
      property rights purchased or licensed by the Company are included at cost as
      other intangible assets and are amortized on a straight-line basis over their
      useful economic lives. Intellectual property rights and customer relationships
      acquired by way of business combination are included within other intangible
      assets at fair value estimated as of the date of acquisition. The useful lives
      of purchased or licensed intellectual property rights and customer relationships
      are considered on a case-by-case basis. The estimates of the periods over which
      benefits will accrue to the Company in respect of other intangible asests have
      ranged from three to fourteen years. An impairment test is conducted if
      circumstances indicate that the carrying value may not be recoverable and any
      impairment is recorded in the consolidated statement of operations in the period
      in which it is identified.




**j)**  **Revenue
      recognition**




Revenue
      is recognized when persuasive evidence of an arrangement exists, the fees are
      fixed or determinable, the product or service has been delivered and
      collectability is reasonably assured. Revenue is stated net of value added
      and
      similar taxes. The Company considers the terms of each arrangement to determine
      the appropriate accounting treatment.





Where
      an
      arrangement includes more than incidental software elements, the Company follows
      Statement of Position 97-2: “Software Revenue Recognition” (“SOP 97-2”). Where
      an arrangement does not involve the supply of software and that arrangement
      is
      separate from an arrangement for the supply of software, the Company follows
      Staff Accounting Bulletin No. 104: “Revenue Recognition,” (“SAB 104”) and
      Emerging Issues Task Force Issue No. 00-21: “Revenue Arrangements with Multiple
      Deliverables” (“EITF 00-21”). As the Company’s business develops, other
      accounting guidance may become applicable.





Many
      of
      the Company’s contracts contain multiple deliverables. Where an arrangement is
      accounted for under SOP 97-2, revenue from delivered elements is deferred until
      such time as the Company has vendor specific objective evidence of the value
      of
      the undelivered elements and the revenue amount is fixed or determinable. Where
      the only undelivered element is post-contract support and the Company does
      not
      have vendor specific objective evidence of the value of that post-contract
      support, the revenue from the entire arrangement is recognized over the term
      of
      the support period. Where an arrangement is accounted for under SAB 104 and
      EITF 00-21, the Company considers whether the various deliverables should be
      considered separate units of accounting. In such circumstances, revenues from
      these arrangements are recognized based on the relative fair values of all
      the
      elements. Where fair value of delivered items cannot be determined, but the
      fair
      value of the undelivered elements can be determined, the fair value of the
      undelivered elements is deferred and the residual revenue is allocated to
      delivered elements. Where it is not possible to allocate consideration to
      separate deliverables in the manner prescribed by the accounting literature,
      revenue is deferred until all items have been delivered.




*Smart
      cards and security maintenance revenue*




Most
      of
      the arrangements under which the Company generates revenue from the sale of
      smart cards and the provision of security maintenance services are accounted
      for
      under SAB 104 and EITF 00-21. Revenue derived from sales of smart cards is
      recognized upon delivery of the smart cards in accordance with contractual
      terms. Appropriate provision is made for warranty and similar arrangements
      agreed with customers. For some contracts, the Company receives fees from
      platform operators for the maintenance of security of the conditional access
      system for a specified duration. These revenues are recognized over the term
      of
      the security contract in the period in which the security maintenance activities
      are performed. In some instances, the maintenance of security includes a
      requirement to replace a population of smart cards with a supply of “changeover
      cards” which is considered a separate unit of accounting. In such instances, an
      amount of the maintenance income is deferred and is recognized when the
      changeover cards are delivered. The amount of such maintenance revenue to be
      deferred is based on the fair value of the undelivered future changeover
      cards.




*Software
      revenue*




Apart
      from the arrangements for the supply of smart cards and security maintenance
      services referred to above, most of the other arrangements under which the
      Company generates revenue involve the supply of software and are accounted
      for
      under SOP 97-2. Revenue is deferred until all elements have been delivered
      or
      until the Company has vendor specific objective evidence of the fair value
      of
      the undelivered elements. Set-top box royalty income may continue to arise
      after
      all elements of an arrangement have been delivered. Such revenue is recognized
      when it is fixed or determinable, and this is typically when the Company
      receives reports from the platform operator or the set-top box manufacturer
      of
      the number of units manufactured or deployed.




Page
          50




*Deferred
      income*




Revenue
      billed but not recognized is recorded in the Company’s consolidated balance
      sheet as deferred income. Where the revenue is expected to be recognized within
      one year of the balance sheet date, the deferred income is classified as a
      current liability; otherwise it is classified as a non-current
      liability.




*Payments
      to customers*




In
      certain situations, the Company has made payments to customers at the inception
      of a contract which will be repaid out of future revenues over the term of
      the
      contract. Such payments are initially recorded within other assets and
      subsequently released to the consolidated income statement on a straight-line
      basis over the term of the contract, as a reduction in revenue.


(in
                  thousands)
              
              **Payments
                  made to customers**Included
                  within other assets as of July 1, 2007
              
              $
              ─Payments
                  made in the year
              
              
              33,154Released
                  to income statement as a reduction in revenue
              
              
              (5,450
              )Included
                  within other assets as of June 30, 2008
              
              $
              27,704




Equivalent
      amounts in the fiscal years ended June 30, 2007 and 2006 were not
      material.




**k)**  **Research
      and development costs**




Research
      and development costs are charged to expense when incurred. The total research
      and development cost was $198.9 million, $174.4 million and $145.5 million
      in the fiscal years ended June 30, 2008, 2007 and 2006,
      respectively.




**l)**  **Income
      taxes**




The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for Income Taxes” (“SFAS 109”). SFAS 109 requires an asset and liability
      approach for financial accounting and reporting for income taxes. Under the
      asset and liability approach, deferred taxes are provided for the net tax
      effects of temporary differences between the carrying amounts of assets and
      liabilities for financial reporting purposes and the amounts used for income
      tax
      purposes. Valuation allowances are established where management determines
      that
      it is more likely than not that some portion or all of a deferred tax asset
      will
      not be realized. Deferred taxes have not been provided on the cumulative
      undistributed earnings of foreign subsidiaries to the extent amounts are
      expected to be reinvested indefinitely.





On
      July
      1, 2007, the Company adopted the provisions of FIN No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income
      Taxes” (“FIN 48”), which did not have a material impact to the Company’s
      liability for unrecognized tax benefits.





The
      following table summarizes the change in the accrual for uncertain tax positions
      (excluding interest and penalties):





(in
                thousands)
            
            **Accrual for**
              **uncertain tax**
              **positions**Balance
                as of July 1, 2007
            
            $
            1,675Additions
                for prior year tax positions
            
            
            535Additions
                for current year tax positions
            
            
            278Reduction
                for prior year tax positions
            
            
            (214
            )Balance
                as of June 30, 2008
            
            $
            2,274





Substantially
      all of the total unrecognized tax benefits at June 30, 2008 would affect the
      Company’s effective income tax rate, if and when recognized in future fiscal
      years.




Page
          51





The
      implementation impact had no impact on the Company’s consolidated balance sheet
      as of July 1, 2007.





The
      Company recognizes interest and penalty charges related to unrecognized tax
      benefits as income tax expense, which is consistent with the recognition in
      prior reporting periods. The amount of interest and penalties accrued through
      July 1, 2007 and as of June 30, 2008 was not material.





The
      Company does not presently anticipate such uncertain income tax positions will
      significantly increase or decrease in the next 12 months; however, actual
      developments in this area could differ from those currently
      expected.





Her
      Majesty’s Revenue and Customs in the United Kingdom has completed its review of
      the Company’s U.K. tax returns for all fiscal years through fiscal 2006 and has
      commenced a review of the Company’s U.K. tax returns for fiscal 2007.
      Additionally, the Company’s income tax returns for the fiscal years 2003 through
      2007 are under examination in various foreign jurisdictions.




**m)**  **Comprehensive
      income**




The
      Company follows SFAS No. 130, “Reporting Comprehensive Income,” for the
      reporting and display of comprehensive income. Comprehensive income comprises
      net income, foreign currency translation adjustments and certain pension
      adjustments.




**n)**  **Equity-based
      compensation**




The
      Company follows SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
      123R”). SFAS 123R requires that the cost resulting from all share-based payment
      transactions be recognized in the consolidated financial statements.
      SFAS 123R establishes fair value as the measurement objective in accounting
      for share-based payment arrangements and requires all companies to apply a
      fair-value-based measurement method in accounting for generally all share-based
      payment transactions with employees. The Company adopted SFAS 123R in July
      2005
      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
      share-based awards granted after the date of adoption and for the unvested
      portion of previously granted awards that remain outstanding at the date of
      adoption.





The
      compensation cost attributable to share-based awards that were unvested as
      of
      July 1, 2005 was recognized in the income statement using the accelerated
      attribution method and the same estimates of grant date fair value as had
      previously been disclosed in the Company’s consolidated financial statements.
      For share-based awards granted after July 1, 2005, the compensation cost was
      recognized ratably over the vesting period using estimates of fair value made
      as
      of the grant date.





Prior
      to
      the adoption of SFAS 123R, the Company presented all tax benefits resulting
      from
      the exercise of stock options as operating cash flows in the consolidated
      statement of cash flows. SFAS 123R requires the cash flows resulting from the
      tax benefits resulting from tax deductions in excess of the compensation cost
      recognized from those stock options (“excess tax benefits”) to be classified as
      financing cash flows.




**o)**  **Government
      incentives**




The
      Company benefits from various government incentives in certain countries in
      which it operates. The Company has received grants from the government of the
      State of Israel towards the cost of certain plant, property and equipment.
      Such
      grants are treated as a reduction in the cost of the related asset. The Company
      has received grants from the French Government and the European Union towards
      the cost of certain research and development projects. Such grants are treated
      as a reduction in research and development costs in the consolidated statement
      of operations. In certain jurisdictions, the Company benefits from reduced
      income tax rates and/or the benefit of certain tax allowances. Such benefits
      reduce the Company’s income tax expense.




**p)**  **New
      accounting pronouncements**




*Business
      acquisitions and disposals*




In
      December 2007, the FASB issued SFAS No. 141(revised 2007), “Business
      Combinations” (“SFAS No. 141R”). SFAS No. 141R significantly changes the
      accounting for business combinations in a number of areas, including the
      treatment of contingent consideration, pre-acquisition contingencies,
      transaction costs, in-process research and development and restructuring costs.
      In addition, under SFAS No. 141R, changes in an acquired entity’s deferred tax
      assets and uncertain tax positions after the measurement period will impact
      income tax expense. SFAS No. 141R will become effective for the Company in
      the
      first quarter of fiscal 2010. This standard will change the Company’s accounting
      treatment for business combinations on a prospective basis.




Page
          52





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”).
      SFAS No. 160 changes the accounting and reporting for minority interests, which
      will be recharacterized as noncontrolling interests and classified as a
      component of equity. This new consolidation method significantly changes the
      accounting for transactions involving minority interest holders. SFAS No. 160
      will become effective for the Company in the first quarter of fiscal 2010.
      This
      standard will change the Company’s accounting treatment for transactions
      involving any minority interest holders.




*Other*




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which establishes a framework for measuring fair value and expands
      the related disclosure requirements. Certain provisions of SFAS 157 related
      to
      financial assets and liabilities as well as other assets and liabilities carried
      at fair value on a recurring basis will become effective for the Company
      beginning in fiscal 2009 and are not expected to have a material impact on
      the
      Company’s financial statements. The provisions of SFAS 157 related to other
      nonfinancial assets and liabilities will be effective for the Company beginning
      in fiscal 2010 and will be applied prospectively.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an amendment of FASB
      Statement No. 115” (“SFAS No. 159”). SFAS No. 159 allows companies to choose to
      measure many financial instruments and certain other items at fair value. SFAS
      No. 159 will become effective for the Company beginning in fiscal 2009. The
      Company is currently evaluating what effects the adoption of SFAS No. 159 will
      have on the Company’s future consolidated results of operations and financial
      condition.





In
      March
      2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-3,
“Accounting for Nonrefundable Advance Payment for Goods or Services to Be Used
      in Future Research and Development Activities” (“EITF 07-3”). EITF 07-3 requires
      that nonrefundable advance payments for future research and development
      activities be deferred and capitalized. EITF 07-3 requires that such amounts
      be
      recognized as an expense as the goods are delivered or the related services
      are
      performed. If, subsequently, based on management’s assessment, it is no longer
      expected that the goods will be delivered or services will be rendered, then
      EITF 07-3 requires that the capitalized advance payment be charged to expense.
      EITF 07-3 will be effective for the Company beginning in fiscal 2009. The
      Company does not anticipate that the adoption of EITF 07-3 will have any
      material impact on the Company’s future consolidated results of operations and
      financial condition.




**Note
      3.**  **Net
      income per share**




Basic
      net
      income per share is calculated as net income divided by the weighted average
      number of ordinary shares in issue in each period. The interests of ordinary
      shareholders may be diluted due to the existence of equity awards granted to
      employees. The dilutive effect of potential shares to be issued pursuant to
      outstanding equity awards has been calculated using the treasury method and
      as
      such, is a function of the average share price in each period. The Company
      has
      two classes of ordinary shares: Series A ordinary shares, par value $0.01 per
      share (“Series A Ordinary Shares”) and Series B ordinary shares, par value $0.01
      per share (“Series B Ordinary Shares”), which have equal rights except in
      respect of voting and, as such, have equal weighting in the calculation of
      net
      income per share and equal net income per share.





The
      numerator for the calculations of net income per share is net income. The
      denominator for the calculations is the weighted average number of ordinary
      shares, as follows:




**For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Weighted
                average number of ordinary shares in issue
            
            
            58,023,358
            
            
            57,227,347
            
            
            56,082,819Effect
                of dilutive equity awards
            
            
            936,646
            
            
            938,599
            
            
            1,917,352Denominator
                for dilutive net income per share
            
            
            58,960,004
            
            
            58,162,946
            
            
            58,000,171Anti-dilutive
                equity awards excluded from calculation
            
            
            20,933
            
            
            189,593
            
            
            971,168





Page
          53




**Note
      4.**  **Acquisitions**




*Fiscal
      2008 transaction*




In
      August
      2007, the Company acquired CastUp, Inc., a provider of solutions for the
      hosting, management and distribution of video over the Internet, for initial
      cash consideration and costs of $10.4 million. A further payment of
      approximately $0.9 million is expected to be paid during the fiscal year ending
      June 30, 2009. The fair value of assets and liabilities acquired was as
      follows:




(in
                thousands)
            
            **Fair
                Value**Cash
            
            $
            24Other
                current assets
            
            
            933Goodwill
            
            
            8,417Other
                intangibles
            
            
            4,301Other
                long-term assets
            
            
            88Current
                liabilities
            
            
            (1,093
            )Deferred
                tax liabilities
            
            
            (1,290
            )Other
                liabilities
            
            
            (107
            )Total
                consideration
            
            $
            11,273





Other
      intangible assets acquired comprise intellectual property rights and customer
      relationships that are being amortized over their expected useful lives of
      between five and 14 years.




*Fiscal
      2007 transactions*




In
      December 2006, the Company completed the acquisition of Jungo Limited (“Jungo”),
      an Israeli-based developer and supplier of software for use in residential
      gateway devices. The initial consideration paid in cash, including acquisition
      related costs, was $91.1 million ($77.6 million, net of cash acquired). The
      fair
      value of assets and liabilities acquired was as follows:





(in
                thousands)
            
            **Fair
                Value**Cash
            
            $
            13,572Other
                current assets
            
            
            3,340Goodwill
            
            
            53,257Other
                intangibles
            
            
            28,400Other
                long-term assets
            
            
            1,319Current
                liabilities
            
            
            (3,323
            )Deferred
                tax liabilities
            
            
            (3,865
            )Other
                liabilities
            
            
            (1,568
            )Total
                consideration
            
            $
            91,132





The
      Company acquired Jungo to enable the development an integrated solution for
      enhanced television and broadband services. Other intangible assets acquired
      comprise intellectual property rights and customer relationships that are being
      amortized over their expected useful lives of between five and fourteen
      years.




Page
          54


The
      following unaudited pro forma consolidated results of operations for the two
      fiscal years ended June 30, 2007 assume that the acquisition of Jungo was
      completed on July 1, 2005.





(in
                thousands)
            
            **For the fiscal years ended June 30,****2007**
            
            **2006**Revenue
            
            $
            719,000
            
            $
            612,161Net
                income
            
            
            136,455
            
            
            100,015Basic
                net income per share
            
            $
            2.38
            
            $
            1.78Diluted
                net income per share
            
            $
            2.35
            
            $
            1.72





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.





In
      September 2006, the Company acquired Interactive Television Entertainment ApS,
      a
      company based in Copenhagen, Denmark, which specializes in the development
      of
      video games published on multiple gaming platforms, for cash consideration,
      including costs, of $1.9 million. The Company also assumed debt of $1.3 million,
      which was repaid in early October 2006 and is regarded as part of the initial
      purchase consideration. The fair value of assets and liabilities acquired was
      as
      follows:





(in
                thousands)
            
            **Fair
                Value**Cash
            
            $
            5Other
                current assets
            
            
            955Goodwill
            
            
            768Other
                intangibles
            
            
            1,973Deferred
                tax assets
            
            
            1,191Other
                long-term assets
            
            
            137Current
                liabilities
            
            
            (1,836
            )Total
                consideration
            
            $
            3,193





The
      intangible assets acquired comprise intellectual property rights which are
      being
      amortized over their expected useful lives of five years.




*Fiscal
      2006 transactions*




In
      September 2005, the Company acquired NT Media Limited (“NT Media”), a developer
      of gaming applications, for initial consideration of $3.2 million paid in cash.
      The fair value of assets and liabilities acquired was as follows:





(in
                thousands)
            
            **Fair
                Value**Cash
            
            $
            67Other
                current assets
            
            
            347Goodwill
            
            
            916Other
                intangibles
            
            
            3,054Other
                long-term assets
            
            
            21Current
                liabilities
            
            
            (303
            )Other
                liabilities
            
            
            (917
            )Total
                consideration
            
            $
            3,185





The
      intangible assets acquired comprise intellectual property rights which are
      being
      amortized over their expected useful lives of five years.





The
      NT
      Media purchase agreements provided that additional consideration may be payable
      in cash, contingent upon the business achieving certain targets through
      September 1, 2008. As of June 30, 2007, approximately $2.4 million of
      contingent consideration had been paid and a further $0.8 million accrued,
      all
      of which has been recorded within the consolidated statement of operations.
      A
      further maximum amount of $1.5 million may be recorded within the consolidated
      statement of operations in future periods. During the fiscal year ended June
      30,
      2008, goodwill was reduced by $0.2 million upon the favorable resolution of
      a
      tax contingency for which no benefit was recognized as of the date of
      acquisition.




Page
          55




**Note
      5.**  **Inventories**




**As
                of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Unprocessed
                smart cards and their components
            
            $
            61,364
            
            $
            51,630Inventory
                reserves
            
            
            (4,369
            )
            
            (2,434
            )56,995
            
            
            49,196Deferred
                smart card costs
            
            
            16,216
            
            
            2,476Contract
                work-in-progress
            
            
            6,448
            
            
            2,461Total
                inventories
            
            $
            79,659
            
            $
            54,133





Unprocessed
      smart cards and their components are considered to be in the state of
      work-in-progress. Deferred smart card costs represent the book value of smart
      cards shipped to customers but for which revenue had not been recognized as
      of
      the balance sheet date.





The
      computer chips used in smart cards are purchased from a limited number of
      suppliers. In the event of a disruption of supply, including a shortage of
      manufacturing capacity, the Company may be unable to develop an alternative
      source in a timely manner or at favorable prices. Such failure could harm the
      Company’s ability to deliver smart cards to its customers or could negatively
      affect operating margins.





Certain
      computer chips and smart cards have no use other than for the customer for
      whom
      they were purchased. On occasions, the Company purchases inventory in excess
      of
      amounts covered by firm customer orders. The Company often bears the risk of
      surplus inventory in these circumstances. Provision is made for surplus or
      obsolete inventory and historically, amounts written off in excess of reserves
      have not been significant.




**Note
      6.**  **Accounts
      receivable**




**As
                of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Gross
                amount due
            
            $
            127,621
            
            $
            134,796Less
                valuation reserves
            
            
            (1,490
            )
            
            (172
            )$
            126,131
            
            $
            134,624





Two
      customers, both of whom are related parties, accounted for an aggregate of
      34.2%
      of gross accounts receivable as of June 30, 2008. A third customer accounted
      for
      10.5% of gross accounts receivable as of June 30, 2008. No other customer
      individually accounted for more than 5% of gross accounts
      receivable.




Page
          56




**Note
      7.**  **Property,
      plant and equipment**




**As
                of June 30,**(in
                thousands)
            
            **Useful
                Lives**
            
            **2008**
            
            **2007**Leasehold
                improvements
            
            
            3
                to 7 years
            
            $
            28,041
            
            $
            26,297Plant
                and equipment
            
            
            2
                to 5 years
            
            
            126,341
            
            
            120,567154,382
            
            
            146,864Less
                accumulated depreciation
            
            (104,641
            )
            
            (92,063
            )Total
                property, plant and equipment, net
            $
            49,741
            
            $
            54,801




(in
                thousands)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Depreciation
                related to property, plant and equipment
            
            $
            22,368
            
            $
            19,240
            
            $
            17,058Operating
                lease expense
            
            $
            22,655
            
            $
            18,500
            
            $
            16,118





Estimated
      future minimum rental payments under operating lease arrangements existing
      as of
      June 30, 2008 were as follows:





(in
                thousands)
            
            **Minimum
                Rental Payments**Fiscal
                2009
            
            $
            25,636Fiscal
                2010
            
            
            22,215Fiscal
                2011
            
            
            16,876Fiscal
                2012
            
            
            14,768Fiscal
                2013
            
            
            12,045Thereafter
            
            
            26,709Total
                minimum rental payments
            
            $
            118,249




Certain
      of the Company’s property leases contain terms that permit upwards-only rent
      reviews. It is not possible to quantify the effect, if any, that such reviews
      may have on future rental payments.




**Note
      8.**  **Goodwill
      and other intangible assets**




*Goodwill*




The
      movement in goodwill during the fiscal year ended June 30, 2008 was as
      follows:





(in
                thousands)
            
            **Goodwill**Beginning
                of year
            
            $
            124,614Additions
                (see Note 4)
            
            
            8,417Other
            
            
            (217
            )Foreign
                exchange movement
            
            
            1,879End
                of year
            
            $
            134,693





Page
          57




*Other
      intangibles*




Other
      intangible assets comprise intellectual property rights and customer
      relationships:





**As
                of June 30,**(in
                thousands)
            
            **Useful
                Lives**
            
            **2008**
            
            **2007**Intellectual
                property rights
            
            
            3
                to 10 years
            
            $
            92,229
            
            $
            90,320Customer
                relationships
            
            
            Up to 14 years
            
            
            22,084
            
            
            17,500114,313
            
            
            107,820Less
                accumulated amortization
            
            (58,507
            )
            
            (44,740
            )Other
                intangibles, net
            $
            55,806
            
            $
            63,080





(in
                thousands)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Amortization
                of other intangibles
            
            $
            13,293
            
            $
            11,347
            
            $
            9,453




Based
      on
      the current amount of intangible assets subject to amortization, the estimated
      amortization expense for each of the next succeeding five fiscal years is as
      follows: fiscal 2009 ─ $13.4 million; fiscal 2010 ─ $13.4 million; fiscal 2011 ─
$8.3 million; fiscal 2012 ─ $3.5 million; and fiscal 2013 ─ $2.7
      million.




**Note
      9.**  **Deferred
      income**




**As
                of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Deferred
                security fees
            
            $
            135,175
            
            $
            180,009Advance
                receipts and other deferred income
            
            
            72,243
            
            
            53,285Total
                deferred income
            
            $
            207,418
            
            $
            233,294Included
                within current liabilities
            
            $
            128,318
            
            $
            75,777Included
                within non-current liabilities
            
            
            79,100
            
            
            157,517$
            207,418
            
            $
            233,294




**Note
      10.**  **Shareholders’
      equity**




The
      Company has two classes of ordinary shares: Series A Ordinary Shares and Series
      B Ordinary Shares. The Series B Ordinary Shares are all owned by News
      Corporation. Substantially all of the Series A Ordinary Shares are held by
      The
      Bank of New York as depositary to support American Depositary Shares which
      are
      traded on The NASDAQ Stock Market (“NASDAQ”). News Corporation has no interest
      in any of the Series A Ordinary Shares.





Holders
      of the two classes of ordinary shares have the same shareholder rights, except
      that the Series A Ordinary Shares are entitled to one vote per share and the
      Series B Ordinary Shares are entitled to ten votes per share. The Series B
      Ordinary Shares may be converted by the shareholder into Series A Ordinary
      Shares, at the election of the shareholder at any time. Automatic conversion
      will occur if any sale, transfer or other disposal results in the cessation
      of
      the ultimate beneficial ownership of the Series B Ordinary Shares being retained
      by entities controlled by News Corporation.





The
      Company also has outstanding 42,000,002 Deferred Shares, par value £1 per share
      (“Deferred Shares”), all of which are owned by News Corporation. The Deferred
      Shares do not entitle the holders thereof to receive notice of, or attend or
      vote at, meetings of shareholders of the Company, or to receive dividends.
      Upon
      liquidation of the Company, the Deferred Shares entitle the holders to repayment
      of the capital paid up on those shares, but only after each holder of ordinary
      shares has received (i) the amount paid up the shares held by such holder and
      (ii) an additional sum of $1 million per share.




Page
          58




**Note
      11.**  **Related
      party transactions**




The
      Company conducts business transactions with News Corporation and its
      subsidiaries and affiliates. These entities are considered to be related parties
      under SFAS No. 57, “Related Party Disclosures.” Agreements covering arrangements
      between News Corporation’s subsidiaries or affiliates and the Company are
      entered into in the context of two entities over which a third entity exercises
      significant influence or control. Therefore, there can be no assurance that
      each
      of the agreements, the transactions provided for therein or any amendments
      thereof will be effected on terms at least as favorable to the Company as could
      have been obtained from unaffiliated third parties. Any new contracts with
      related parties or significant amendments to such contracts are approved by
      the
      Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the
“Board”) in accordance with NASDAQ listing requirements.





These
      transactions are of three main types: the provision by the Company of technology
      and services for digital pay-television systems; the payment by the Company
      of
      royalties for the use of certain intellectual property rights; and the receipt
      by the Company of some administration and finance services.




**a)
      Provision of technology and services**




Technology
      and services for digital pay-television platform operators are supplied to
      affiliates and subsidiaries of News Corporation. The principal related parties
      to whom the Company supplied such services throughout the period covered by
      these consolidated financial statements are BSkyB, FOXTEL, Sky Network
      Television and Tata Sky (all of which currently are affiliates of News
      Corporation), and SKY Italia and STAR TV (both of which are wholly owned
      subsidiaries of News Corporation). Until February 2008, News Corporation held
      a
      41% interest in DIRECTV. In February 2008, News Corporation divested of its
      entire interest in its affiliate DIRECTV; therefore, the Company no longer
      considers DIRECTV or its affiliates DIRECTV Latin America, Sky Brasil and Sky
      Mexico, to be related parties. In April 2008, News Corporation increased its
      interest in Premiere AG (“Premiere”), a customer of the Company, to a level
      where it is now considered to be a related party.





Revenue
      recognized from such related parties was as follows:





(in
                thousands)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Revenue
                from related parties(1)
            
            $
            493,375
            
            $
            518,238
            
            $
            458,042







(1)
            Includes
                revenue from DIRECTV and its affiliates through February 2008 and
                revenue
                from Premiere from April 2008.





Included
      within the consolidated balance sheet are the following amounts in respect
      of
      normal sales transactions with related parties:





**As
                of June 30,**(in
                thousands)
            
            **2008****(1)**
            
            **2007****(2)**Accounts
                receivable
            
            $
            50,339
            
            $
            89,711Accrued
                income
            
            
            11,299
            
            
            26,854Other
                assets
            
            
            27,704
            
            
            —Deferred
                income
            
            $
            (73,099
            )
            $
            (200,478
            )





(1)
            Includes
                items in respect of Premiere.




(2)
            Includes
                items in respect of DIRECTV and its
                affiliates.




Page
          59




**b)**  **Royalty
      payments**




A
      royalty
      is payable to a related party in respect of certain intellectual property rights
      that the Company has licensed for use in certain applications supplied to
      customers. The royalty expense in respect of this related party arrangement,
      which is included within cost of goods and services sold, was as
      follows:





(in
                thousands)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Royalties
                payable to related party
            
            $
            3,812
            
            $
            3,036
            
            $
            2,138





Included
      within the consolidated balance sheet are the following amounts in respect
      of
      royalties payable to a related party:





**As
                of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Accrued
                expenses
            
            $
            3,148
            
            $
            3,553





**c)**  **Administration
      and finance services**




News
      Corporation provides services under a Master Intercompany Agreement that
      provides, among other things, for arrangements governing the relationship
      between the Company and News Corporation. The consideration for each of the
      services and other arrangements set forth in the Master Intercompany Agreement
      is mutually agreed and based upon allocated costs. All such consideration and
      any material arrangements are subject to the approval of the Audit Committee.
      The services covered by the Master Intercompany Agreement include cash
      management and financing, services of News Corporation employees, facility
      arrangements and employee matters, including pensions and certain other
      services.





Administration
      fees charged to the Company in respect of these services were as
      follows:





(in
                thousands)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Administration
                fees charged by related parties
            
            $
            148
            
            $
            284
            
            $
            173





As
      part
      of these administration and finance services, News Corporation pays certain
      costs (principally certain payroll, employee benefits, legal and property
      expenses) on behalf of the Company. The Company reimburses News Corporation
      for
      such payments, typically the month following that in which the payment was
      made
      by a subsidiary of News Corporation. Included within the consolidated balance
      sheets are the following amounts that were owed to News Corporation in respect
      of administrative services and other costs paid by News Corporation on behalf
      of
      the Company:





**As
                of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Accounts
                payable
            
            $
            4,846
            
            $
            2,165




**d)**  **Other**




The
      Company has a short-term loan facility of £30 million (approximately $60
      million) from a subsidiary of News Corporation. The facility has no expiry
      date
      and no amounts were drawn down as of June 30, 2008 or June 30, 2007. The
      facility is considered to be adequate for the Company’s needs.





The
      Company has entered into cross-guarantees with HSBC Bank plc (“HSBC”) providing
      mutual guarantees with other subsidiaries of News Corporation for amounts owed
      to HSBC under a collective overdraft facility of £20 million (approximately
      $40 million). News Corporation has indemnified the Company against any
      liabilities which the Company may be required to pay under these
      cross-guarantees. The Company has been informed by News Corporation that no
      amounts were owed to HSBC as of June 30, 2008 or June 30, 2007 which would
      be covered by these guarantees.




Page
          60




**Note
      12.**  **Contingencies
      and commitments**




**a)**  **Firm
      commitments**




The
      Company has commitments under certain firm contractual arrangements (“firm
      commitments”) to make future payments. These firm commitments secure the future
      rights to various assets and services to be used in the normal course of
      operations. The following table summarizes the Company’s material firm
      commitments at June 30, 2008.





**As
                of June 30, 2008****Payments
                Due by Period**(in
                thousands)
            
            **Total**
            
            **Less
                than 1 year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More**
              **than
                5**
              **years**Operating
                lease obligations
            
            $
            118,249
            
            $
            25,636
            
            $
            39,091
            
            $
            26,813
            
            $
            26,709Smart
                card purchase obligations
            
            
            25,540
            
            
            25,540
            
            
            ─
            
            
            ─
            
            
            ─$
            143,789
            
            $
            51,176
            
            $
            39,091
            
            $
            26,813
            
            $
            26,709




**b)**  **Litigation**




*Echostar
      Litigation*





On
      June
      6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation,
      Echostar Technologies Corporation and Nagrastar L.L.C. (collectively,
“Echostar”) filed an action against us the Company the United States District
      Court for the Central District of California. That complaint purported to allege
      claims for violation of the Digital Millennium Copyright Act (“DMCA”), the
      Communications Act of 1934 (“Communications Act”), the Electronic Communications
      Privacy Act, the Computer Fraud and Abuse Act, California’s Unfair Competition
      Law (“UCL”) and the federal Racketeer Influenced and Corrupt Organizations
      (“RICO”) statute. The complaint also purported to allege claims for civil
      conspiracy, misappropriation of trade secrets and interference with prospective
      business advantage. The complaint sought injunctive relief, unspecified
      compensatory and exemplary damages and restitution. Extensive motion practice
      ensued regarding this complaint, regarding subsequent complaints filed by
      Echostar, and regarding counterclaims asserted by the Company.





The
      trial
      of this case began April 9, 2008. Echostar’s claims under the DMCA, the
      Communications Act, the California Penal Code, and RICO were tried to the jury,
      Echostar’s UCL claim was tried to the court and the Company’s counterclaim under
      the California Uniform Trade Secrets Act was tried to the jury. All other claims
      were either dismissed by the court or abandoned by the parties.





On
      May
      15, 2008, the jury returned its verdict. The jury found the Company not liable
      on three counts and awarded minimal damages on the remaining three counts.
      On
      those latter three counts, the jury awarded Echostar actual damages of $45.69
      or, in the alternative, statutory damages of $1,000. The Company believes that
      these awards relate to a single incident involving a test of a card during
      the
      course of the Company’s anti-piracy efforts. The jury found Echostar not liable
      on the Company’s counterclaim.





One
      claim, Echostar’s UCL claim, has not yet been decided. By law, this claim must
      be decided by the judge rather than the jury. Any ruling on that claim must
      be
      consistent with the jury’s verdict, however, and the court has not yet provided
      a decision on the UCL claim. A hearing on the UCL claim has been set for August
      19, 2008.





Echostar
      has expressed publicly an intention to seek an award of attorneys’ fees and
      costs. The Company believes that any such claim by Echostar would be without
      merit and intends to vigorously defend against any such claim.




Page
          61




*Sogecable
      Litigation*





On
      July
      25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L.,
      Spanish satellite broadcasters and customers of Canal+ Technologies SA
      (together, “Sogecable”), filed an action against the Company in the United
      States District Court for the Central District of California. Sogecable filed
      an
      amended complaint on October 9, 2003, which purported to allege claims for
      violation of the DMCA and the RICO statute. The amended complaint also purported
      to allege claims for interference with contract and prospective business
      advantage. The complaint sought injunctive relief, unspecified compensatory
      and
      exemplary damages and restitution. On December 22, 2003, all of the claims
      were
      dismissed by the court. Sogecable filed a second amended complaint. The Company
      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. On October 1, 2004, Sogecable notified the court that it
      would not be filing a third amended complaint, but would appeal the court’s
      entry of final judgment dismissing the suit to the United States Ninth Circuit
      Court of Appeals. On December 14, 2006, the appellate court issued a memorandum
      decision reversing the district court’s dismissal. On January 26, 2007, the
      Company filed its petition for rehearing by an en banc panel of the United
      States Ninth Circuit Court of Appeals. On February 21, 2007, the petition was
      denied. On June 11, 2007, the Company filed a petition for a Writ of Certiorari
      in the United States Supreme Court seeking reversal of the Ninth Circuit Court
      of Appeals’ decision. On August 27, 2007, the Company renewed its motion to
      dismiss the second amended complaint on grounds not previously decided. On
      October 1, 2007, the petition for Writ of Certiorari was denied. On January
      25,
      2008, the court issued an order granting-in-part and denying-in-part the
      Company’s renewed motion to dismiss Sogecable’s second amended complaint. The
      court dismissed Sogecable’s claim for tortuous interference with prospective
      economic advantage, but allowed Sogecable to proceed on its RICO and DMCA
      claims, as well as its claim for tortuous interference with contract. The court
      has set February 16, 2010 as the trial date. The Company believes that
      Sogecable’s claims are without merit and will continue to vigorously defend
      itself in this matter.




**c)**  **Government
      grants**




The
      Company has received grants from the government of the State of Israel towards
      the cost of certain capital expenditure. If the conditions of these grants
      are
      not complied with, the grants may be required to be refunded, in whole or in
      part, with interest from the date of receipt. The major conditions relating
      to a
      grant concern the maintenance of adequate non-distributable reserves and
      retention of the associated assets for a set period of time. The cumulative
      amount received and receivable as of June 30, 2008 was approximately $17.1
      million. It is not anticipated that any repayment of these grants will be
      required. Property, plant and equipment situated in Israel with a net book
      value
      of $10.1 million as of June 30, 2008 is the subject of a lien to secure
      compliance with the terms of the grants.




**d)
      Guarantees**




In
      the
      normal course of business, the Company provides, and from time to time makes
      payments in respect of, indemnification agreements of varying scopes, including
      warranties concerning the security of the Company’s smart cards, limited product
      warranties and indemnification of customers against claims of intellectual
      property infringement made by third parties arising from the use of the
      Company’s products or services. Also, the Company may be subject to liquidated
      damages in the event of late delivery of goods or services. The nature of these
      commitments has been considered in determining the revenue and costs recognized
      in these consolidated financial statements. Costs are accrued for known warranty
      and indemnification issues if a loss is probable and can be reasonably
      estimated. Historically, costs related to these warranties and indemnification
      agreements have not been significant, but because potential future costs are
      highly variable, the Company is unable to estimate the maximum potential impact
      of these guarantees on the Company’s future results of operations.




**e)
      Other**




The
      nature of the Company’s business is such that it may be subject to claims by
      third parties alleging infringements of various intellectual property rights.
      The Company intends to vigorously defend against any such claims. Where a
      liability arising from these claims is probable, an accrual is made based on
      management’s best estimate. It is not anticipated that any resulting liability
      in excess of amounts recognized in these consolidated financial statements
      will
      materially affect the Company’s financial position.





Amounts
      payable by the Company under certain contracts are subject to audit rights
      held
      by third parties and the terms of such contracts may be open to subjective
      interpretation. The Company settles its liabilities under such contracts based
      on its assessment of the amounts due. However, it may be subject to claims
      that
      the amounts paid are incorrect. It is not anticipated that any resulting
      liability in excess of amounts recognized in these consolidated financial
      statements will materially affect the Company’s financial position.





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 and, as a matter of course, the Company is regularly audited
      by
      U.K. and overseas 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.





Page
          62




**Note
      13.**  **Equity-based
      compensation**




The
      following amounts have been recorded in the consolidated financial statements
      relating to equity-based compensation:





(in
                thousands, except share numbers)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Number
                of shares issued in respect of stock options exercised
            
            
            469,638
            
            
            845,652
            
            
            1,554,716Number
                of shares issued in respect of vested conditional awards, net of
                statutory
                tax withholdings
            
            
            61,516
            
            
            ─
            
            
            ─Number
                of shares issued in respect of equity compensation plans
            
            
            531,154
            
            
            845,652
            
            
            1,554,716Equity-based
                compensation cost included within the statement of
                operations:Operating
                expenses
            
            $
            17,128
            
            $
            10,175
            
            $
            6,626Tax
                benefit within income tax expense
            
            
            (2,730
            )
            
            (1,784
            )
            
            (1,179
            )Net
                of tax amount
            
            $
            14,398
            
            $
            8,391
            
            $
            5,447Net
                cash received from equity-based awards
            
            $
            8,664
            
            $
            13,889
            
            $
            21,769Excess
                tax benefits derived from equity-based awards
            
            $
            1,488
            
            $
            4,665
            
            $
            7,925




As
      of
      June 30, 2008, the total compensation cost related to non-vested equity awards
      not yet recognized was $36.8 million and the period over which it is expected
      to
      be recognized is 3.1 years. The Company’s Board of Directors may grant
      additional stock options or other equity-based compensation in the future,
      which
      would result in additional operating expenses being recorded in future
      periods.




**a)**  **NDS
      2006 Long-Term Incentive Plan**




In
      October 2006, the Company’s shareholders approved the NDS 2006 Long-Term
      Incentive Plan (the “Plan”), which provides for awards of stock options to
      purchase Series A Ordinary Shares, restricted awards, conditional awards, stock
      appreciation rights or awards of Series A Ordinary Shares, the terms and
      conditions of which are described in the Plan. American Depositary Receipts
      (“ADRs”) representing the Company’s Series A Ordinary Shares are given to
      recipients in respect of any awards of Series A Ordinary Shares. The maximum
      number of Series A Ordinary Shares that may be issued or delivered under the
      Plan is 10,000,000 shares. There will be no further stock options granted under
      two of the Company’s existing stock option plans: The NDS 1997 Executive Share
      Option Scheme or The NDS 1999 Executive Share Option Scheme. However, further
      grants may be made under the NDS U.K. Approved Share Option Scheme, which will
      be treated as a sub-scheme of the Plan. The fair value of equity-based
      compensation under the Plan is calculated according to the type of award
      issued.





During
      the fiscal years ended June 30, 2008 and June 30, 2007, fixed conditional awards
      over an aggregate of 24,500 Series A Ordinary Shares and 43,500 Series A
      Ordinary Shares, respectively, were awarded to certain employees and directors.
      The fiscal 2008 fixed conditional awards vest in four equal annual installments
      beginning on August 15, 2008 and the fiscal 2007 fixed conditional awards vest
      in four equal annual installments beginning on August 15, 2007, each subject
      to,
      among other conditions, the individual’s continued employment with the Company.
      The grant date fair value of the fiscal 2008 fixed conditional awards was $55.91
      per share, and the grant date fair value of the fiscal 2007 fixed conditional
      awards was $51.57 per share.





In
      addition, during the fiscal years ended June 30, 2008 and June 30, 2007, certain
      employees and executives of the Company had the opportunity to earn grants
      of
      Series A Ordinary Shares under the Plan conditioned upon the attainment of
      pre-determined operating income goals for the applicable fiscal year
      (“Performance-Based Conditional Awards’). To the extent that it was determined
      that the Company’s actual operating income for the applicable fiscal year fell
      within the performance goal range, the employees or executives received a
      percentage of his or her annualized base salary, ranging from 0% to 45% for
      the
      vast majority of recipients; however, the range for some recipients was from
      0%
      to up to 187.5% for the fiscal year ended June 30, 2008 and from 0% to up to
      225% for the fiscal year ended June 30, 2007. The Performance-Based Conditional
      Awards are paid in time-vested Series A Ordinary Shares. In August 2008, 436,394
      ADRs representing Series A Ordinary Shares were awarded in satisfaction of
      the
      Fiscal 2008 Performance-Based Conditional Awards. In August 2007, 286,841 ADRs
      representing Series A Ordinary Shares were awarded in satisfaction of the Fiscal
      2007 Performance-Based Conditional Awards. The Fiscal 2008 Performance-Based
      Conditional Awards vest in four equal annual installments beginning on August
      15, 2008 and the Fiscal 2007 Performance-Based Conditional Awards vest in four
      equal annual installments beginning on August 15, 2007, each subject to, among
      other conditions, the individual’s continued employment with the Company. The
      grant date fair value of the Fiscal 2008 Performance-Based Conditional Awards
      was $55.91 per share, and the grant date fair value of the Fiscal 2007
      Performance-Based Conditional Awards was $51.57 per share.




Page
          63




The
      following table summarizes activity with respect to equity-based awards granted
      under the Plan:





**2008**
            
            **2007**
            
            **2006****Weighted
                Average**
              **Grant**
              **Date Fair**
              **Value**
            
            **ADRs**
            
            **Weighted**
              **Average**
              **Grant**
              **Date Fair**
              **Value**
            
            **ADRs**Unvested
                ADRs, beginning of year
            
            $
            51.57
            
            
            43,500
            
            
            
            
            
            ─
            
            
            ─Awarded
            
            
            51.95
            
            
            314,341
            
            $
            51.57
            
            
            43,500
            
            
            ─Vested
            
            
            51.57
            
            
            (82,493
            )
            
            
            
            
            ─
            
            
            ─Lapsed
            
            
            52.26
            
            
            (18,906
            )
            
            
            
            
            ─
            
            
            ─Unvested
                ADRs, end of year
            
            $
            51.98
            
            
            256,442
            
            $
            51.57
            
            
            43,500
            
            
            ─Vested
                but unissued ADRs, beginning of year
            
            
            
            
            
            ─
            
            
            
            
            
            ─
            
            
            ─Vested
            
            
            51.57
            
            
            82,493
            
            
            
            
            
            ─
            
            
            ─Issued
            
            
            51.57
            
            
            (61,516
            )Statutory
                tax withholding
            
            
            51.57
            
            
            (15,084
            )
            
            
            
            
            ─
            
            
            ─Lapsed
            
            
            51.57
            
            
            ─
            
            
            
            
            
            ─
            
            
            ─Vested
                but unissued ADRs, end of year
            
            $
            51.57
            
            
            5,893
            
            
            
            
            
            ─
            
            
            ─




**b)**  **Stock
      Option Plans**




The
      Company has three executive stock option schemes under which stock options
      have
      been granted to certain Directors, Executive Officers and employees: The NDS
      1997 Executive Share Option Scheme (the “1997 scheme”), The NDS 1999 Executive
      Share Option Scheme (the “1999 unapproved scheme”) and The NDS UK Approved Share
      Option Scheme (the “1999 approved scheme”). The provisions of each scheme are
      substantially the same, except that the 1999 approved scheme is approved by
      Her
      Majesty’s Revenue and Customs in the United Kingdom for the purposes of granting
      U.K. employees stock options over shares in the Company which are free from
      income tax in the hands of the employee under certain circumstances. Following
      the creation of the 1999 unapproved scheme, no further stock options have been
      granted under the 1997 scheme. The schemes provide for the grant of stock
      options to purchase Series A Ordinary Shares in the Company with a maximum
      term
      of ten years. Stock options granted under the schemes vest in equal portions
      over a four-year period. The schemes authorize options to be granted subject
      to
      a maximum of 10% of the ordinary shares of the Company in issue at the date
      of
      grant. Following the adoption of the Plan, no further stock options will be
      awarded under the 1999 scheme. The Company’s obligations under all stock option
      schemes have been settled by issuing new Series A Ordinary Shares.




Page
          64




The
      following table summarizes information about the Company’s stock option
      transactions:





**For
                the fiscal year ended June 30, 2008****Number**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Remaining**
              **Contractual**
              **Term**
              (in
                years)
            
            **Aggregate**
              **Intrinsic****Value**
              (in thousands)Outstanding
                at July 1, 2007
            
            
            2,789,602
            
            $
            29.05Granted
            
            
            ─
            
            
            ─Exercised
            
            
            (469,638
            )
            $
            20.31Forfeited
            
            
            (32,191
            )
            $
            37.30Expired
            
            
            ─
            
            
            ─Outstanding
                at June 30, 2008
            
            
            2,287,773
            
            $
            30.72
            
            
            5.8
            
            $
            65,160Vested
                or expected to vest (after allowing for expected forfeitures) at
                June 30,
                2008
            
            
            2,268,937
            
            $
            30.62
            
            
            5.7
            
            $
            64,857Vested
                at June 30, 2008
            
            
            1,807,619
            
            $
            27.62
            
            
            5.3
            
            $
            57,086





(in
                thousands, except per share amounts)
            
            **For
                the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Weighted
                average fair value of stock options granted in period using the
                assumptions set out below
            
            $
            ─
            
            $
            ─
            
            $
            29.42Total
                intrinsic value of stock options exercised
            
            $
            16,413
            
            $
            27,299
            
            $
            45,975





The
      fair
      value of each stock option grant was estimated on the date of grant using the
      Black-Scholes option-pricing model, using the following
      assumptions:





**For the fiscal**
              **year ended**
              **June 30, 2006**Risk-free
                interest rate
            
            
            4.5
            %Dividend
                yield
            
            
            ─Expected
                volatility
            
            
            72
            %Expected
                life of stock options
            
            
            6.3
                years





The
      weighted average risk-free rate was the average interest rates of U.S.
      government bonds of comparable term to the stock options on the dates of the
      stock option grants. The dividend yield was assumed to be nil because the
      Company has not paid, and management did not expect to pay, a dividend. Expected
      volatility was derived from historical volatility of the Company’s American
      Depositary Shares as quoted on NASDAQ. The expected life of stock options
      granted was derived from the historical activity of the Company’s stock options
      and represents the period of time that stock options granted were expected
      to be
      outstanding. The stock options were granted at an exercise price equal to the
      closing market price on the last trading day before the date of
      grant.





Page
          65




**Note
      14.**  **Income
      taxes**




Significant
      components of the Company’s provisions for income taxes were as
      follows:





(in
                thousands)
            
            **For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**UK
                current tax
            
            $
            58,805
            
            $
            44,568
            
            $
            39,323Overseas
                current tax
            
            
            16,643
            
            
            12,648
            
            
            9,816Double
                tax relief
            
            
            (9,718
            )
            
            (5,248
            )
            
            (3,557
            )Total
                current tax
            
            
            65,730
            
            
            51,968
            
            
            45,582UK
                deferred tax
            
            
            (2,178
            )
            
            361
            
            
            (105
            )Overseas
                deferred tax
            
            
            (3,658
            )
            
            (2,404
            )
            
            (252
            )Total
                deferred tax
            
            
            (5,836
            )
            
            (2,043
            )
            
            (357
            )Total
                income tax expense
            
            $
            (59,984
            )
            $
            49,925
            
            $
            45,225Tax
                benefits on stock options, credited to additional paid-in
                capital
            
            $
            (1,488
            )
            $
            (4,665
            )
            $
            (7,925
            )




Income
      before income taxes arose in the United Kingdom and overseas as
      follows:





(in
                thousands)
            
            **For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**UK
                income before income taxes
            
            $
            188,226
            
            $
            150,661
            
            $
            132,176Overseas
                income before income taxes
            
            
            31,763
            
            
            34,991
            
            
            13,999Total
                income before income taxes
            
            $
            219,989
            
            $
            185,652
            
            $
            146,175





The
      reconciliation of income tax computed at the U.K. statutory rate to the income
      tax expense is as follows:





**For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Income
                tax at U.K. statutory rate
            
            
            29.5
            %
            
            30.0
            %
            
            30.0
            %Effect
                of different tax rates
            
            
            (1.0
            )%
            
            (0.5
            )%
            
            (0.4
            )%Research
                and development allowances
            
            
            (1.5
            )%
            
            (1.9
            )%
            
            (0.7
            )%Equity-based
                compensation
            
            
            1.1
            %
            
            0.6
            %
            
            0.6
            %Other
                permanent differences
            
            
            1.7
            %
            
            0.6
            %
            
            0.5
            %Change
                in U.K. statutory tax rate
            
            
            0.1
            %
            
            ─
            
            
            ─Movement
                in valuation reserve
            
            
            (2.0
            )%
            
            (1.4
            )%
            
            0.9
            %Adjustments
                in respect of previous years’ accruals
            
            
            (0.7
            )%
            
            (0.5
            )%
            
            0.0
            %Effective
                income tax rate
            
            
            27.2
            %
            
            26.9
            %
            
            30.9
            %




Page
          66


The
      following is a summary of the components of the deferred tax accounts:





**As of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Deferred
                tax assets:Property,
                plant and equipment
            
            $
            537
            
            $
            774Accrued
                expenses
            
            
            4,300
            
            
            4,367Pension
                liability
            
            
            2,504
            
            
            1,643Equity
                awards
            
            
            4,344
            
            
            2,711Research
                and development allowances
            
            
            2,761
            
            
            1,465Benefit
                of operating losses carried forward
            
            
            3,812
            
            
            5,878Benefit
                of capital losses carried forward
            
            
            612
            
            
            660Total
                deferred tax assetss
            
            
            18,870
            
            
            17,498Deferred
                tax liabilities:Other
                intangibles
            
            
            (5,524
            )
            
            (4,686
            )Accrued
                expenses
            
            
            (65
            )
            
            (92
            )Total
                deferred tax liabilities
            
            
            (5,589
            )
            
            (4,778
            )Net
                deferred tax asset, before valuation reserves
            
            
            13,281
            
            
            12,720Valuation
                reserve
            
            
            (612
            )
            
            (4,774
            )Net
                deferred tax asset, after valuation reserves
            
            $
            12,669
            
            $
            7,946





As
      of
      June 30, 2008 and 2007, the Company had net non-current deferred tax assets
      of
      $17.4 million and $11.6 million, respectively, and had net non-current deferred
      tax liabilities of $4.7 million and $3.7 million, respectively.





As
      of
      June 30, 2008, the Company had approximately $12 million of net operating
      loss carry-forwards related to overseas operations available to offset future
      taxable income. These net operating losses may be carried forward indefinitely.
      In assessing the realizability of deferred tax assets, management evaluates
      a
      variety of factors in considering whether it is more likely than not that some
      portion or all of the deferred tax assets will ultimately be realized.
      Management considers earnings expectations, the existence of taxable temporary
      differences, tax planning strategies and the periods in which estimated losses
      can be utilized. Based upon this analysis, management concluded during the
      fiscal year ended June 30, 2008, that it is more likely than not that the
      Company will realize all of the benefits of its deferred tax assets related
      to
      net operating loss carry-forwards. Accordingly, valuation allowances of $4.5
      million were reversed during the fiscal year ended June 30, 2008 and no
      valuation reserve against operating loss carryforwards remains as of June 30,
      2008. Additionally, the Company has approximately $2 million of U.K. capital
      losses available to offset future capital gains. These capital losses may be
      carried forward indefinitely. A valuation reserve of $0.6 million reduces the
      deferred tax asset in respect of capital losses to nil as of June 30, 2008
      and
      2007.





The
      Company has not provided for possible U.K. and other foreign taxes on the
      undistributed earnings of foreign subsidiaries that are considered to be
      reinvested indefinitely. Calculation of the unrecognized deferred tax liability
      for temporary differences related to these earnings is not practicable.
      Undistributed earnings of foreign subsidiaries considered to be indefinitely
      reinvested amounted to approximately $128 million as of June 30,
      2008.




**Note
      15.**  **Pension
      and other post-employment benefits**




*Defined
      contribution arrangements*




Most
      U.K.
      employees of the Company are eligible for membership of the News International
      Pension Plan, a defined contribution scheme operated for the benefit of certain
      U.K. employees of News Corporation. The Company also makes contributions to
      other defined contribution pension plans. Aggregate Company contributions to
      defined contribution plans amounted to $12.5 million, $9.8 million and
      $7.9 million for the fiscal years ended June 30, 2008, 2007 and 2006,
      respectively.




Page
          67




*Multi-employer
      arrangements*




Certain
      employees are eligible for membership of the News America Incorporated
      Employees’ Pension and Retirement Plan and other defined benefit pension schemes
      which are operated by News Corporation for the benefit of certain of its
      controlled subsidiaries. As such, and so far as they relate to the Company,
      they
      are multi-employer defined benefit schemes. It is not possible to determine
      the
      assets and liabilities of these schemes relating to the obligations of the
      Company to current and former employees. Accordingly, the expense recorded
      in
      the consolidated statement of operations equates to the contributions payable
      in
      the fiscal year, as determined by third party actuaries. Company contributions
      amounted to $1.3 million, $1.1 million and $0.9 million for the fiscal years
      ended June 30, 2008, 2007 and 2006, respectively.




*Severance
      pay arrangements*




In
      certain countries in which the Company has operations, principally Israel,
      but
      also in India and Korea, it is obliged to make severance payments to employees
      leaving employment in most circumstances. The payment is based on the latest
      monthly salary for each year of service. The payment obligations are funded
      by
      payments to funds held by third party investment managers under approved plans.
      The liability is recorded gross and a separate asset is recorded equal to the
      market value of the funds held by investment managers. The costs associated
      with
      these arrangements included within the consolidated statement of operations
      amounted to $9.4 million, $5.5 million and $5.6 million for the fiscal years
      ended June 30, 2008, 2007 and 2006, respectively. The following amounts are
      included in the consolidated balance sheets in respect of these arrangements
      are
      as follows:





**As of June 30,**(in thousands)
            
            **2008**
            
            **2007**Investment
                funds, included within other non-current assets
            
            $
            49,357
            
            $
            30,644Liability,
                included within non-current accrued expenses
            
            $
            (58,732
            )
            $
            (37,408
            )




*Defined
      benefit arrangements*




The
      Company has certain liabilities to a small number of current and former
      employees who are members of a U.K. defined benefit pension scheme. The scheme
      is closed and the age profile of the active membership is rising significantly
      and, therefore, the service cost is likely to increase over the coming years.
      The trustees of the scheme, the actuaries and the Company have agreed to make
      additional lump sum payments into the scheme and the contribution rates of
      employed members have been set individually. The Company uses a June 30
      measurement date for the defined benefit pension scheme.





The
      elements of net periodic pension expense are as follows:





(in
                thousands)
            
            **For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Service
                cost
            
            $
            230
            
            $
            209
            
            $
            178Interest
                cost
            
            
            1,328
            
            
            1,194
            
            
            978Expected
                return on assets
            
            
            (1,254
            )
            
            (1,033
            )
            
            (825
            )Net
                amortization of loss
            
            
            424
            
            
            604
            
            
            583Net
                periodic pension expense
            
            $
            728
            
            $
            974
            
            $
            914





The
      following assumptions were used in determining the net periodic benefit costs
      for the plan:





(in
                thousands)
            
            **For the fiscal years ended June 30,****2008**
            
            **2007**
            
            **2006**Assumed
                discount rate
            
            
            5.75
            %
            
            5.25
            %
            
            5.00
            %Expected
                long-term rate of return on plan assets
            
            
            7.00
            %
            
            7.00
            %
            
            7.50
            %Rate
                of compensation increase
            
            
            4.75
            %
            
            4.50
            %
            
            4.25
            %




Page
          68




Overall
      asset returns were based upon the target asset allocation and return estimates
      for equity and debt securities. The expected rate of return for equities was
      based upon the long-term equity risk premium over the risk-free rate, which
      was
      then adjusted downward from the historical rate to reflect recent market
      conditions. The expected return on debt securities was based upon an analysis
      of
      current and historical yields on portfolios of similar quality and
      duration.





The
      funding of the Company’s defined benefit pension plan is as
      follows:





**As of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Fair
                value of plan assets
            
            $
            18,192
            
            $
            17,789Projected
                benefit obligation (“PBO”)
            
            
            (27,173
            )
            
            (23,264
            )Funded
                status, recognized in the consolidated balance sheet
            
            $
            (8,981
            )
            $
            (5,475
            )





The
      accumulated benefit obligation of the Company’s defined benefit plan was $20.8
      million and $16.5 million as of June 30, 2008 and 2007,
      respectively.





Amounts
      recognized in accumulated other comprehensive income consist of:





(in
                thousands)
            
            **As of June 30, 2008**Actuarial
                losses
            
            $
            11,100Tax
                benefit thereon
            
            
            (3,108
            )Net
                amount recognized
            
            $
            7,992





Actuarial
      losses included in accumulated other comprehensive income and expected to be
      recognized as a component of net periodic pension costs in fiscal 2009, are
      not
      material.





Additional
      information:





(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**Decrease
                (increase) in liability reflected in other comprehensive
                income
            
            $
            (4,100
            )
            $
            3,174
            
            $
            1,200Tax
                (expense) benefit thereon
            
            
            1,008
            
            
            (936
            )
            
            (361
            )Net
                decrease (increase) in liability reflected in other comprehensive
                income
            
            $
            (3,092
            )
            $
            2,238
            
            $
            839Weighted
                average assumptions used to determine benefit obligations:Discount
                rate
            
            
            6.00
            %
            
            5.75
            %
            
            5.25
            %Rate
                of increase in future compensation
            
            
            5.25
            %
            
            4.75
            %
            
            4.50
            %


Page
          69


The
      following table is a reconciliation of PBO:





**As of June 30,**(in thousands)
            
            **2008**
            
            **2007**PBO,
                beginning of year
            
            $
            23,264
            
            $
            21,585Service
                cost
            
            
            230
            
            
            209Interest
                on PBO
            
            
            1,328
            
            
            1,194Actuarial
                gain (loss)
            
            
            2,522
            
            
            (1,545
            )Benefits
                paid
            
            
            (278
            )
            
            (257
            )Employee
                contributions
            
            
            274
            
            
            249Foreign
                exchange movements
            
            
            (167
            )
            
            1,829PBO,
                end of year
            
            $
            27,173
            
            $
            23,264





The
      following table is a reconciliation of the fair value of plan
      assets:





**As of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Plan
                assets at fair value, beginning of year
            
            $
            17,789
            
            $
            13,670Employer
                contributions
            
            
            1,334
            
            
            1,261Employee
                contributions
            
            
            274
            
            
            249Benefits
                paid
            
            
            (278
            )
            
            (257
            )Return
                on assets
            
            
            (811
            )
            
            1,591Foreign
                exchange movements
            
            
            (116
            )
            
            1,275Plan
                assets at fair value, end of year
            
            $
            18,192
            
            $
            17,789





The
      following table sets forth the estimated benefit payments for the next five
      fiscal years and in aggregate for the five fiscal years thereafter. The expected
      benefits are estimated based on the same assumptions used to measure the
      Company’s benefit obligation at the end of the fiscal year and include benefits
      attributable to estimated future employee service:





(in
                thousands)
            
            **Expected pension payments**Fiscal
                2009
            
            $
            285Fiscal
                2010
            
            
            301Fiscal
                2011
            
            
            313Fiscal
                2012
            
            
            331Fiscal
                2013
            
            
            399Fiscal
                2014 to 2018
            
            
            3,421





The
      Company’s investment strategy for its pension plans is to maximize the long-term
      rate of return on plan assets within an acceptable level of risk in order to
      minimize the cost of providing pension benefits while maintaining adequate
      funding levels. The Company’s practice is to conduct a strategic review of its
      asset allocation strategy every year. The Company’s current broad strategic
      targets are to have a pension asset portfolio comprising of 60% equity
      securities and 40% fixed income securities. The Company’s equity portfolios are
      managed in such a way as to achieve optimal diversity. The Company’s fixed
      income portfolio is investment grade in the aggregate. The Company does not
      manage any assets internally, does not have any passive investments in index
      funds and does not utilize hedging, futures or derivative instruments. No
      investments are held in stock of the Company or of News
      Corporation.


Page
          70


The
      Company’s benefit plan weighted-average asset allocations as of June 30,
      2008 and 2007, by asset category, are as follows:





**As of June 30,****2008**
            
            **2007**Domestic
                / General equity
            
            
            35.60
            %
            
            60.00
            %International
                equity
            
            
            23.10
            %
            
            ─International
                debt securities
            
            
            30.30
            %
            
            40.00
            %Cash
            
            
            0.50
            %
            
            ─Other
            
            
            10.50
            %
            
            ─Fair
                value of plan assets
            
            
            100.00
            %
            
            100.00
            %





The
      Company’s committed minimum contributions in fiscal 2009 are expected to be $0.4
      million.





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. 158 requires
      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 year in which the changes occur through comprehensive
      income. SFAS No. 158 became effective for the Company as of the fiscal year
      ended June 30, 2007. The adoption of SFAS No. 158 had no impact on the Company’s
      consolidated results of operations. Other comprehensive income for fiscal 2007
      and stockholders’ equity as of June 30, 2007 was reduced by approximately $4.9
      million (net of tax of approximately $2.1 million) as a result of adopting
      SFAS
      No. 158.





The
      following table illustrates the effect of the application of SFAS No. 158 in
      the
      fiscal year ended June 30, 2007:





(in
                thousands)
            
            **Before**
              **application of**
              **SFAS No. 158**
            
            **SFAS No. 158**
              **adjustment**
            
            **After application**
              **of SFAS No. 158**Other
                non-current assets
            
            $
            56,330
            
            $
            575
            
            $
            56,905Total
                assets
            
            
            1,144,278
            
            
            575
            
            
            1,144,853Other
                non-current liabilities
            
            
            41,062
            
            
            5,475
            
            
            46,537Total
                liabilities
            
            
            401,105
            
            
            5,475
            
            
            406,580Total
                shareholders’ equity
            
            
            743,173
            
            
            (4,900
            )
            
            738,273Total
                liabilities and shareholders’ equity
            
            
            1,144,278
            
            
            575
            
            
            1,144,853




**Note
      16.**  **Segment
      information**




The
      Company aggregates its operations into a single reportable segment in accordance
      with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
      Information,” being the supply of open end-to-end digital technology and
      services to digital pay-television platform operators and content
      providers.





Revenue
      analyzed by geographical destination ( *i.e.* ,
      the
      country of operations of the customer) was as follows:





(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**United
                Kingdom
            
            $
            214,478
            
            $
            201,121
            
            $
            163,804Europe
                and the Middle East
            
            
            203,699
            
            
            158,280
            
            
            126,157North
                America
            
            
            248,494
            
            
            213,001
            
            
            215,856Latin
                America
            
            
            76,592
            
            
            49,055
            
            
            37,395Asia
                Pacific
            
            
            106,885
            
            
            88,035
            
            
            56,911$
            850,148
            
            $
            709,492
            
            $
            600,123




Page
          71




Revenues
      from North America include $248.3 million, $212.7 million and $215.7 million
      from customers in the United States in the fiscal years ended June 30, 2008,
      2007 and 2006, respectively. Revenues from Europe and the Middle East include
      $99.6 million, $72.0 million and $72.1 million from customers in Italy in the
      fiscal years ended June 30, 2008, 2007 and 2006, respectively. No other country
      accounted for more than 5% of revenues in any of the three fiscal years in
      the
      period ended June 30, 2008.





The
      following major customers contributed directly and indirectly to more than
      10%
      of the Company’s revenues in any of the three fiscal years in the period ended
      June 30, 2008:





(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**DIRECTV
                (U.S.)
            
            $
            225,538
            
            $
            194,495
            
            $
            202,630BSkyB
            
            
            177,493
            
            
            173,426
            
            
            140,364SKY
                Italia
            
            
            92,081
            
            
            70,223
            
            
            68,251





The
      Company’s operations are situated in the United Kingdom, Europe, Israel, the
      United States and the Asia-Pacific region. Most of the Company’s contracts with
      customers are entered into with the principal operating company, a U.K. entity.
      Many of the costs of the overseas operations are recharged to the Company’s U.K.
      subsidiaries.





The
      contribution of each region to the long-lived assets (other than deferred tax
      assets) of the Company is as follows:





**As of June 30,**(in
                thousands)
            
            **2008**
            
            **2007**United
                Kingdom
            
            $
            137,271
            
            $
            121,495Europe
            
            
            36,206
            
            
            26,167Israel
            
            
            152,456
            
            
            122,528United
                States
            
            
            5,742
            
            
            7,889Asia
                Pacific
            
            
            10,267
            
            
            9,721Total
                long-lived assets (other than deferred tax assets)
            
            $
            341,942
            
            $
            287,800




**Note
      17.**  **Valuation
      and qualifying accounts**




**a)**  **Accounts
      receivable reserves**




(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**Beginning
                of year
            
            $
            172
            
            $
            1,124
            
            $
            1,427Additions
                (reversals)
            
            
            1,825
            
            
            (50
            )
            
            172Used
            
            
            (507
            )
            
            (902
            )
            
            (475
            )End
                of year
            
            $
            1,490
            
            $
            172
            
            $
            1,124


Page
          72




**b)**  **Inventory
      reserves**




(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**Beginning
                of year
            
            $
            2,434
            
            $
            2,511
            
            $
            3,398Additions
                (reversals)
            
            
            2,228
            
            
            41
            
            
            (887
            )Used
            
            
            (293
            )
            
            (118
            )
            
            ─End
                of year
            
            $
            4,369
            
            $
            2,434
            
            $
            2,511




**c)**  **Deferred
      tax valuation reserve**




(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006**Beginning
                of year
            
            $
            4,774
            
            $
            8,115
            
            $
            3,455Additions
                (reversals)
            
            
            (4,508
            )
            
            (3,694
            )
            
            4,216Foreign
                exchange movements
            
            
            346
            
            
            353
            
            
            444End
                of year
            
            $
            612
            
            $
            4,774
            
            $
            8,115




**Note
      18.**  **Other
      expense**




Other
      expenses in the fiscal year ended June 30, 2008 comprised legal and professional
      fees incurred in connection with a proposal received from News Corporation
      and
      two subsidiaries (the “Permira Newcos”) of funds advised by Permira Advisers LLP
      for a transaction that, if consummated, would result in NDS ceasing to be a
      public company and the Permira Newcos and News Corporation owning approximately
      51% and 49% of NDS’s outstanding equity, respectively. The Board appointed a
      committee of independent directors (the “Independent Committee”) to review the
      proposed transaction and the Independent Committee appointed its own legal
      and
      financial advisers.





On
      August
      5, 2008, the Company announced that the Independent Committee reached an
      agreement in principle with News Corporation and the Permira Newcos on a price
      at which they would acquire all of the Company’s issued and outstanding Series A
      Ordinary Shares, including those represented by American Depositary Shares
      traded on NASDAQ. The price announced was $63 per share in cash. The transaction
      is subject to negotiation and execution of final legal documentation. The
      consummation of the transaction is also conditioned upon the approval of the
      transaction by holders of the Series A Ordinary Shares, the approval of the
      High
      Court of Justice of England and Wales, the receipt of certain regulatory
      approvals and certain other customary closing conditions. There can be no
      assurance that the parties will enter into final legal documentation or that
      any
      transaction will be consummated.





Page
          73




**Note
      19.**  **Supplementary
      cash flow disclosures**




(in
                thousands)
            
            **As of June 30,****2008**
            
            **2007**
            
            **2006****Cash
                receipts and payments:**Cash
                payments for capital expenditure
            
            $
            (17,081
            )
            $
            (25,520
            )
            $
            (30,018
            )Proceeds
                from sale of property, plant and equipment
            
            
            258
            
            
            371
            
            
            602Interest
                received in cash
            
            
            27,865
            
            
            26,338
            
            
            13,226Interest
                paid in cash
            
            
            ─
            
            
            (263
            )
            
            (188
            )Cash
                payments for income taxes
            
            
            (55,580
            )
            
            (49,525
            )
            
            (27,955
            )Cash
                payments in respect of abandoned property leases
            
            
            ─
            
            
            ─
            
            
            (1,572
            )Gross
                purchases of short-term investments
            
            
            ─
            
            
            (203,387
            )
            
            (184,401
            )Gross
                sales of short-term investments
            
            
            ─
            
            
            387,788
            
            
            ─**Supplemental
                information on businesses acquired:**Fair
                value of assets acquired
            
            $
            13,763
            
            $
            104,917
            
            $
            4,405Less:
                cash acquired
            
            
            (24
            )
            
            (13,577
            )
            
            (67
            )Less:
                liabilities assumed
            
            
            (2,490
            )
            
            (10,592
            )
            
            (1,220
            )Deferred
                consideration payable
            
            
            (899
            )
            
            ─
            
            
            ─10,350
            
            
            80,748
            
            
            3,118Cash
                paid in respect of deferred consideration for acquisitions
            
            
            116
            
            
            2,467
            
            
            ─Net
                cash paid for business acquisitions
            
            $
            10,466
            
            $
            83,215
            
            $
            3,118




**Note
      20.**  **Quarterly
      data (unaudited)**




**For the three months ended**(in thousands, except per share amounts)
            
            **September 30**
            
            **December 31**
            
            **March 31**
            
            **June 30****Fiscal
                2008:**Revenue
            
            $
            204,876
            
            $
            214,948
            
            $
            213,301
            
            $
            217,023Gross
                margin
            
            
            136,420
            
            
            133,462
            
            
            126,484
            
            
            135,242Operating
                income
            
            
            58,286
            
            
            49,510
            
            
            43,304
            
            
            44,284Net
                income
            
            
            46,294
            
            
            40,369
            
            
            36,293
            
            
            37,139Basic
                earnings per share
            
            $
            0.80
            
            $
            0.70
            
            $
            0.62
            
            $
            0.64Diluted
                earnings per share
            
            $
            0.79
            
            $
            0.68
            
            $
            0.62
            
            $
            0.63**Fiscal
                2007:**Revenue
            
            $
            164,162
            
            $
            165,062
            
            $
            178,391
            
            $
            201,877Gross
                margin
            
            
            101,927
            
            
            103,944
            
            
            107,818
            
            
            127,319Operating
                income
            
            
            44,590
            
            
            37,400
            
            
            35,782
            
            
            45,584Net
                income
            
            
            35,088
            
            
            30,291
            
            
            29,224
            
            
            41,124Basic
                earnings per share
            
            $
            0.62
            
            $
            0.53
            
            $
            0.51
            
            $
            0.71Diluted
                earnings per share
            
            $
            0.61
            
            $
            0.52
            
            $
            0.50
            
            $
            0.70


Page
          74




**ITEM
      9.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




None.




**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**




**Disclosure
      Controls**




The
      Company’s management, with the participation of the Company’s Chairman and Chief
      Executive Officer and Chief Financial Officer, has evaluated the effectiveness
      of the Company’s disclosure controls and procedures (as such term is defined in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
      period covered by this Annual Report on Form 10-K. Based on such evaluation,
      the
      Company’s Chairman and Chief Executive Officer and Chief Financial Officer have
      concluded that, as of the end of such period, the Company’s disclosure controls
      and procedures are effective in recording, processing, summarizing and reporting
      on a timely basis, information required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act and were effective
      in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the Company’s management, including the Company’s Chairman and Chief
      Executive Officer and Chief Financial Officer, as appropriate to allow timely
      decisions regarding required disclosure.




**Management’s
      Report on Internal Control over Financial Reporting**




The
      Company’s management is responsible for establishing and maintaining adequate
      internal control over financial reporting as defined in Rules 13a-15(f) and
      15d-15(f) under the Exchange Act. The Company’s internal control over financial
      reporting is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with accounting principles generally
      accepted in the United States. The Company’s internal control over financial
      reporting includes those policies and procedures that:




·
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                Company;




·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with accounting
                principles generally accepted in the United
                States;




·
            provide
                reasonable assurance that receipts and expenditures of the Company
                are
                being made only in accordance with authorization of management and
                Directors of the Company; and




·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of assets that could
                have a
                material effect on the consolidated financial
                statements.




Internal
      control over financial reporting includes the controls themselves, monitoring
      and internal auditing practices and actions taken to correct deficiencies as
      identified.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate. Management conducted an
      assessment of the effectiveness of the Company’s internal control over financial
      reporting as of June 30, 2007 based on criteria for effective internal control
      over financial reporting described in “Internal Control ─ Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
      Management’s assessment included an evaluation of the design of the Company’s
      internal control over financial reporting and testing of the operational
      effectiveness of its internal control over financial reporting. Management
      reviewed the results of its assessment with the Audit Committee of our Board
      of
      Directors.




Based
      on
      this assessment, management determined that, as of June 30, 2008, the Company
      maintained effective internal control over financial reporting.




Ernst
      & Young LLP, the Company’s independent registered public accounting firm
      that audited and reported on the Company’s consolidated financial statements
      included in this Annual Report on Form 10-K, has audited the Company’s internal
      control over financial reporting. Their report is reproduced below.




Page
          75




**Report
      of Independent Registered Public Accounting Firm**




**The
      Board of Directors and Shareholders of** **NDS
      Group plc**





We
      have
      audited NDS Group plc’s internal control over financial reporting as of June 30,
      2008, based on criteria established in Internal Control – Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (the COSO criteria). NDS Group plc’s management is responsible for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting
      included in the accompanying Management's Assessment on Internal Control over
      Financial Reporting. Our responsibility is to express an opinion on the
      company’s internal control over financial reporting based on our
      audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, NDS Group plc maintained, in all material respects, effective internal
      control over financial reporting as of June 30, 2008, based on the COSO
      criteria.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of NDS Group
      plc as of June 30, 2008 and 2007, and the related consolidated statements of
      operations, shareholders’ equity and other comprehensive income, and cash flows
      for each of the three fiscal years in the period ended June 30, 2008 of NDS
      Group plc and our report dated August 8, 2008 expressed an unqualified opinion
      thereon.





Ernst
      & Young LLP





London,
      England


August
      8,
      2008


Page
          76




**Changes
      in Internal Control over Financial Reporting**




There
      has
      been no change in the Company’s internal control over financial reporting (as
      such term is defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act)
      during the Company’s fourth quarter of fiscal year ended June 30, 2008 that has
      materially affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.




**ITEM
      9B.**  **OTHER
      INFORMATION**




None.


Page
          77


**PART
      III**




**ITEM
      10.**  **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




**Our
      Directors**




The
      following table provides information regarding the Directors of the Company
      in
      office as of June 30, 2008. The information with respect to each of the
      Director’s principal occupation or employment, other affiliations and business
      experience were furnished to the Company by the respective Director. The ages
      shown are as of August 6, 2008.




**Name and Age**
            
            **Business Experience and Directorships**
            
            **Director**
              **Since**
            
            **Year Term**
              **Expires**David
                F. DeVoe (61)
            
            David
                F. DeVoe has been a Director since 1996. Mr. DeVoe has been a Director
                of
                News Corporation and its Chief Financial Officer since 1990, and
                has
                served as a Senior Executive Vice President of News Corporation since
                1996. Mr. DeVoe has been a Director of British Sky Broadcasting Group
                plc
                (“BSkyB”) since 1994.
            
            1996
            
            *Roger
                W. Einiger (60)
            
            Roger
                W. Einiger has been a Director since 2004 and is a member of the
                Audit
                Committee. Mr. Einiger has been a private investor since 2001. Mr.
                Einiger
                has been a Director of Avatar Holdings Inc. since 2006 and a Director
                of
                BPW Acquisition Corp. since 2008.
            
            2004
            
            2008Nathan
                Gantcher (68)
            
            Nathan
                Gantcher has been a Director since 2004 and is a member of the Audit
                Committee. Mr. Gantcher has been a managing member of EXOP Capital
                LLC, a
                private investment firm, since 2005. He has been a Director of Mack-Cali
                Realty Corporation since 1999, a Trustee of Centerline Capital Group
                since
                2007, a Director of Liberty Acquisition Holdings Corp. since 2007
                and a
                Director of Liquidnet Holdings since 2000. Mr. Gantcher was the Chief
                Executive Officer and Co-Chairman of Alpha Investment Management
                LLC from
                2002 to 2004.
            
            2004
            
            2009Lawrence
                A. Jacobs (53)
            
            Lawrence
                A. Jacobs has been a Director since 2005. Mr. Jacobs has been Senior
                Executive Vice President and Group General Counsel of News Corporation
                since 2005. Mr. Jacobs served as News Corporation Deputy General
                Counsel
                from 1996 to 2004, as Executive Vice President from 2001 to 2004
                and as
                Senior Vice President from 1996 to 2001. Mr. Jacobs has been a member
                of
                the Bar of the State of New York since 1982.
            
            2005
            
            *Abe
                Peled (62)
            
            Abe
                Peled is our Chairman and Chief Executive Officer. Dr. Peled has
                been a
                Director and our Chief Executive Officer since 1995. In 2006, Dr.
                Peled
                was appointed as Chairman of the Board. In addition, Dr. Peled advises
                News Corporation with respect to various technology
                matters.
            
            1995
            
            **




Page
          78




**Name and Age**
            
            **Business Experience and Directorships**
            
            **Director**
              **Since**
            
            **Year Term**
              **Expires**Peter
                J. Powers (65)
            
            Peter
                J. Powers has been a Director since 2000 and is Chairman of the Audit
                Committee. Mr. Powers founded Powers Global Strategies, LLC in 1998
                and
                currently serves as its Chairman and Chief Executive Officer. Mr.
                Powers
                was the First Deputy Mayor of the City of New York from 1994 to 1996.
                Mr.
                Powers has been a Director of Mutual of America Life Insurance Company
                since 2006.
            
            2000
            
            2010Arthur
                M. Siskind (69)
            
            Arthur
                M. Siskind has been a Director since 1996. Mr. Siskind has served
                as a
                Director of News Corporation since 1991 and as Senior Advisor to
                the
                Chairman of News Corporation since 2005. At News Corporation, Mr.
                Siskind
                also served as Group General Counsel from 1991 to 2005 and as Senior
                Executive Vice President from 1996 to 2005. Mr. Siskind has served
                as a
                Director of BSkyB since 1992. Mr. Siskind has been an Adjunct Professor
                of
                Law at the Cornell Law School since August 2007 and was an Adjunct
                Professor of Law at Georgetown University Law Center from 2005 to
                2007.
                Mr. Siskind has been a Member of the Bar of the State of New York
                since
                1962.
            
            1996
            
            *







*
            Denotes
                Director appointed by News Corporation. Such Director’s term is not
                subject to expiration.


**
            Denotes
                Director also serving as Chief Executive Officer of the Company.
                Such
                Director’s term is not subject to
                expiration.




**Our
      Executive Officers**




The
      executive officers of the Company at June 30, 2008, are set out in the table
      below. Each holds the offices indicated until his successor is chosen and
      qualified the regular meeting of the Board of Directors to be held following
      an
      annual general meeting of shareholders or at other meetings of the Board of
      Directors, as appropriate. The ages shown are as of August 15,
      2008.




**Name**
            
            **Age**
            
            **Position with the Company**Abe
                Peled
            
            62
            
            Director,
                Chairman and Chief Executive OfficerAlexander
                Gersh
            
            44
            
            Chief
                Financial Officer and Company SecretaryRaffi
                Kesten
            
            55
            
            Chief
                Operating Officer




None
      of
      the executive officers of the Company is related to any other executive officer
      or Director by blood, marriage or adoption.




Information
      concerning Dr. Peled can be found under the heading “Our
      Directors.”




*Alexander
      Gersh* joined
      us in 2005 as Chief Financial Officer. Mr. Gersh was Chief Financial Officer
      at
      FLAG telecom, a global network service provider, from 2003 to 2005 and was
      Executive Vice President and Chief Financial Officer at NextiraOne North America
      from 2002 to 2003. Mr. Gersh has also held senior international finance roles
      at
      British Telecommunications and Motorola in the United Kingdom and Russia. Mr.
      Gersh has been the Chairman of the Audit Commission of Vimpel Com Inc. since
      2003.




*Raffi
      Kesten* has been
      our Chief Operating Officer since 2006. Mr. Kesten joined us in 1996 as Vice
      President and General Manager of NDS Technologies Israel Limited, an indirect
      subsidiary of ours and subsequently assumed responsibilities for our smart
      card
      procurement and production. Prior to joining us, Mr. Kesten held senior
      operating positions at various companies in Israel, including Indigo, Intel
      and
      Tadiran.




Page
          79




**Committee
      of the Board of Directors**




Under
      the
      applicable NASDAQ listing standards, the Company is deemed to be a “controlled
      company” because News Corporation holds more than 50% of the voting power of the
      Company. Accordingly, the Company is not subject to certain NASDAQ corporate
      governance requirements, including the requirement that the Board consist of
      a
      majority of independent Directors or the requirement that it maintain
      independent compensation (or remuneration) and nominating
      committees.




***Audit
      Committee***




The
      Audit
      Committee consists of Mr. Powers, who serves as its Chairman, and Messrs.
      Einiger and Gantcher. The Audit Committee assists the Board in its oversight
      of
      (i) the integrity of the Company’s financial reporting processes and systems of
      internal control, (ii) the qualifications, independence and performance of
      the
      Company’s independent registered public accounting firm and the performance of
      the Company’s corporate auditors and corporate audit function, (iii) the
      Company’s compliance with legal and regulatory requirements involving financial,
      accounting and internal control matters, (iv) investigations into complaints
      concerning financial matters and (v) risks that may have a significant impact
      on
      the Company’s financial statements. The Audit Committee provides an avenue of
      communication among management, the independent registered public accounting
      firm, the corporate auditors and the Board.




The
      Audit
      Committee Charter provides that its members shall consist entirely of Directors
      who the Board determines are “independent” in accordance with the NASDAQ listing
      standards and who meet the additional “independence” requirements imposed by the
      NASDAQ listing standards for Audit Committee membership. The Board has
      determined that each of the members of the Audit Committee meets the NASDAQ
      independence requirements and that each member of the Audit Committee is an
      “audit committee financial expert,” as such term is defined by the
      SEC.




**Standards
      of Business Conduct and Code of Ethics**




The
      Board
      has adopted a Standards of Business Conduct (the “Standards”), which confirms
      the Company’s policy to conduct its affairs in compliance with all applicable
      laws and regulations and observe the highest standards of business ethics.
      The
      Standards have been adopted by the Company, its subsidiaries and divisions
      in
      all locations, unless the Standards conflict with local law.




To
      further promote ethical and responsible decision making, the Board has
      established a Code of Ethics for its Chief Executive Officer and senior
      financial officers that is included in the Standards.




The
      full
      text of the Standards and the Code of Ethics may be found on the Investor
      Relations section of the Company’s website at http://www.nds.com/pdfs/standards_of_business_conduct.pdf and are
      available in print to any shareholder requesting a paper copy of these documents
      by contacting the Company Secretary.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires that a Company’s Directors and executive
      officers, and persons who own more than 10% of a registered class of the
      ordinary shares, file reports of ownership and changes in ownership with the
      SEC
      and NASDAQ. Directors, officers and beneficial owners of more than 10% of the
      ordinary shares are required by the SEC to furnish the Company with copies
      of
      the reports they file.




The
      Company believes that all of the Company’s current and former Directors and
      executive officers reported on a timely basis all transactions required to
      be
      reported by Section 16(a) during the fiscal year ended June 30,
      2008.




**ITEM
      11.**  **EXECU** **T** **IVE
      COMPENSATION**




**Compensation
      Discussion and Analysis**




***Overview
      of Our Compensation Program Philosophy and Objectives***




The
      goal
      of creating long-term growth and value for our shareholders drives our
      philosophy of how we design our executive compensation program. Our executives
      are central to the value that the Company creates for our shareholders. It
      is
      their leadership, talent and ability to identify and execute on business
      opportunities that spur the Company’s future growth and success. To that end, we
      must attract, motivate and retain the highest quality talent to lead the
      Company, and our compensation program is a key tool in achieving these
      goals.




Page
          80




The
      Board
      is responsible for establishing and overseeing the Company’s executive
      compensation program, including making executive compensation decisions for
      the
      executive officers listed on the summary Compensation Table below, who we
      collectively refer to as the “Named Executive Officers.” Under applicable NASDAQ
      listing standards, the Company is deemed to be a “controlled company” because
      its controlling shareholder, News Corporation, holds more than 50% of the voting
      power of the Company. Accordingly, the Company is not subject to certain NASDAQ
      listing requirements, including the requirement that it maintain a compensation
      committee comprising independent directors. In addition, because the Board
      is
      controlled by directors appointed by News Corporation, News Corporation is
      able
      to control compensation decisions made by the Board with respect to the Named
      Executive Officers.




The
      Board
      believes that compensation for its executives, including the Named Executive
      Officers, should fulfill the following objectives: (i) attracting the highest
      quality talent to the Company; (ii) motivating executives in the short- and
      long-term by rewarding them for meeting or exceeding individual or Company
      performance goals; (iii) aligning our executives’ interests with the long-term
      interests of our shareholders; and (iv) encouraging and providing incentives
      for
      executives to remain with the Company for long and productive
      careers.




In
      order
      to attract and retain the best talent, our executives’ compensation packages
      must remain competitive. The Board analyzes the compensation practices of a
      group of our peer companies, which consist of similarly-sized U.S.-based
      technology companies and U.K.-based general industry companies. Although the
      Board considers the compensation practices of our peer companies, it does not
      use peer group data to base, justify or provide a framework for compensation
      decisions. The Board also does not target compensation to a specific range
      within the group of peer companies. Rather, it uses peer company data to obtain
      a general understanding of current compensation practices. The Board’s goal is
      to provide total compensation packages that are competitive with prevailing
      practices in our industry and in the geographic markets in which we conduct
      business; however, the Board retains flexibility within our compensation program
      in order to respond to and adjust for specific circumstances and our evolving
      business environment.




The
      Company retains Deloitte to provide advice on a variety of compensation matters
      as requested by the Company’s senior management, including providing peer
      company compensation data and perspectives on market trends that may impact
      decisions regarding the Company’s executive compensation program and practices.
      Management takes into account information provided by Deloitte to help make
      recommendations to the Board regarding the appropriate level and mix of
      compensation for each of the Named Executive Officers in light of our
      compensation objectives. In addition, members of our senior management team
      keep
      abreast of developments in compensation and benefits matters, participate in
      the
      gathering and presentation of facts related to these matters and formulate
      and
      make recommendations, in consultation with News Corporation management, to
      the
      Board in these areas. Our Chief Executive Officer, Dr. Abe Peled, is a Named
      Executive Officer, as well as Chairman of the Board. Dr. Peled provides
      recommendations to the Board regarding the other Named Executive Officers’
compensation packages; however, he does not make recommendations about, or
      participate in, decisions regarding his own compensation.




***Elements
      of Our Named Executives Officers’ Compensation
      Packages***




The
      key
      elements of our executive compensation program for the Named Executive Officers
      are: base salary, merit-based and performance-based bonuses and retirement
      benefits. The Named Executive Officers also receive certain perquisites, but
      those perquisites are not a key element of compensation. The table below
      illustrates how each element of compensation fulfills our four compensation
      objectives discussed above:




**Element of Compensation**
            
            **Attraction**
            
            **Motivation**
            
            **Alignment**
              **with**
              **Shareholder**
              **Interests**
            
            **Retention**Base
                salary
            
            
            X
            
            
            
            
            
            
            
            
            XMerit-based
                bonus
            
            
            X
            
            
            X
            
            
            
            
            
            XPerformance-based
                bonus
            
            
            X
            
            
            X
            
            
            X
            
            
            XRetirement
                benefits
            
            
            X
            
            
            
            
            
            
            
            
            X




When
      making individual executive compensation decisions, our Board considers such
      characteristics as the Named Executive Officer’s leadership and management
      expertise, performance history, the complexity of the position and
      responsibilities, growth potential, term of service with the Company and
      reporting structure. The Board also takes into account certain other market
      factors, such as the significance that our industry and geographic markets
      play
      in the Company’s ability to attract and retain talent, among others. In
      determining the amount of total compensation, the Board considers both currently
      paid compensation and the opportunity for future compensation, as well as the
      mix of cash and equity-based compensation.




Page
          81




The
      Board
      annually reviews and analyzes the nature and amounts of all elements of each
      Named Executive Officer’s total compensation package, both separately and in the
      aggregate, to ensure that total compensation is competitive within the
      marketplace, that a significant portion of each Named Executive Officer’s
      compensation is performance based, and that an appropriate balance is maintained
      in focusing different elements of compensation on both the short-term and
      long-term performance of the Company. Any future compensation decisions by
      the
      Board for the Named Executive Officers are made in the context of this
      review.




Our
      fiscal 2008 Named Executive Officers are Dr. Abe Peled and Messrs. Alexander
      Gersh and Raffi Kesten. Each of our Named Executive Officers is party to a
      pre-existing negotiated employment agreement. See “Employment Agreements” for a
      more detailed description of each of the Named Executive Officer’s employment
      agreements. The compensation package of each of the Named Executive Officers
      does not necessarily contain each of the elements of compensation mentioned
      above. Instead, the Board creates a compensation package for each of the Named
      Executive Officers that contains a mix of compensation elements that it believes
      best addresses his particular responsibilities and that will best achieve our
      compensation objectives.




***Base
      Salary*** **.** The
      basic
      element of compensation needed to attract and retain an employee in any
      organization is base salary. Base salary is the fixed element of a Named
      Executive Officer’s annual cash compensation, and serves as a baseline measure
      of the Named Executive Officer’s value to the Company and the foundation upon
      which the types and amounts of other elements of compensation for the Named
      Executive Officer is based.




As
      discussed above, each of the Named Executive Officers is party to a pre-existing
      negotiated employment agreement, which provides for a minimum base salary.
      At
      the time each of these employment agreements was entered into, the then
      Remuneration Committee established each Named Executive Officer’s base salary in
      the context of the nature of the Named Executive Officer’s particular position,
      the responsibilities associated with that position, their experience, expertise,
      knowledge and qualifications, market factors, retention factors, our Chief
      Executive Officer’s recommendation (with the exception of his own base salary)
      and the Company’s overall compensation philosophy.




The
      Board
      reviews annually the base salary of each of the Named Executive Officers,
      subject to the terms of any applicable employment agreement. Base salary may
      be
      adjusted if the Board determines that an adjustment is warranted or that a
      different mix of compensation elements may more appropriately compensate the
      individual Named Executive Officer in light of the Company’s compensation
      objectives.




During
      the fiscal year ended June 30, 2008, base salaries for Dr. Peled and Messrs.
      Gersh and Kesten were £660,000 (approximately $1,315,789), £270,000
      (approximately 538,278) and NIS 2,150,000 (approximately $637,623),
      respectively.




***Merit-Based
      Bonus*** .
      Merit-based bonuses are used to motivate performance and to provide a variable
      element to annual, short-term cash compensation. In determining merit-based
      bonuses for the Named Executive Officers, the Board uses its discretion to
      evaluate several factors, including the performance of the Company, the
      individual Named Executive Officer's overall performance during the fiscal
      year
      covered by the bonus, the individual's position and responsibilities within
      the
      Company and the recommendation of the Chief Executive Officer (except with
      respect to his own merit-based bonus). None of these factors are assigned a
      specific weight and merit-based bonuses are not based on pre-established
      performance or similar criteria. Instead, the Board recognizes that the relative
      importance of each of these factors may change from time to time in order to
      adapt to specific business challenges and to reflect changing economic and
      marketplace conditions.




In
      determining the fiscal 2008 merit-based bonuses for the Named Executive
      Officers, the Board considered the Company’s achievements as a whole in fiscal
      2008, including the Company’s overall strong growth, attainment of budgeted
      earnings and profit margins, key customer wins and deliveries of new products to
      existing customers. The Board also considered each of the Named Executive
      Officer’s individual contributions to those achievements, as well as their
      accomplishments in their specific roles within the Company. In determining
      the
      amount of each of the Named Executive Officers’ fiscal 2008 merit-based bonuses,
      the Board also took into consideration its determination not to increase any
      of
      the base salaries for the Named Executive Officers for fiscal 2009, consistent
      with the Board’s belief that a significant portion of each of the Named
      Executive Officers’ compensation should be tied to their performance. With
      respect to Dr. Peled, the Board considered Dr. Peled’s continued strong
      leadership of the Company in achieving the accomplishments noted above, his
      strategic planning for the Company’s long-term goals and his position as a
      leader in the industry. For Mr. Gersh, the Board noted his success in managing
      the Company’s financial operations and delivering performance that achieved or
      exceeded financial objectives, which was evidenced by the strong financial
      position of the Company and the operating profit growth results of the Company
      for the fiscal year. The Board also considered Mr. Gersh’s effective
      representation of the Company to investors and the financial community. With
      respect to Mr. Kesten, the Board noted Mr. Kesten’s continued leadership and
      success in implementing the Company’s strategic initiatives and executing its
      operational objectives. In light of these considerations, the Board determined
      to award merit-based bonuses for fiscal 2008 in the amount of £850,000
      (approximately $1,694,577), £210,000 (approximately $418,660) and NIS 1,600,000
      (approximately $474,510), to Dr. Peled and Messrs. Gersh and Kesten,
      respectively. Pursuant to the terms of his employment agreement, Dr. Peled
      is
      entitled to receive a minimum annual merit-based bonus of £200,000.




Page
          82




***Performance-Based
      Bonus*** **.** The
      Named
      Executive Officers have a direct influence on the Company’s operations and
      strategy. Consequently, the Board believes that a larger portion of a the Named
      Executive Officer’s total compensation should be variable based on the Company’s
      performance. As an incentive for the Named Executive Officers to strive
      continuously for better performance, a portion of the named executive officer’s
      total compensation is “at risk” based upon the Company’s short-term and
      long-term performance. The performance-based bonuses awarded to our Named
      Executive Officers are designed to foster a performance-driven,
      pay-for-performance culture that also aligns our Named Executive Officers’
interests with those of our shareholders.




In
      determining the performance criteria for performance-based bonuses, the Board
      uses performance measures that are tied to objective operation results of the
      Company because it believes that the performance measures should be based on
      results that are within the control of the Named Executive Officers, rather
      than
      a share price that is also influenced by external market forces and that could
      potentially lead to an undesirable focus on short-term factors outside the
      Named
      Executive Officers’ control. The Board chooses performance-based measures that
      it believes will provide an incentive for an executive to drive operating
      results in the short-term, as well as drive sustainable and profitable growth
      in
      order to create long-term value for our shareholders.




In
      fiscal
      2008, each of the Named Executive Officers participated in a Company-wide grant
      of conditional awards (the “Performance-Based Conditional Awards”) under the NDS
      Group plc 2006 Long-Term Incentive Plan (the “LTIP”). These awards were
      conditioned upon the attainment of particular pre-determined operating income
      goals for fiscal 2008. Under the terms of these Performance-Based Conditional
      Awards, if the Company’s actual fiscal 2008 operating income as compared to its
      pre-determined fiscal 2008 target operating income was within a certain
      performance goal range that was approved by the Board, the Named Executive
      Officer was entitled to receive time-vested ADRs representing Series A Ordinary
      Shares. Following the end of the 2008 fiscal year, the Company determined the
      degree to which the Company’s operating income goal was obtained. Based on the
      Company’s actual fiscal 2008 operating income, which fell within the performance
      goal range, the Named Executive Officer received a percentage of his annualized
      base salary in time-vested ADRs representing Series A Ordinary Shares. The
      pre-determined fiscal 2008 operating income goals for each of Dr. Peled and
      Messrs. Gersh and Kesten are set forth in Footnote 1 to the Grants of Plan-Based
      Awards Table below. The number of ADRs representing Series A Ordinary Shares
      awarded to each Named Executive Officer in satisfaction of a fiscal 2008
      Performance-Based Conditional Award was determined by dividing the value of
      the
      award by the average closing price of the ADRs representing Series A Ordinary
      Shares on NASDAQ for the 20-day trading period ended on August 5,
      2008.




Based
      on
      the Company’s actual fiscal 2008 operating income and pursuant to each of their
      fiscal 2008 Performance-Based Conditional Awards, Dr. Peled and Messrs. Gersh
      and Kesten received time-vested ADRs representing 28,584, 11,693 and 12,244
      Series A Ordinary Shares, respectively. Twenty-five percent of these ADRs will
      vest on August 15, 2008, with the remaining balance vesting in three equal
      annual installments over the next three years. The fiscal 2008 Performance-Based
      Conditional Awards best serve the Company’s compensation objectives because the
      performance feature focuses on business priorities by clearly communicating
      to
      the Named Executive Officers what the Board believes is most important in
      driving business performance and ultimately creating value for our shareholders,
      while the time-vested ADRs foster share ownership that encourages a longer-term
      view of the Company’s performance and promotes retention.




*Retirement
      Benefits*




Our
      pension plans serve as an important executive retention tool. Mr. Gersh
      participates in the News International Pension Plan, which is a broad-based,
      tax-qualified defined contribution plan in which all U.K. employees of NDS
      are
      eligible to participate and Mr. Kesten participates in a broad-based,
      tax-qualified defined contribution, disability and severance plan in which
      all
      Israeli employees of NDS are eligible to participate.




Dr.
      Peled
      participates in the News International Pension & Life Assurance Plan for
      Senior Executives and the News International Unapproved Pension & Life
      Assurance Plan (the “News Pension Plans”). The News Pension Plans provide Dr.
      Peled a benefit at retirement that is based on Dr. Peled’s number of years of
      benefit service from the date of joining the plans and final pensionable salary.
      In addition, these plans provide Dr. Peled death-in-service benefits and provide
      pension benefits to his surviving spouse. For more information on the News
      Pension Plans, see the “Pension Plan Benefits” table below.




Page
          83




*Perquisites*




We
      provide our Named Executive Officers with limited types of perquisites and
      other
      personal benefits that the Board feels are reasonable and consistent with the
      Company’s overall compensation philosophy. The perquisites constitute a very
      small percentage of each of the Named Executive Officer’s total compensation
      package.




For
      the
      fiscal year ended June 30, 2008, Dr. Peled received a Company-provided
      automobile and reimbursement for housing and relocation expenses; Mr. Gersh
      received a car allowance and financial planning and tax assistance; and Mr.
      Kesten received a Company-provided automobile. A further description of the
      perquisites received by each of the Named Executive Officers in fiscal 2008,
      as
      well as their incremental cost to the Company, is reported in the Summary
      Compensation Table and its accompanying footnotes.




***Severance
      Arrangements***




The
      employment agreements of Dr. Peled and Messrs. Gersh and Kesten contain
      negotiated severance provisions that provide benefits to each Named Executive
      Officer upon his separation from the Company, which are more fully described
      under “Employment Agreements,” below. In addition, in line with customary
      practice in Israel, the Company contributes to a severance fund on behalf of
      Mr.
      Kesten. For more information on these severance arrangements, see “Potential
      Payments upon Termination,” below. None of the Named Executive Officer’s
      employment agreements contains provisions relating to a change in control of
      the
      Company.




***Our
      Equity Grant Practices***




We
      use
      equity awards to recognize performance and to provide a strong retention
      incentive to certain employees who drive the development and/or execution of
      our
      business strategies. Equity awards also foster share ownership by our employees,
      which promotes a focus on long-term growth and further links their interests
      with those of our shareholders.




Generally,
      the Board approves and makes awards of equity grants under our equity
      compensation plans after the grantees’ attainment of certain performance
      criteria. Occasionally, the Board may approve one-time grants for particular
      circumstances, such as upon a hiring, promotion or contract renewal. More
      generally, awards under the LTIP are primarily made once a year through a
      broad-based program. In each fiscal year, the Board approves performance targets
      and the range of equity awards payable upon the achievement of those targets.
      In
      structuring our equity incentive program and determining the type and amounts
      of
      each grant, we consider the impact the equity awards will have on our operating
      results, and we strive to achieve an appropriate balance between the impact
      on
      our financial operating results and our compensation objectives.




The
      Board
      currently intends to continue to grant performance-based equity awards under
      the
      LTIP to certain of its executives, including the Named Executive Officers,
      on an
      annual basis. Such awards may be discretionary or based on pre-determined
      performance goals, including, but not limited to, operating income, gross margin
      or net income per share.




**Board
      of Director’s Compensation Report**




The
      Board
      has reviewed the Compensation Discussion and Analysis required by Item 402(b)
      of
      Regulation S-K and discussed it with the Company’s management. Based on the
      Board’s review and discussions with management, the Board has authorized the
      Compensation Discussion and Analysis be included in the Company’s Annual Report
      on Form 10-K for the fiscal year ended June 30, 2008 and in this proxy
      statement.




**The
                Board of Directors**David
                F. DeVoe
            
            Lawrence
                A. JacobsRoger
                W. Einiger
            
            Abe
                PeledNathan
                Gantcher
            
            Peter
                J. PowersArthur
                M. Siskind




**Compensation
      Interlocks and Insider Participation in Board Discussions Regarding
      Compensation**




As
      a
“controlled company,” the Company does not maintain, and did not maintain in
      fiscal 2008, a compensation committee that met the NASDAQ independence
      requirements. Instead, the full Board assumes the responsibilities that would
      normally fall into the ambit of a compensation committee or a committee
      performing a similar function.




Page
          84


The
      members of the Board whose names appear above were members during all of fiscal
      2008. Dr. Abe Peled, a Named Executive Officer, is the Company’s Chief Executive
      Officer in addition to being Chairman of the Board. Although Dr. Peled is a
      member of the Board, he did not participate in discussions or voting regarding
      his own compensation. Other than Dr. Peled, no member of the Board is or has
      been a former or current executive officer of the Company or had any
      relationships requiring disclosure by the Company under the SEC’s rules
      requiring disclosure of certain relationships and related-party transactions.
      None of the Company’s executive officers served as a director or a member of a
      compensation committee (or other committee serving an equivalent function)
      of
      any other entity, the named executive officers of which served as a Director
      of
      the Company during the fiscal year ended June 30, 2008.




**Executive
      Compensation**




***Summary
      Compensation Table for the Fiscal Year Ended June 30,
      2008***




The
      following table sets forth information with respect to total compensation for
      the fiscal years ended June 30, 2008 and 2007 for the Named Executive
      Officers who served in such capacity on June 30, 2008.


**Name
                  and PrincipalPosition**
              
              **FiscalYear**
              
              **Salary**
              
              **Bonus**
              
              **StockAwards****(1)**
              
              **OptionAwards****(2)**
              
              **Change in
                  Pension Value and Nonqualified Deferred Compensation
                  Earnings**
              
              **All other
                  Compensation**
              
              **Total**Abe
                  Peled(3)
              
              
              2008
              
              $
              1,315,789
              
              $
              1,694,577
              
              $
              820,428
              
              $
              578,599
              
              $
              252,978
              (4)
              $
              605,327
              (5)
              $
              5,267,698Director,
                  Chairman and Chief
              
              
              2007
              
              
              1,324,238
              
              
              1,504,815
              
              
              182,908
              
              
              754,684
              
              
              113,100
              
              
              620,231
              
              
              4,499,976Executive
                  OfficerAlexander
                  Gersh(3)
              
              
              2008
              
              
              538,278
              
              
              418,660
              
              
              410,602
              
              
              791,864
              
              
              ─
              
              
              76,064
              (6)
              
              2,235,468Chief
                  Financial Officer and Company Secretary
              
              
              2007
              
              
              501,605
              
              
              381,220
              
              
              103,925
              
              
              1,097,902
              
              
              ─
              
              
              75,217
              
              
              2,159,869Raffi
                  Kesten(7)
              
              
              2008
              
              
              637,623
              
              
              474,510
              
              
              339,217
              
              
              148,204
              
              
              ─
              
              
              173,324
              (8)
              
              1,772,878Chief
                  Operating Officer
              
              
              2007
              
              
              466,532
              
              
              352,850
              
              
              75,118
              
              
              228,480
              
              
              ─
              
              
              101,162
              
              
              1,224,142




_________________




(1)
            The
                amounts in the Stock Awards column represent the value of stock awards
                recognized for financial statement reporting purposes, as computed
                in
                accordance with Statement of Financial Accounting Standards No. 123
                (Revised 2004), “Share-Based Payment” (“SFAS 123R”), disregarding
                estimates of forfeitures related to service-based vesting
                conditions.




(2)
            The
                amounts in the Option Awards column represent the value recognized
                for
                financial statement reporting purposes for the applicable fiscal
                year as
                computed in accordance with SFAS 123R using the Black-Scholes option
                pricing model, disregarding estimates of forfeitures related to
                service-based vesting conditions. For additional information abut
                the
                assumptions used in these calculations, see , see Note 13, “Equity Based
                Compensation” to the accompanying consolidated financial statements for
                the fiscal year ended June 30, 2008, included in this Annual Report
                on
                Form 10-K.




(3)
            Amounts
                paid to Dr. Peled and Mr. Gersh, with the exception of amounts in
                the
                “Share Awards” and “Option Awards” columns, are denominated in pounds
                sterling. For purposes of this tabulation, such amounts have been
                converted from pounds sterling into U.S. dollars at an exchange rate
                of
                £0.5016 to $1.00 for fiscal 2008 amounts and£0.4984
                to $1.00 for fiscal 2007 amounts.




(4)
            The
                values reported with respect to Dr. Peled are theoretical as those
                amounts
                are calculated pursuant to SEC requirements and are based on a retirement
                assumption of age 55 or current age, if later, and other assumptions
                used
                in preparing the Company’s consolidated financial statements for the
                fiscal years ended June 30, 2007 and 2008. The change in pension
                value
                from year to year as reported in the Summary Compensation Table is
                subject
                to market volatility and may not represent the value that Dr. Peled
                will
                actually accrue under the News Pension Plans during any given fiscal
                year.
                The change in pension present value is attributable to the
                following:




Page
          85




**Description**
            
            **Amount**Change
                in assumptions
            
            $
            (39,998
            )Additional
                one year of pension accrual
            
            
            292,976Total
            
            $
            252,978





(5)
            This
                amount consists of (i) the aggregate incremental costs of Company
                perquisites provided to Dr. Peled of $341,384, which includes
                reimbursement of housing expenses of $204,481, reimbursement of continued
                relocation expenses of $79,745, company car expenses of $41,334,
                a medical
                examination, meals and spousal business travel and (ii) the incremental
                cost to the Company of other compensation of $263,943, which includes
                life
                insurance premiums paid of
                $262,053.




(6)
            This
                amount consists of (i) the aggregate incremental costs of Company
                perquisites provided to Mr. Gersh of $23,086, all of which relates
                to a
                car allowance, and (ii) the incremental cost to the Company of other
                compensation of $52,978, which includes contributions to a defined
                contribution pension plan of
                $41,547.




(7)
            Amounts
                paid to Mr. Kesten, with the exception of amounts in the “Share Awards”
                and “Option Awards” columns, are denominated in Israeli shekels. For
                purposes of this tabulation, such amounts have been converted from
                Israeli
                shekels into U.S. dollars at an exchange rate of NIS 3.3719 to $1.00
                for fiscal 2008 amounts and NIS 4.2517 to $1.00 for fiscal 2007
                amounts.




(8)
            This
                amount consists of (i) the aggregate incremental costs of Company
                perquisites provided to Mr. Kesten of $68,709, including pay in lieu
                of
                vacation time of $40,171, a car allowance of $28,452 and meals and
                (ii)
                the incremental cost to the Company of other compensation of $104,615,
                which includes contributions to a severance plan of $47,189 and
                contributions to, and payments in lieu of contributions to, a defined
                contribution pension plan of
                $38,804.




Page
          86




***Grants
      of Plan-Based Awards during the Fiscal Year Ended June 30,
      2008***




The
      following table sets forth information with respect to grants of plan-based
      awards under the Company’s compensation plans to the Named Executive Officers
      during the fiscal year ended June 30, 2008:


**Estimated Future Payouts underNon-Equity Incentive PlanAwards**
              
              **Estimated Future Payouts underEquity Incentive Plan Awards**
              
              **AllotherStock
                  Awards: NumberofShares**
              
              **All Other
                  Option Awards: Number of Securities**
              
              **Exerciseor BasePrice
                  of**
              
              **GrantDateFairValueofStockand****Grant**
              
              
              
              
              
              
              
              
              
              
              
              
              
              **of
                  Stock**
              
              **Underlying**
              
              **Option**
              
              **Option****Name**
              
              **Date(1)**
              
              **Threshold**
              
              **Target**
              
              **Maximum**
              
              **Threshold**
              
              **Target**
              
              **Maximum**
              
              **or
                  Units**
              
              **Options**
              
              **Awards**
              
              **Awards**Dr.
                  Peled
              
              
              12/03/2007
              
              
              ─
              
              
              ─
              
              
              ─
              
              $
              661,058
              
              $
              1,652,644
              
              $
              2,478,966
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Mr.
                  Gersh
              
              
              12/03/2007
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              270,433
              
              
              676,082
              
              
              1,014,123
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Mr.Kesten
              
              
              12/03/2007
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              283,178
              
              
              707,945
              
              
              1,061,917
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─


(1)
            During
                the fiscal year ended June 30, 2008, the Named Executive Officers
                received
                a fiscal 2008 Performance-Based Conditional Award granting the right
                to
                receive a number of time-vested ADRs representing Series A Ordinary
                Shares
                based on the Company’s achievement of certain operating income targets. To
                the extent that the Company’s actual fiscal 2008 operating income fell
                within a certain range, the Named Executive Officer received a percentage
                of his annualized base salary in time-vested ADRs representing Series
                A
                Ordinary Shares as summarized
                below:




**Name**
            
            **Below Threshold**
            
            **Threshold**
              *(87.817% ofTarget)*
            
            **Target**
            
            **Maximum**
              *(> 112.183% ofTarget)*Dr.
                Peled
            
            
            0
            %
            
            50.0
            %
            
            125.0
            %
            
            187.5
            %Mr.
                Gersh
            
            
            0
            %
            
            50.0
            %
            
            125.0
            %
            
            187.5
            %Mr.
                Kesten
            
            
            0
            %
            
            50.0
            %
            
            125.0
            %
            
            187.5
            %





Because
      the number of ADRs representing Series A Ordinary Shares had not been determined
      on the grant date of the fiscal 2008 Performance-Based Conditional Awards,
      the
      dollar amounts in the table above reflect the dollar value of such ADRs. The
      average annual exchange rates for the fiscal year ended June 30, 2008 (£0.4992
      to $1.00 in the case of Dr. Peled and Mr. Gersh; NIS 3.7962 to $1.00 in the
      case of Mr. Kesten) were used to convert the Named Executive Officers’ salaries
      to U.S. dollars, as this is the exchange rate to be used in calculating the
      actual awards. For further information on the fiscal 2008 Performance-Based
      Conditional Awards, including the number of ADRs representing Series A Ordinary
      Shares each Named Executive Officer received when the awards were determined
      on
      August 6, 2008, see “Compensation Discussion and Analysis ─ Elements of our
      Named Executive Officers’ Compensation Packages ─ Performance-Based
      Bonus.”




***Employment
      Agreements***




*Summary
      of Employment Agreement with Abe Peled*




On
      December 1, 1999, the Company entered into an employment agreement with Dr.
      Abe
      Peled, pursuant to which Dr. Peled serves as Chief Executive Officer, a member
      of the Board and a member of the board of directors of each subsidiary of the
      Company as required by the Board. The employment agreement initially provided
      for a three-year term effective as of December 1, 1999. Subject to the terms
      of
      the employment agreement, on the expiry of the initial term of the employment
      agreement, the term was to continue to be extended for successive one-year
      periods unless either party provides the other party with at least 12 months’
prior written notice of such party’s decision not to extend the
      term.




Under
      the
      terms of the employment agreement, Dr. Peled will receive a base salary of
      at
      least £400,000 (approximately $797,448) per annum. Dr. Peled will also receive a
      minimum annual bonus of £200,000 (approximately $398,724) during each year of
      service rendered under the employment agreement. Any increase in the base
      salary, or any additional bonuses to be paid to Dr. Peled, shall be at the
      sole
      discretion of the Board. Dr. Peled’s employment agreement also provides that he
      is entitled to participate in any profit-sharing, pension, group medical,
      dental, disability and life insurance and other similar benefit plans in effect
      at the time the agreement was entered into or subsequently adopted by the
      Company during the term of the employment agreement, applicable to senior
      executives of the Company. Dr. Peled shall be entitled to participate in any
      stock option or share purchase scheme presently in effect or subsequently
      adopted by the Company and applicable to senior executives of the
      Company.




Page
          87




Pursuant
      to the employment agreement, the Company also provides Dr. Peled with the use
      of
      an automobile in England, reimbursement of housing expenses and an annual
      allowance of £40,000 (approximately $79,745) for continued relocation expenses,
      to be paid semi-annually. The Company shall reimburse all travel and other
      expenses properly and reasonably incurred by Dr. Peled in the discharge of
      his
      duties.




Dr.
      Peled’s employment agreement contains customary confidentiality,
      non-competition, non-solicitation, and cooperation provisions.




*Summary
      of Employment Agreement with Alex Gersh*




On
      November 11, 2004, a subsidiary of the Company, NDS Limited, entered into an
      employment agreement with Alex Gersh, pursuant to which Mr. Gersh serves as
      Chief Financial Officer of the Company for a continuous period effective as
      of
      January 4, 2005 unless terminated pursuant the provisions of the agreement.
      Mr.
      Gersh will receive an annual base salary of at least £220,000 (approximately
      $438,596). His salary is reviewed annually and is subject to increase at the
      discretion of the Company. Mr. Gersh will be eligible for an annual bonus of
      up
      to 75% of his annual base salary.




The
      amount of bonus payable is dependent on his personal performance and attendance,
      assessed over the previous fiscal year. Upon commencement of employment, Mr.
      Gersh received a one-time bonus payment of £85,000 (approximately
      $169,458).




Pursuant
      to the employment agreement, Mr. Gersh was granted stock options to purchase
      80,000 Series A Ordinary Shares, priced at the closing share price on NASDAQ
      on
      January 4, 2005. These stock options will vest over four years in equal annual
      installments in accordance with the terms and conditions of the NDS 1999
      Executive Share Option Scheme and the NDS U.K. Approved Share Option Scheme,
      and
      he is eligible for future grants as they are made.




The
      Company is required to reimburse Mr. Gersh for reasonable costs for tax advice
      in connection with the completion of Mr. Gersh’s U.S. and U.K. tax returns, as
      well as apply and pay for any of Mr. Gersh’s necessary U.K. visas and work
      permits. Subject to the terms of the employment agreement, Mr. Gersh is entitled
      to a car allowance of £965 (approximately $1,924) per month. The Company is
      required to provide Mr. Gersh with a fax machine and mobile phone to be returned
      upon the termination of his employment.




Mr.
      Gersh
      is eligible to join the News International Pension Plan. This is a defined
      contribution pension and life assurance plan contracted out of the State
      Earnings Related Pension Scheme. Additionally, Mr. Gersh is eligible for family
      medical coverage.




Mr.
      Gersh’s employment agreement contains customary confidentiality,
      non-competition, non-solicitation, and cooperation provisions.




*Summary
      of Employment Agreement with Raffi Kesten*




The
      terms
      of Mr. Kesten’s employment are set out in a letter agreement between NDS
      Technologies Israel Limited, a subsidiary of the Company, and Mr. Kesten, dated
      as of October 20, 2002, as amended by a letter agreement between the Company
      and
      Mr. Kesten, dated as of June 22, 2004 (collectively the “Letter
      Agreements”).




Mr.
      Kesten’s annual salary was increased to $450,000 effective as of July 1, 2006.
      In October 2006, the Company began paying all employees based in Israel,
      including Mr. Kesten, in Israeli shekels instead of U.S. dollars. At that time,
      his annual base salary was determined to be NIS 1,983,275 (approximately
      $466,532 using a June 30, 2007 exchange rate). Mr. Kesten’s salary may be
      adjusted at any time by the Board. Mr. Kesten may receive bonus payments at
      the
      discretion of the Board. Under the Letter Agreements, Mr. Kesten is entitled
      to
      a company car, 26 days paid vacation per year and the customary social benefits
      provided in Israel. The notice period for termination, other than for good
      cause, is specified as one year. Mr. Kesten is eligible to participate in the
      Company’s employee stock option plans and to receive discretionary bonus
      payments.




The
      Letter Agreements contain customary confidentiality, non-competition,
      non-solicitation, and cooperation provisions.




Page
          88




***Outstanding
      Equity Awards at June 30, 2008***




The
      following table provides information with respect to each of the Named Executive
      Officer’s outstanding equity awards at June 30, 2008, which included vested and
      unexercised stock options, unvested and unexercised stock options and unvested
      conditional awards. The stock option exercise prices shown below are rounded
      with respect to prices prior to fiscal 2000, which extended to four decimal
      places.


**Option Awards**
              
              **Share Awards****Name
                  ofExecutive**
              
              **Option/ShareAwardGrantDate**
              
              **Number of
                  Securities Underlying Unexercised Options
                  Exercisable**
              
              **Number of
                  Securities Underlying Unexercised Options
                  Unexercisable**
              
              **Equity
                  Incentive PlanAwards: Number of Securities Underlying Unexercised
                  Unearned Options**
              
              **Option
                  ExercisePrice**
              
              **Option
                  Expiration Date**
              
              **NumberofSharesor Unitsof Stock**
                **thatHaveNotVested**
              
              **MarketValue ofShares or
                  Units ofStock thatHave not
                  Vested**
              
              **EquityIncentive
                  PlanAwards: NumberofUnearned Shares or OtherRights
                  that HaveNotVested**
              
              **Equity
                  Incentive PlanAwards:
                  Marketor PayoutValue ofUnearned
                  Shares,Units orOther**
                **Rightsthat HaveNotVested**Dr.
                  Peled
              
              
              10/04/01
              
              
              56,000
              
              
              ─
              
              
              ─
              
              $
              21.90
              
              
              10/04/1111/05/03
              
              
              60,000
              
              
              ─
              
              
              ─
              
              $
              17.12
              
              
              11/05/1312/22/04a
              
              
              37,500
              
              
              12,500
              
              
              ─
              
              $
              32.96
              
              
              12/22/1402/01/06
              
              
              30,000
              
              
              30,000
              
              
              ─
              
              $
              43.13
              
              
              02/01/1604/30/07
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,049
              
              $
              1,246,101
              
              
              ─
              
              
              ─12/03/07
              (1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              28,584
              
              
              1,692,173
              
              
              ─
              
              
              ─Mr.
                  Gersh
              
              
              01/04/05
              
              
              40,425
              
              
              20,001
              
              
              ─
              
              $
              33.54
              
              
              01/04/1502/01/06
              
              
              40,000
              
              
              40,000
              
              
              ─
              
              $
              43.13
              
              
              02/01/1604/30/07
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,841
              
              
              700,987
              
              
              ─
              
              
              ─12/03/07
              (1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,693
              
              
              692,226
              
              
              ─
              
              
              ─Mr.
                  Kesten
              
              
              11/05/03
              
              
              2,000
              
              
              ─
              
              
              ─
              
              $
              17.12
              
              
              11/05/1312/22/04b
              
              
              5,000
              
              
              ─
              
              
              ─
              
              $
              32.96
              
              
              12/22/1402/01/06
              
              
              10,000
              
              
              10,000
              
              
              ─
              
              $
              43.13
              
              
              02/01/1604/30/07
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,559
              
              
              506,693
              
              
              ─
              
              
              ─12/03/07
              (1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,244
              
              
              724,845
              
              
              ─
              
              
              ─







(1)
            Represents
                the number of ADRs representing Series A Ordinary Shares that had
                not
                vested as of June 30, 2008 with respect to the fiscal 2008
                Performance-Based Conditional Awards described in footnote 1 to the
                Grants
                of Plan-Based Awards table above.




**Option
                Awards Vesting Schedule****Grant Date**
            
            **Vesting
                Schedule**10/04/01
            
            Stock
                options vest at a rate of 25% per year, beginning one year after
                the date
                of grant.11/05/03
            
            Stock
                options vest at a rate of 25% per year, beginning one year after
                the date
                of grant.12/22/04a
            
            Stock
                options vest at a rate of 25% per year, beginning one year after
                the date
                of grant.12/22/04b
            
            Stock
                options were originally set to vest at a rate of 25% per year, beginning
                one year after the date of grant. However, on June 24, 2005, the
                Remuneration Committee accelerated the vesting of these stock options
                and
                100% of them vested on that date with respect to all stock option
                holders*except*for directors and executive officers. Mr. Kesten was not an executive
                officer at the time and vesting of his stock options was
                accelerated.01/04/05
            
            Stock
                options vest at a rate of 25% per year, beginning one year after
                the date
                of grant.02/01/06
            
            Stock
                options vest at a rate of 25% per year, beginning one year after
                the date
                of grant.




Page
          89




**Share
                Awards Vesting Schedule**




**Grant Date**
            
            **Vesting
                Schedule**04/30/07
            
            ADRs
                representing Series A Ordinary Shares vest at a rate of 25% per year,
                beginning on August 15, 2007.12/03/07
            
            ADRs
                representing Series A Ordinary Shares vest at a rate of 25% per year,
                beginning on August 15, 2008.




***Stock
      Option Exercises and Shares Vested During the Fiscal Year Ended June 30,
      2008***




The
      following table sets forth information with respect to the exercise of stock
      options and the vesting of ADRs representing Series A Ordinary Shares granted
      pursuant to performance-based conditional awards for each of the Named Executive
      Officers during the fiscal year ended June 30, 2008:


**Option Awards**
              
              **Share Awards****Name
                  of Executive**
              
              **Number ofShares Acquiredon Exercise**
              
              **Value Realizedon Exercise**
              
              **Number ofShares Acquiredon Vesting**
              
              **Value Realizedon Vesting**Dr.
                  Peled
              
              
              ─
              
              
              ─
              
              
              7,016
              
              $
              345,748Mr.
                  Gersh
              
              
              ─
              
              
              ─
              
              
              3,947
              
              
              194,508Mr.
                  Kesten
              
              
              5,000
              
              $
              215,150
              
              
              2,853
              
              
              140,596




***Pension
      Benefits in the Fiscal Year Ended June 30, 2008***




The
      table
      below sets forth information on the pension benefits for Dr. Peled, the only
      Named Executive Officer participating in a defined-benefit pension plan. The
      remaining Named Executive Officers participate in defined-contribution plans,
      and any contributions paid by the Company during the fiscal year ended June
      30,
      2008 are included in the “All Other Compensation” column of the Summary
      Compensation Table above.




Under
      the
      terms of the News Pension Plans, an eligible employee will receive a benefit
      at
      retirement that is based upon (a) the employee’s number of years of benefit
      service from the date of joining the plan and (b) final pensionable salary.
      Compensation, for benefit purposes, is currently limited to £294,000
      (approximately $586,124) per year. This level of benefit applies to Dr.
      Peled.




The
      News
      Pension Plans consist of two separate plans: the News International Pension
      & Life Assurance Plan for Senior Executives and the News International
      Pension Unapproved Life Assurance Plan. The former plan is a U.K. H.M. Revenue
      and Customs approved plan and relates primarily to Dr. Peled’s pension. The
      latter plan is an unapproved plan for U.K. tax purposes and relates primarily
      to
      Dr. Peled’s life assurance plan. Unapproved plans are not subject to H.M.
      Revenue and Customs requirements as to their size or how they are structured,
      but do not offer all of the tax advantages offered by approved
      plans.




Service
      before April 1, 2000 accrued at a rate of one-sixtieth of his compensation
      salary for each year and month of service. Service after April 1, 2000 accrues
      at a rate of one-forty-fifth of his compensation salary for each year and month
      of service.




**Name of Executive**
            
            **Plan Name**
            
            **Numberof YearsCreditedService****(1)**
            
            **PresentValue ofAccumulatedBenefit****(2)**
            
            **PaymentsDuringLastFiscalYear**Dr.
                Peled
            
            News
              International Pension & Life Assurance Plan for Senior
              Executives
            
            
            11.5
            
            $
            1,436,742
            
            
            ─News
              International Pension Unapproved Life Assurance Plan
            
            
            11.5
            
            
            1,317,337
            
            
            ─




Page
          90





(1)
            Number
                of years credited service equal to Dr. Peled’s actual years of service
                with the Company. The number of years of credit service was computed
                as of
                the same pension plan measurement date used for financial statement
                reporting purposes with respect to the accompanying consolidated
                financial
                statements for the fiscal year ended June 30, 2008. The Company does
                not
                have any policies with respect to granting extra years of credit
                service
                under the News Pension Plans.




(2)
            The
                amounts reported in this column equal the present value of the accumulated
                benefit pursuant to each plan as of June 30, 2008, assuming a discount
                rate of 3.75% per annum, inflation at a rate of 6.0% per annum and
                using
                the PA92 base mortality table with a calendar year projection to
                2015. The
                present value of the accumulated benefit pursuant to each plan was
                computed as of the same pension plan measurement date used for financial
                statement reporting purposes with respect to the accompanying consolidated
                financial statements for the fiscal year ended June 30, 2008. Amounts
                were
                converted from pounds sterling at the June 30, 2008 exchange rate,
                which
                was $£0.5016 to $1.00.




***Potential
      Payments upon Termination***




As
      discussed under “Employment Agreements” above, the employment agreements of each
      of Dr. Peled and Messrs. Gersh and Kesten provide for certain payments and
      benefits upon the respective Named Executive Officer’s separation from the
      Company. These provisions are summarized below:




*Dr.
      Peled*




Should
      Dr. Peled become incapacitated or disabled, as defined in the employment
      agreement, the Company shall continue to pay his full base salary and to provide
      the benefits or payments on account of the benefits, less the amount of any
      proceeds from disability policies paid for by the Company, until he returns
      to
      his duties or his appointment is terminated.




Should
      Dr. Peled be terminated for cause, the Company shall pay his full base salary
      and provide the benefits or payments for benefits up to the date of termination,
      subject to the Company’s right to offset amounts owed to it by Dr.
      Peled.




If
      Dr.
      Peled is terminated for reasons other than mental illness or death, or if he
      terminates the employment agreement as a result of the Company’s breach, he
      shall become entitled to a lump sum severance payment equal to his annual base
      salary as of the date of termination. The aforementioned payments shall
      discharge the Company’s financial obligations to Dr. Peled.




On
      the
      termination of Dr. Peled’s employment with the Company for any reason, whether
      lawfully or otherwise, Dr. Peled shall immediately resign from any and all
      positions he holds in the Company’s subsidiaries. If he does not resign from
      such positions, the Board may appoint someone to act on his behalf.




*Mr.
      Gersh*




Termination
      of employment by Mr. Gersh or the Company is subject to 12 months’ notice,
      except for material breach or similar just cause. If Mr. Gersh is terminated
      by
      the Company without cause, he will remain entitled to receive his full salary
      for a period of 18 months following notice of termination. The Company may
      choose to maintain contractual benefits to which Mr. Gersh would have been
      entitled for the notification period or the Company may make a payment to Mr.
      Gersh in lieu of such benefits. The Company may terminate Mr. Gersh for cause
      without a notification period and without making a payment to Mr. Gersh in
      lieu
      of notification. Upon termination for whatever reason, Mr. Gersh shall resign
      all directorships and offices in the Company and any of its
      subsidiaries.




*Mr.
      Kesten*




Upon
      termination, Mr. Kesten will receive one month’s salary for every year of his
      employment by NDS Technologies Israel Limited, under severance arrangements
      that
      are customary in Israel. In addition, pursuant to the Letter Agreements, he
      will
      be entitled to receive his full salary for a period of 12 months following
      notice of termination.




*Quantification
      of Payments*




The
      table
      below sets forth quantitative information with respect to potential payments
      to
      be made to each of the Named Executive Officers or their beneficiaries upon
      termination in various circumstances as described above, assuming termination
      on
      June 30, 2008. The amounts included in the table below do not include amounts
      otherwise due and owing to each applicable Named Executive Officer, such salary
      earned to date, or payments or benefits generally available to all salaried
      employees of the Company.




Page
          91




The
      amounts presented in the below table with respect to Dr. Peled are in addition
      to Dr. Peled’s vested pension benefits as of June 30, 2008 noted in the Pension
      Benefits Table above.




**Terminationwithout Cause**
            
            **Death**Dr.
                Peled:(1)Salary
                entitlement
            
            $
            1,315,789
            
            
            ─News
                Pension Plans
            
            
            ─
            
            $
            5,263,156
            (2)Mr.
                Gersh:(1)Salary
                entitlement
            
            $
            807,417
            
            
            ─News
                International Pension Plan
            
            
            ─
            
            $
            2,153,112
            (3)Mr.
                Kesten:(4)Salary
                entitlement
            
            $
            637,623
            
            
            ─Severance
                fund
            
            
            640,167
            
            $
            640,167Managers’
                Insurance Fund
            
            
            ─
            
            
            1,524,844Total
                for Mr. Kesten
            
            $
            1,277,790
            
            $
            2,165,011





(1)
            Amountspayable
                have been converted from pounds sterling into U.S. dollars at an
                exchange
                rate of £0.5016 to $1.00.




(2)
            In
                addition to the life insurance benefits payable, Dr. Peled’s spouse is
                entitled to a pension of £200,000 (approximately $398,724) per
                annum.




(3)
            In
                addition to the life insurance benefits payable, Mr. Gersh’s spouse is
                entitled to a pension of one-third his annualized base salary per
                year.




(4)
            Amounts
                payable have been converted from Israeli shekels into U.S. dollars
                at an
                exchange rate of NIS 3.3719 to
                $1.00.




In
      the
      event of a voluntary termination or termination with cause, each of Dr. Peled
      and Messrs. Gersh and Kesten would be eligible to receive their normal
      retirement pensions. In addition, Mr. Kesten would receive the proceeds of
      his
      severance fund described in the table above.




**Non-Executive
      Director Compensation**




Directors’
      fees are not paid to Directors who are executives or employees of the Company
      (the “Executive Directors”) because the responsibilities of Board membership are
      considered in determining compensation paid as part of the executives’ normal
      employment conditions.




In
      addition, as appointees to the Board by News Corporation, Messrs. DeVoe, Jacobs
      and Siskind receive no compensation for their services as Directors of the
      Company.




The
      basic
      fees payable to the Directors who are not executives of the Company (i.e.,
      Messrs. Einiger, Gantcher and Powers (the “Non-Executive Directors”)), were
      determined by the Board. In determining Non-Executive Director compensation,
      the
      Board reviewed data provided by the Company’s independent compensation
      consultant concerning compensation paid to directors by the Company’s peer group
      of companies, considered the appropriateness of the form and amount of
      Non-Executive Director compensation and considered Director compensation with
      a
      view toward attracting and retaining qualified Non-Executive Directors. The
      Board believes that compensation for Non-Executive Directors should be
      competitive and fairly pay such Directors for work required for a company of
      NDS’s size and complexity. In addition, the Board believes that Non-Executive
      Director compensation should include equity-based compensation in addition
      to
      cash compensation in order to align those Directors’ interests with the
      long-term interests of shareholders.




Page
          92




Directors
      are not compensated per meeting attended. The annual retainers for the
      Non-Executive Directors’ service on the Board and its committees during the
      fiscal year ended June 30, 2008 was as follows:




**Description**
            
            **Amount**Annual
                Cash Retainer
            
            $
            77,500Audit
                Committee Chair Annual Retainer
            
            
            11,000Audit
                Committee Member Annual Retainer
            
            
            15,000




Pursuant
      to the Company’s Articles of Association, the aggregate amount that the Company
      may expend for compensation of Non-Executive Directors cannot exceed $1,000,000
      per annum.




The
      table
      below shows the total compensation earned during the fiscal year ended June
      30,
      2008 by the Company to each Non-Executive Director:




**Name
                ofDirector**
            
            **FeesEarnedor
                Paidin Cash**
            
            **StockAwards****(1)**
            
            **OptionAwards****(2)**
            
            **Non-Equity
                Incentive Plan Compensation**
            
            **Change
                inPension Valueand Non-QualifiedDeferred Compensation
                Earnings**
            
            **All
                Other Compensation**
            
            **Total**Roger
                W. Einiger
            
            $
            92,500
            
            $
            71,406
            
            $
            48,915
            
            
            ─
            
            
            ─
            
            
            ─
            
            $
            212,821Nathan
                Gantcher
            
            
            92,500
            
            
            71,406
            
            
            48,915
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            212,821Peter
                J. Powers
            
            
            103,500
            
            
            71,406
            
            
            50,240
            
            
            ─
            
            
            ─
            
            
            ─
            
            
            225,146





(1)
            The
                amounts in the Stock Awards column represent the value of stock awards
                recognized for financial statement reporting purposes, as computed
                in
                accordance with SFAS 123R for fixed conditional awards granted under
                the
                NDS Group plc 2006 Long-Term Incentive Plan, disregarding estimates
                of
                forfeitures related to service-based vesting conditions. On December 3,
                2007, each of Messrs. Einiger, Gantcher and Powers were granted a
                time-vested fixed conditional award over 2,500 ADRs representing
                Series A
                Ordinary Shares, which vest in four equal installments on August
                15, 2008,
                2009, 2010 and 2011. In accordance with this vesting schedule, each
                of
                Messrs. Einiger, Gantcher and Powers received 625 ADRs representing
                Series
                A Ordinary Shares in respect of their respective fixed conditional
                awards
                on August 15, 2008. In addition, on August 15, 2008, each of
                Messrs. Einiger, Gantcher and Powers received an additional 625 ADRs
                representing Series A Ordinary Shares in respect of fixed conditional
                awards granted during the fiscal year ended June 30, 2007, which
                vest in
                four equal installments beginning August 15,
                2007.




(2)
              No
                  stock options were granted in fiscal 2008. The amounts in the Option
                  Awards column reflect the value recognized for financial statement
                  reporting purposes as computed in accordance with FAS 123R using
                  the
                  Black-Scholes option pricing model, disregarding estimates of forfeitures
                  related to service-based vesting conditions. For additional information
                  about the assumptions used in these calculations, see Note 13,
“Equity
                  Based Compensation” to the accompanying consolidated financial statements
                  for the fiscal year ended June 30, 2008, included in this Annual
                  Report on
                  Form 10-K. As of June 30, 2008, the following stock options were
                  outstanding for each of the Directors listed above:




**Name
                of Director**
            
            **Stock Options
                Outstanding**
            
            **Stock OptionsExercisable**
            
            **Stock Options
                Unexercisable**Mr.
                Einiger
            
            
            10,000
            
            
            6,250
            
            
            3,750Mr.
                Gantcher
            
            
            10,000
            
            
            6,250
            
            
            3,750Mr.
                Powers
            
            
            8,750
            
            
            5,000
            
            
            3,750




All
      Directors of the Company are reimbursed for their reasonable out-of-pocket
      expenses incurred in connection with attendance at meetings of, and other
      activities relating to service on, the Board and any committee of the
      Board.




Page
          93




**ITEM
                12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS**




The
      information required by this item with respect to securities authorized for
      issuance under the equity compensation plans is contained in Item 5 to this
      Annual Report on Form 10-K under the heading “Equity Compensation Plan
      Information” and is incorporated by reference in this Annual Report on Form
      10-K.




**Security
      Ownership of the Company**




The
      following table sets out the beneficial ownership of both Series A Ordinary
      Shares and Series B Ordinary Shares as of August 6, 2008 for the following:
      (i)
      each person who is known by the Company to own beneficially more than 5% of
      the
      outstanding ordinary shares; (ii) each member of the Board of Directors; (iii)
      each executive officer; and (iv) all directors and executive officers of the
      Company as a group. None of the shares reported in this table for directors
      and
      executive officers has been pledged as security for any obligation.


**Number of SharesBeneficially Owned****(1)**
              
              **Percent of Class****(1)**
              
              **Option/LTIP****Name**
              
              **Series A**
              
              **Series B**
              
              **Series A**
              
              **Series B**
              
              **Shares****(2)**News
                  Corporation(3)
              
              
              ─
              
              
              42,001,000
              
              
              ─
              
              
              100
              %
              
              ─Janus
                  Capital Management LLC(4)
              
              
              1,775,180
              
              
              ─
              
              
              10.9
              %
              
              ─
              
              
              ─AKO
                  Capital LLP(5)
              
              
              1,560,671
              
              
              ─
              
              
              9.6
              %
              
              ─
              
              
              ─Egerton
                  Capital Limited Partnership(6)
              
              
              1,456,708
              
              
              ─
              
              
              9.0
              %
              
              ─
              
              
              ─FMR
                  Corp(7)
              
              
              1,494,834
              
              
              ─
              
              
              9.2
              %
              
              ─
              
              
              ─Renaissance
                  Technologies Corp.(8)
              
              
              1,280,949
              
              
              ─
              
              
              7.9
              %
              
              ─
              
              
              ─Morgan
                  Stanley(9)
              
              
              1,024,115
              
              
              ─
              
              
              6.3
              %
              
              ─
              
              
              ─David
                  F. DeVoe
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Roger
                  W. Einiger
              
              
              9,625
              
              
              ─
              
              
              
              *
              
              ─
              
              
              7,500Nathan
                  Gantcher
              
              
              625
              
              
              ─
              
              
              
              *
              
              ─
              
              
              7,500Alexander
                  Gersh
              
              
              2,329
              
              
              ─
              
              
              
              *
              
              ─
              
              
              87,295Lawrence
                  A. Jacobs
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Raffi
                  Kesten
              
              
              2,853
              
              
              ─
              
              
              
              *
              
              ─
              
              
              22,914Abe
                  Peled
              
              
              4,140
              
              
              ─
              
              
              1.2
              %
              
              ─
              
              
              197,662Peter
                  J. Powers
              
              
              625
              
              
              ─
              
              
              
              *
              
              ─
              
              
              6,250Arthur
                  M. Siskind
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─All
                  current directors and executive officers as a group (9
                  members)
              
              
              20,197
              
              
              ─
              
              
              2.1
              %
              
              ─
              
              
              329,121







*
            Represents
                beneficial ownership of less than one percent of the issued and
                outstanding Series A Ordinary Shares on August 6,
                2008.




(1)
            Applicable
                percentage of ownership is based on 16,263,570 Series A Ordinary
                Shares
                and 42,001,000 Series B Ordinary Shares outstanding as of August
                6, 2008.
                Beneficial ownership is determined in accordance with SEC rules.
                In
                computing the number of ordinary shares beneficially owned by a person
                and
                the percentage ownership of that person, ordinary shares subject
                to stock
                options held by that person that are currently exercisable or that
                become
                exercisable within 60 days following August 6, 2008 and shares scheduled
                to vest on August 15, 2008 under the NDS 2006 Long-Term Incentive
                Plan are
                deemed outstanding for that particular person. However, such ordinary
                shares are not deemed outstanding for purposes of computing the percentage
                ownership of any other person. Unless otherwise indicated, the
                shareholder(s) named in this table has sole voting and dispositive
                power
                with respect to the ordinary shares shown as beneficially owned by
                such
                shareholder. The address for all Directors and executive officers
                of the
                Company is c/o NDS Group plc, One Heathrow Boulevard, 286 Bath Road,
                West
                Drayton, Middlesex, UB7 0DQ,
                England.




(2)
            The
                number of option/LTIP shares reported reflects (i) the number of
                Series A
                Ordinary Shares subject to stock options currently exercisable or
                that
                become exercisable within 60 days following August 6, 2008 and (ii)
                the
                number of shares scheduled to vest on August 15, 2008 under the NDS
                2006
                Long-Term Incentive Plan.




(3)
            According
                to a Schedule 13G/A filed with the SEC on November 12, 2004, 42,001,000
                Series B Ordinary Shares are owned of record by News UK Nominees
                Limited,
                a wholly-owned subsidiary of News Corporation. Accordingly, News
                Corporation may be deemed to be the indirect beneficial owner of
                such
                Series B Ordinary Shares. The principal executive office of News
                UK
                Nominees Limited is One Virginia Street, London E98 1XY, United Kingdom.
                News Corporation filed jointly with News UK Nominees Limited the
                Schedule
                13G/A filed with the SEC on November 12,
                2004.




Page
          94




(4)
            According
                to a Schedule 13G/A filed with the SEC on February 14, 2008, 1,775,180
                Series A Ordinary Shares are owned by Janus Capital Management LLC,
                965,304 shares of which are beneficially owned by Janus Overseas
                Fund. The
                principal executive office of each of the reporting persons is 151
                Detroit
                Street, Denver, Colorado 80206.




(5)
            According
                to a Schedule 13D filed with the SEC on July 9, 2008, 1,560,571 Series
                A
                Ordinary Shares are owned by AKO Capital LLP, AKO Master Fund Limited
                and
                Nicolai Tangen, each of whom may be deemed to be the beneficial owner
                of
                1,560,571 Series A Ordinary Shares. The principal executive office
                of AKO
                Capital LLP and Nicolai Tangen is 61 Conduit Street, London, W1S
                2GB,
                United Kingdom. The principal executive office of AKO Master Fund
                Limited
                is P.O. Box 309, George Town, Cayman
                Islands.




(6)
            According
                to a Schedule 13D filed with the SEC on July 16, 2008, 1,456,708
                Series A
                Ordinary Shares are owned by Egerton Capital Limited Partnership,
                Egerton
                Capital Limited and John Armitage, each of whom may be deemed to
                be the
                beneficial owner of the 1,456,708 Series A Ordinary Shares. The principal
                executive office of the reporting persons is 2 George Yard, Lombard
                Street, London, EC3V 9DH, United
                Kingdom.




(7)
            According
                to a Schedule 13G/A filed with the SEC on February 14, 2008, 1,494,834
                Series A Ordinary Shares are owned by FMR Corp., of which FMR Corp.
                has
                sole power to vote or to direct the vote of 1,109,734 Series A Ordinary
                Shares. The principal executive office of FMR Corp. is 82 Devonshire
                Street, Boston, Massachusetts,
                02109.




(8)
            According
                to a Schedule 13G/A filed with the SEC on February 13, 2008, 1,280,949
                Series A Ordinary Shares are owned by Renaissance Technologies Corp.
                and
                James H. Simons, each of whom may be deemed to be the beneficial
                owner of
                the 1,280,949 Series A Ordinary Shares. The principal executive office
                of
                the reporting persons is 800 Third Avenue, New York, New York
                10022.




(9)
            According
                to a Schedule 13G filed with the SEC on February 14, 2008, 1,024,115
                Series A Ordinary Shares are owned by Morgan Stanley, 1,021,315 of
                which
                are beneficially owned by Morgan Stanley & Co. Incorporated The
                principal executive office of the reporting persons is 1585 Broadway,
                New
                York, New York 10036.




**ITEM
              13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**




The
      information required by this item with respect to director independence is
      contained in Item 10 of this Annual Report on Form 10-K under the heading
“Corporate Governance ─ Other Corporate Governance Matters ─ Board Independence”
and is incorporated by reference in this Annual Report on Form
      10-K.




**Certain
      Relationships and Related-Party Transactions**




***Relationship
      with News Corporation***




Because
      News Corporation, through its subsidiary News UK Nominees Limited, beneficially
      owns 100% of the Series B Ordinary Shares, which have ten votes per share (as
      opposed to the Series A Ordinary Shares which have one vote per share), News
      Corporation controls approximately 96% of the Company’s voting power. By reason
      of such ownership, News Corporation is able to control the composition of the
      Company’s Board and to control the votes on all other matters submitted to a
      vote of the Company’s shareholders.




Three
      of
      the Company’s seven current Directors are Directors or executive officers of
      News Corporation. In addition, Dr. Peled, the Company’s Chairman and Chief
      Executive Officer, advises News Corporation’s management from time to time in
      matters pertaining to News Corporation’s wider business interests, for which Dr.
      Peled does not receive any additional compensation.




The
      Company conducts business transactions with News Corporation and its
      subsidiaries and affiliates. Agreements covering arrangements between News
      Corporation and its subsidiaries or affiliates and the Company are entered
      into
      in the context of two entities over which a third entity exercises significant
      influence or control. There can be no assurance, therefore, that each of the
      agreements, or the transactions provided for therein or any amendments thereto,
      will be effected on terms at least as favorable to the Company as could have
      been obtained from unaffiliated third parties.




The
      business transactions described above are of three main types: the provision
      by
      the Company of technology and services for digital pay television systems;
      the
      payment by the Company of royalties for the use of certain intellectual property
      rights; and the receipt by the Company of administrative services. Information
      about such related-party transactions is given in Note 11 to the accompanying
      consolidated financial statements.




Page
          95




***Review
      and Approval of Related-Party Transactions***




Our
      Audit
      Committee has not adopted any written policies or procedures governing the
      review, approval or ratification of related-party transactions. As a matter
      of
      practice, however, our Audit Committee reviews, approves or ratifies
      transactions with related parties when required by applicable law, regulation
      or
      NASDAQ rule or when the Audit Committee considers it appropriate. When
      conducting a review of a potential related-party transaction, the Audit
      Committee’s practice is to evaluate whether a related party (including a
      director, executive officer, employee, or other significant shareholder) will
      have a direct or indirect interest in a transaction in which the Company may
      be
      a party. Where the Audit Committee determines that such proposed transaction
      involves a related party, the Audit Committee reviews any and all information
      it
      deems necessary and appropriate to evaluate the fairness of the transaction
      to
      the Company and its shareholders (other than the interested related party to
      such transaction), and may consider, among other things, the following factors:
      the related party’s relationship to the Company and direct or indirect interest
      in the transaction, both objective (for example, the dollar amount of the
      related party’s interest) and subjective (for example, any personal benefit not
      capable of quantification); whether the interested transaction is on terms
      no
      less favorable than terms generally available to an unaffiliated third-party
      under the same or similar circumstances; if applicable, the availability of
      other sources of comparable products or services; the benefits to the Company
      of
      the proposed interested transaction; and the impact on a director’s independence
      in the event the related party is a director, an immediate family member of
      a
      director or a member of a director’s household or an entity in which a director
      is a partner, member, shareholder or officer.




During
      the fiscal year ended June 30, 2008, all of the transactions required to be
      reviewed, approved or ratified pursuant to applicable law, regulation or NASDAQ
      rule were reviewed, approved or ratified pursuant to the Audit Committee’s
      procedures described above.




**Director
      Independence**




The
      Board
      undertook its annual review of Director independence during the first quarter
      of
      fiscal year 2009. During this review, the Board considered transactions and
      relationships between each Director or any member of his immediate family and
      the Company and its subsidiaries and affiliates. The Board also examined
      transactions and relationships between each of the Directors or their affiliates
      and members of the Company’s senior management or their affiliates. The purpose
      of this review was to determine whether any such relationships or transactions
      were inconsistent with a determination that each such Director is independent
      of
      the Company.




As
      a
      result of this review, the Board determined that Messrs. Einiger, Gantcher
      and
      Powers are independent of the Company and its management under the NASDAQ
      listing standards.




**ITEM
      14.**  **PRINCIPAL
      ACCOUNTING FEES AND SERVICES**




**Audit
      Committee Pre-approval Policies and Procedures**




The
      Audit
      Committee has established policies and procedures under which all audit and
      non-audit services performed by the Company’s independent registered public
      accounting firm must be approved in advance by the Audit Committee. The Audit
      Committee’s policy provides for pre-approval of audit, audit-related and certain
      other services specifically described by the Audit Committee on an annual basis.
      In addition, individual engagements anticipated to exceed pre-established
      thresholds, as well as certain other services, must be separately approved.
      The
      policy also requires specific approval by the Audit Committee if total
      remuneration for tax services would exceed total remuneration for audit and
      audit-related services in any given fiscal year. The policy also provides that
      the Audit Committee can delegate pre-approval authority to any member of the
      Audit Committee provided that the decision to pre-approve is communicated to
      the
      full Audit Committee at its next meeting. The Audit Committee has delegated
      this
      responsibility to the Chairman of the Audit Committee. Management has also
      implemented internal procedures to ensure compliance with this policy. The
      Audit
      Committee’s Charter provides for the approval of the remuneration of the
      auditors. As required by the Sarbanes-Oxley Act, all audit and non-audit
      services provided in the fiscal years ended June 30, 2008 and 2007 were
      pre-approved by the Audit Committee in accordance with these policies and
      procedures. The Audit Committee also reviewed the non-audit services provided
      by
      E&Y during the fiscal years ended June 30, 2008 and 2007, and determined
      that the provision of such non-audit services was compatible with maintaining
      the auditor’s independence.




Page
          96




**Remuneration
      Paid to Independent Registered Public Accounting Firm**




The
      Audit
      Committee is responsible for the selection, compensation, retention and
      oversight of the work of the independent registered public accounting firm.
      Accordingly, the Audit Committee has selected E&Y to perform audit and other
      permissible non-audit services for the Company and its subsidiaries. The Company
      has formal procedures in place for the pre-approval by the Audit Committee
      of
      all services provided by E&Y. These pre-approval procedures are described
      below under “Audit Committee Pre-approval Policies and Procedures.”




The
      description of the fees for professional services rendered to the Company and
      its subsidiaries by E&Y for the fiscal years ended June 30, 2008 and 2007
      are set forth below.




**For the Fiscal Year Ended June 30,**(in
                thousands)
            
            **2008**
            
            **2007**Audit
                fees(1)
            
            $
            1,198
            
            $
            1,203Audit-related
                fees(2)
            
            
            55
            
            
            45Tax
                fees(3)
            
            
            45
            
            
            39All
                other fees
            
            
            —
            
            
            —Total
                fees
            
            $
            1,298
            
            $
            1,287





(1)
            Audit
                fees include: fees rendered in connection with the annual audit of
                the
                Company’s consolidated financial statements as of and for the fiscal years
                ended June 30, 2008 and June 30, 2007; the audit of the Company’s annual
                management assessment of the effectiveness of internal control over
                financial reporting as of June 30, 2008 and June 30, 2007 (as
                required by Section 404 of the Sarbanes Oxley Act of 2002, as amended
                (the
                “Sarbanes-Oxley Act”)); statutory audits required internationally; reviews
                of the Company’s unaudited condensed consolidated interim financial
                statements included in the Company’s statutory and regulatory filings; and
                other services normally provided by the independent registered public
                accounting firm in connection with statutory and regulatory
                filings.




(2)
            Audit-related
                fees for the fiscal years ended June 30, 2008 and June 30, 2007 include
                employee benefit plan audits, accounting consultations and other
                services
                related to the performance of the audit or review of the Company’s
                consolidated financial statements.




(3)
            Tax
                fees include fees for tax compliance for domestic and international
                operating units.




Page
          97




**PART
      IV**




**ITEM
              15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**




The
      following documents are filed as part of this report:




1.
            The
                Company’s Consolidated Financial Statements required to be filed as part
                of this Annual Report and the Reports of Independent Registered Public
                Accounting Firms are included in Part II, Item 8: “Financial Statements
                and Supplementary Data.”




2.
            All
                financial statement schedules are omitted because the required information
                is not applicable, or because the information called for is included
                in
                the Company’s Consolidated Financial Statements or the Notes to the
                Consolidated Financial Statements.




3.
            Exhibits –
                The exhibits listed on the accompanying Exhibit Index filed or
                incorporated by references as part of this Annual Report and such
                Exhibit
                Index is incorporated herein by reference. On the Exhibit Index,
                a “*”
                identifies each management contract or compensatory plan or arrangement
                required to be filed as an exhibit to this Annual Report, and such
                listing
                is incorporated herein by
                reference.




Page
          98


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.


NDS
                  Group plc(Registrant)By:
              /s/
                  Alexander GershAlexander
                  GershChief
                  Financial Officer andCompany
                  Secretary(Principal
                  Financial and AccountingOfficer)August
                  8, 2008


Pursuant
      to the requirements of the Securities Exchange Act 1934, this report has been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated:





**Signature**
            
            **Title**
            
            **Date**/s/
                Abraham Peled
            
            Chairman
                and Chief Executive Officer
            
            August
                8, 2008Abraham
                Peled
            
            (Principal
                Executive Officer)/s/
                David F. DeVoe
            
            Director
            
            August
                8, 2008David
                F. DeVoe/s/
                Roger W. Einiger
            
            Director
            
            August
                8, 2008Roger
                W. Einiger/s/
                Nathan Gantcher
            
            Director
            
            August
                8, 2008Nathan
                Gantcher/s/
                Lawrence A. Jacobs
            
            Director
            
            August
                8, 2008Lawrence
                A. Jacobs/s/
                Peter J. Powers
            
            Director
            
            August
                8, 2008Peter
                J. Powers/s/
                Arthur M. Siskind
            
            Director
            
            August
                8, 2008Arthur
                M. Siskind




Page
          99




**Index
      to Exhibits**




**Exhibit**
            
            **Description**
            
            **Location**3
            
            Memorandum
                and Articles of Association
            
            Incorporated
                by reference to Exhibit 3 to the Quarterly Report on Form 10-Q filed
                by
                NDS Group plc with the Securities and Exchange Commission on November
                7,
                20054.1
            
            Specimen
                Series A Ordinary Share certificate
            
            Incorporated
                by reference to Exhibit 4.1 to the Registration Statement on Form
                F-1
                filed by NDS Group plc with the Securities and Exchange Commission
                (File
                No. 333-11086) on November 19, 19994.2
            
            Form
                of American Depositary Receipt
            
            Incorporated
                by reference to Exhibit 4.3 to the Registration Statement on Form
                F-1
                filed by NDS Group plc with the Securities and Exchange Commission
                (File
                No. 333-11086) on November 19, 19994.3
            
            Deposit
                Agreement
            
            Incorporated
                by reference to Exhibit 4.2 to the Registration Statement on Form
                F-1
                filed by NDS Group plc with the Securities and Exchange Commission
                (File
                No. 333-11086) on November 19, 199910.1
            
            Master
                Intercompany Agreement
            
            Incorporated
                by reference to Exhibit 10.1 to the Registration Statement on Form
                F-1
                filed by NDS Group plc with the Securities and Exchange Commission
                (File
                No. 333-11086) on November 19, 199910.2
            
            Agreement
                between the Company and Abraham Peled, dated December 1,
                1999*
            
            Incorporated
                by reference to Exhibit 4.4 to the Annual Report on Form 20-F filed
                by NDS
                Group plc with the Securities and Exchange Commission (File No. 333-
                11086) on October 22, 200410.3
            
            Agreement
                between NDS Limited and Alexander Gersh, dated November 11,
                2004*
            
            Incorporated
                by reference to Exhibit 10 to the Current
              Report
                on Form 8-K filed by NDS Group plc with the
              Securities
                and Exchange Commission on January 5,
              200510.4
            
            Letter
                Agreement dated October 20, 2002 between Raffi Kesten and NDS Technologies
                Israel Limited*
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on April
                10,
                200610.5
            
            Letter
                Agreement dated June 22, 2004 between Raffi Kesten and NDS Group
                plc*
            
            Incorporated
                by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on April
                10,
                200610.6
            
            Non-Executive
                Director Compensation Summary Sheet*
            
            Incorporated
                by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on August
                29,
                2007.




Page
          100




**Exhibit**
            
            **Description**
            
            **Location**10.7
            
            NDS
                2006 Long-Term Incentive Plan*
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on November
                1,
                2006.10.8
            
            Form
                of Performance-Based Conditional Award Agreement*
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on May
                4,
                2007.10.9
            
            Form
                of Fixed Conditional Award Agreement*
            
            Incorporated
                by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                by
                NDS Group plc with the Securities and Exchange Commission on May
                4,
                2007.12
            
            Computation
                of Ratio of Earnings to Fixed Charges
            
            Filed
                herewith.21
            
            Subsidiaries
            
            Filed
                herewith.23
            
            Consent
                of Ernst & Young LLP
            
            Filed
                herewith.31.1
            
            Certification
                by the Chief Executive Officer pursuant to SEC Rule 13a-14(a) / 15d-14(a),
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002
            
            Filed
                herewith.31.2
            
            Certification
                by the Chief Financial Officer pursuant to SEC Rule 13a-14(a) / 15d-14(a),
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002
            
            Filed
                herewith.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                U.S.C Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002
            
            Furnished
                herewith.





*
            Management
                contract or compensatory plan required to be filed as an exhibit
                to the
                Annual Report on Form 10-K pursuant to
                Item 15(b).




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          101