**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**




or


For
      the
      fiscal year ended June 30, 2007




o
            
            **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**
            **Not
                applicable**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**One
                Heathrow Boulevard, 286 Bath Road, West Drayton,**
              **Middlesex,
                United Kingdom**
            **UB7
                0DQ**(Address
                of principal executive offices)
            (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
o**




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
      o         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
o**




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


Large
                accelerated filer  **x**
            Accelerated
                filer  **o**
            Non-accelerated
                filer  **o**




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).


**Yes
      o         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 29,
      2006, which was the last business day of the registrant’s most recently
      completed second fiscal quarter, was approximately $733,368,155 (based on the
      closing price on such date as reported on The NASDAQ Stock Market).





As
      of
      August 27, 2007, there were outstanding 15,808,430 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.





**DOCUMENTS
      INCORPORATED BY REFERENCE**




Certain
      information required for Part III of this Annual Report on Form 10-K is
      incorporated by reference to NDS Group plc’s definitive proxy statement for
      its 2007 Annual General Meeting of Shareholders, which shall be filed with
      the
      Securities and Exchange Commission, pursuant to Regulation 14A of the Securities
      Exchange Act of 1934, as amended, within 120 days of NDS Group plc’s fiscal year
      end.








**NDS
      Group plc**




**Table
      of Contents**


PART
                I
            1Item
                1.
            Business
            1Item
                1A.
            Risk
                Factors
            9Item
                1B.
            Unresolved
                Staff Comments
            14Item
                2.
            Properties
            14Item
                3.
            Legal
                Proceedings
            15Item
                4.
            Submission
                of Matters to a Vote of Shareholders
            16PART
                II
            17Item
                5.
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            17Item
                6.
            Selected
                Financial Data
            19Item
                7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            20Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            35Item
                8.
            Financial
                Statements and Supplementary Data
            37Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            69Item
                9A.
            Controls
                and Procedures
            69Item
                9B.
            Other
                Information
            71PART
                III
            72Item
                10.
            Directors,
                Executive Officers and Corporate Governance
            72Item
                11.
            Executive
                Compensation
            72Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            72Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            73Item
                14.
            Principal
                Accounting Fees and Services
            73PART
                IV
            74Item
                15.
            Exhibits
                and Financial Statement Schedules
            74Signatures
            75







**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, India, China, Hong
      Kong,
      South Korea, Australia and the United States. As of June 30, 2007, we had 3,572
      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.




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, DC 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, Value@TV, Orbis, Secure Video Processor (SVP) and XSpace are either
      trademarks or registered trademarks of NDS Group plc and subsidiaries 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.




**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
      audited consolidated financial statements and related notes set forth elsewhere
      in this Annual Report on Form 10-K.




Page
          1




**Business
      Overview**




Our
      business is the supply of 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
      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.” A geographic analysis of the sources of our revenues for each of
      the last three fiscal years is given in Note 17 to our audited 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.




In
      December 2006, we acquired Jungo Limited (“Jungo”), an Israeli-based developer
      and supplier of software for residential gateway devices. The residential
      gateway device and the software contained in it act as the interface between
      the
      broadband network and the various consumer electronic devices that are attached
      in a home network. The residential gateway device plays an important role in
      controlling the quality and management of the individual services. Residential
      gateway devices have grown in sophistication and are increasingly deployed
      by
      telecom companies as the main service termination point in consumers’ homes for
      the delivery of a variety of services, including broadband data, Internet
      protocol television (“IPTV”), voice over Internet protocol (“VoIP”) telephony,
      video telephony and convergent wireless/wireline telephony. The acquisition
      of
      Jungo allows us to provide the underlying software for both the residential
      gateway device, as well as the set-top box, and will allow 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.




**Customers**




Our
      main
      customers are the digital pay-television platform operators that utilize a
      broadcast 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.




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.




Page
          2




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.




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 platform, such as broadcast
      equipment, set-top box, and residential gateway device manufacturers. We
      integrate our technologies with those of other suppliers to provide a platform
      operator with the functionality required. 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, 2007, two customers each accounted directly
      and
      indirectly for more than 10% of our revenues. These customers and the percentage
      of our fiscal 2007 revenues that they contributed were: The DIRECTV Group,
      Inc.
      (“DIRECTV”) in the United States (27.4%) and British Sky Broadcasting Group plc
      (“BSkyB”) in the United Kingdom and Ireland (24.4%). These customers, 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 12 to our audited 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 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;




·
            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




Page
          3




·
            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




·
            integration
                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**




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.” The
      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, 2007, we distributed
      26.3
      million smart cards.




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.




Page
          4




As
      of
      June 30, 2007, 75.4 million set-top boxes VideoGuard conditional access
      technology were in use, an increase of 10.4 million since June 30, 2006.
      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), Cablevision
      (U.S.), Shenzhen Media Group (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.




In
      December 2006, we acquired Jungo, an Israeli-based developer and supplier of
      software for residential gateway devices under the product name OpenRG. The
      acquisition of Jungo allows us to provide the underlying software for both
      the
      residential gateway device, as well as the set-top box, and will allow 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
      20.2 million middleware clients, which include both MediaHighway middleware
      solutions and OpenRG residential gateway devices, were deployed during the
      fiscal year ended June 30, 2007, bringing the cumulative total number of
      middleware clients deployed as of June 30, 2007 to 61.8 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 2008.




**DVR**




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 in 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.




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 2008.




Page
          5




Because
      of the way in which our XTV is tightly integrated with our conditional access
      technologies, we do not consider other DVR products to be direct
      competitors.




We
      also
      have a DVR technology that is an extension of our MediaHighway middleware but
      which is not integrated with our conditional access technologies. This
      technology is used by Canal Satellite in France and Sogecable in
      Spain.




As
      of
      June 30, 2007, we estimate that a cumulative 7.3 million DVR clients have been
      deployed, an increase of 3.8 million since June 30, 2006.




**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.




Among
      our
      broadband and IPTV customers are BB Cable / Softbank (Japan), 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.




OpenBet
      is used by many of the major bookmakers in the United Kingdom and some companies
      in the Asia-Pacific region. OpenBet is 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.




Page
          6




**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
      are
      the exclusive worldwide licensee of various patents, patent applications and
      patentable inventions from Yeda Research & Development Company Limited
      (“Yeda”) in Israel in the area of digital identification and signature schemes.
      We pay a royalty to Yeda based on a percentage of relevant revenues arising
      from
      our VideoGuard conditional access technologies. 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.




**Research
      and Development**




Our
      total
      expenditure on research and development in the three fiscal years ended June
      30,
      2007, 2006 and 2005 was $174.4 million, $145.5 million and $166.5 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.




Page
          7




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.




We
      are
      also developing hybrid set-top boxes which combine satellite or cable delivery
      with broadband IP connectivity in our “XSpace” technology solution. We consider
      XSpace to be an efficient way of combining broadcast television with VOD content
      and niche programming from the Internet.




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.




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.




Page
          8




**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 meaningful 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.




Of
      our
      75.4 million authorized smart cards in use as of June 30, 2007, 61.9 million
      were covered by security maintenance contracts under which we may have an
      obligation to replace the smart cards at some future point. Because our smart
      cards have remained secure, some customers have opted to delay replacement
      of
      their existing security cards from when replacement was originally contemplated.
      Revenue received but deferred in respect of this security maintenance obligation
      amounted to $180.0 million as of June 30, 2007. We will make inventory purchases
      in future periods in order to satisfy our smart card supply obligations in
      respect of these cards.




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




Prospective
      investors should consider carefully the risk factors set out below before making
      an investment in the Company’s 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.**




A
      significant portion of our revenues 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 also receive
      royalties based on each set-top box manufactured or deployed that incorporates
      our technologies. Therefore, a significant portion of our revenues 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.




**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 its security features. Any significant increase in the incidence
      of
      signal theft could require the replacement of a platform operator’s smart cards
      sooner than otherwise planned. 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 an accelerated replacement of smart cards. 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
      revenues 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 revenues.
      Accordingly, our ability to generate substantial revenues 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 revenues from a limited number of large customers.
      Our three largest customers are DIRECTV, BSkyB and SKY Italia. During the fiscal
      year ended June 30, 2007, these three customers accounted directly and
      indirectly for approximately 62% of our total revenues. News Corporation, an
      approximately 73% holder of our total and issued outstanding share capital,
      currently owns approximately 39%, 39% and 100% of DIRECTV, BSkyB and SKY Italia,
      respectively. In December 2006, News Corporation announced that it entered
      into
      an agreement with Liberty Media Corporation, which, if consummated, would result
      in News Corporation no longer owning its shares in DIRECTV. The agreement
      received the requisite approval by the stockholders of News Corporation in
      April
      2007 but remains subject to regulatory approval. News Corporation has announced
      that it expects the transaction to be completed in the second half of the 2007
      calendar year. 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 2010 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
      revenues, 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 revenues could decline significantly
      and as a result, our business, operating results and financial condition could
      be materially adversely affected.




**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 revenues have reflected a small number of relatively large
      orders for our technology and services, which generally have long sales and
      order cycles. Additionally, our customers may replace their subscribers’ smart
      cards from time to time to maintain the security of their conditional access
      systems and this significantly affects our revenue in periods when we supply
      such replacement smart cards. 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.




Page
          11




**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”) is 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 revenues, 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, 2007, approximately
      50% of our revenues and approximately 72% of our total expenses 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.




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




We
      are
      controlled by News Corporation. As of June 30, 2007, News Corporation
      beneficially owned approximately 72.8% 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, par value
      $0.01 per share (“Series A Ordinary Shares”), which have one vote per share), it
      controls approximately 96.4% of our voting power. By reason of such ownership,
      News Corporation is able to control the composition of our entire Board of
      Directors and to control the votes on all other 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 is involved in matters pertaining to News
      Corporation’s wider business interests.




Page
          13




Businesses
      in which News Corporation has an interest currently account for, and are
      expected to continue to account for, a significant portion of our revenues.
      During the fiscal year ended June 30, 2007, approximately 73% of our total
      revenues were derived directly from businesses in which News Corporation has
      an
      interest. Those businesses include 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 The NASDAQ Stock Market 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 The NASDAQ Stock Market.
      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 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 American Depositary Shares (“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.




**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.




Page
          14




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; and Sydney,
      Australia.




In
      June
      2006, we leased additional premises in Bangalore, India and expect to occupy
      them, once the premises have been fitted out, during the fiscal year ending
      June
      30, 2008.




**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. Echostar filed an amended complaint on
      October 8, 2003, which purported to allege claims for violation of the Digital
      Millennium Copyright Act (“DMCA”), the Communications Act of 1934 (“CA”), the
      Electronic Communications Privacy Act, the Computer Fraud and Abuse Act,
      California’s Unfair Competition statute and the federal 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. On December
      22,
      2003, all of the claims were dismissed by the court, except for the DMCA, CA
      and
      unfair competition claims, and the court limited these claims to acts allegedly
      occurring within three years of the filing of Echostar’s original
      complaint.




After
      Echostar filed a second amended complaint, we filed a motion to dismiss this
      complaint on March 31, 2004. On July 21, 2004, the court issued an order
      directing Echostar to, among other things, file a third amended complaint within
      ten days correcting various deficiencies noted in the second amended complaint.
      Echostar filed its third amended complaint on August 4, 2004. On August 6,
      2004,
      the court ruled that we were free to file a motion to dismiss the third amended
      complaint, which we did on September 20, 2004. The hearing occurred on January
      3, 2005. On February 28, 2005, the court issued an order treating our motion
      to
      dismiss as a motion for a more definite statement, granting the motion and
      giving Echostar until March 30, 2005 to file a fourth amended complaint
      correcting various deficiencies noted in the third amended complaint. On March
      30, 2005, Echostar filed a fourth amended complaint, which we moved to dismiss.
      On July 27, 2005, the court granted in part and denied in part our motion to
      dismiss, and again limited Echostar’s surviving claims to acts allegedly
      occurring within three years of the filing of Echostar’s original complaint. We
      believe these surviving claims are without merit and we intend to vigorously
      defend against them.




On
      October 24, 2005, we filed our Amended Answer with Counterclaims, alleging
      that
      Echostar misappropriated our trade secrets, violated the Computer Fraud and
      Abuse Act and engaged in unfair competition. On November 8, 2005, Echostar
      moved
      to dismiss our counterclaims for conversion and claim and delivery, arguing
      that
      these claims were preempted and time-barred. Echostar also moved for a more
      definite statement of our trade secret misappropriation claim. On December
      8,
      2005, the court granted in part and denied in part Echostar’s motion to dismiss
      and for a more definite statement, but granted us leave to file amended
      counterclaims. On December 13, 2005, we filed a Second Amended Answer with
      Counterclaims, which Echostar answered on December 27, 2005. The court has
      set
      this case to go to trial in February 2008.




Page
          15




**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 federal RICO statute. The amended complaint also
      purported to allege claims for interference with contract and prospective
      business advantage. The complaint sought injunctive relief, unspecified
      compensatory and exemplary damages and restitution. On December 22, 2003, all
      of
      the claims were dismissed by the court. Sogecable filed a second amended
      complaint. 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.
      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.




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. There is no schedule for pretrial proceedings or trial date set by
      the
      court, although the court held a patent claim construction hearing on November
      17, 2006. The parties are now awaiting the court’s decision on issues of claim
      construction and further guidance concerning a case schedule.




We
      believe that Mr. Thomas’s claims are without merit and we will continue to
      vigorously defend ourselves in this matter.




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




Not
      applicable.




Page
          16


**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 the NASDAQ Stock
      Market. 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, 2007First
                quarter
            
            $
            48.15
            
            $
            41.64Second
                quarter
            
            
            49.77
            
            
            42.33Third
                quarter
            
            
            51.29
            
            
            44.86Fourth
                quarter
            
            
            53.70
            
            
            46.95Fiscal
                year ended June 30, 2006First
                quarter
            
            $
            38.02
            
            $
            33.37Second
                quarter
            
            
            42.45
            
            
            36.08Third
                quarter
            
            
            52.26
            
            
            41.13Fourth
                quarter
            
            
            55.99
            
            
            44.63




On
      October 31, 2006, we voluntarily de-listed our ADSs from the First Market -
      Continuous of the Euronext Brussels exchange in Belgium (“Euronext”). The volume
      of ADSs traded on Euronext had been negligible.




As
      of
      August 27, 2007, there were 31 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, and none is proposed. We intend to keep this policy under review
      and will consider whether it is appropriate to pay dividends in the
      future.




**Equity
      Compensation P** **lan
      Information**




The
      following table shows the number of stock options outstanding as of June 30,
      2007, 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**
            
            **Weighted-average**
              **exercise price of**
              **outstanding options**
            
            **Number of securities**
              **remaining available**
              **for future issuance**
              **under equity**
              **compensation plans**Equity
                compensation plans approved by shareholders
            
            
            2,789,602
            
            $
            29.05
            
            
            12,789,602
            (1)Equity
                compensation plans not approved by shareholders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            2,789,602
            
            $
            29.05
            
            
            12,789,602
            (1)


____________


(1)
            
            Relates
                to 2,789,602 Series A ordinary shares issuable upon exercise of
                outstanding stock options, as well as 10,000,000 Series A ordinary
                shares
                available for issuance under the NDS Group plc 2006 Long-Term Incentive
                Plan.




Page
          17




**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, 2007.


Page
          18




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




These
      selected consolidated financial data have been derived from our audited
      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**




**For
                the fiscal years ended June 30,**(in
                thousands, except per share amounts)
            
            
            **2007****(1**)****
            
            
            **2006****(1)**
            
            
            **2005**
            
            
            **2004****(2,3,4)**
            
            
            **2003****(2)**Revenue
            
            $
            709,492
            
            $
            600,123
            
            $
            556,330
            
            $
            356,663
            
            $
            407,350Cost
                of goods and services sold
            
            
            (268,484
            )
            
            (242,622
            )
            
            (218,938
            )
            
            (84,387
            )
            
            (171,825
            )Gross
                margin
            
            
            441,008
            
            
            357,501
            
            
            337,392
            
            
            272,276
            
            
            235,525Operating
                expenses
            
            
            (280,652
            )
            
            (226,772
            )
            
            (245,201
            )
            
            (223,851
            )
            
            (158,957
            )Operating
                income
            
            
            160,356
            
            
            130,729
            
            
            92,191
            
            
            48,425
            
            
            76,568Other
                income
            
            
            25,296
            
            
            15,446
            
            
            9,160
            
            
            6,848
            
            
            3,397Income
                tax expense
            
            
            (49,925
            )
            
            (45,225
            )
            
            (27,353
            )
            
            (19,061
            )
            
            (23,884
            )Minority
                interests in subsidiaries, net of tax
            
            
            —
            
            
            —
            
            
            —
            
            
            843
            
            
            162Net
                income
            
            $
            135,727
            
            $
            100,950
            
            $
            73,998
            
            $
            37,055
            
            $
            56,243Basic
                net income per share
            
            $
            2.37
            
            $
            1.80
            
            $
            1.35
            
            $
            0.69
            
            $
            1.04Diluted
                net income per share
            
            $
            2.33
            
            $
            1.74
            
            $
            1.29
            
            $
            0.67
            
            $
            1.04




**Balance
        sheet data**


**As
                of June 30,**(in
                thousands)
            
            
            **2007****(1)**
            
            
            **2006****(1)**
            
            
            **2005**
            
            
            **2004****(2)**
            
            
            **2003****(2)**Cash,
                cash equivalents and short-term investments
            
            $
            592,750
            
            $
            505,037
            
            $
            339,791
            
            $
            228,620
            
            $
            202,185Other
                current assets
            
            
            252,703
            
            
            196,198
            
            
            159,877
            
            
            164,791
            
            
            72,538Non-current
                assets
            
            
            299,400
            
            
            195,886
            
            
            172,230
            
            
            183,748
            
            
            112,796Total
                assets
            
            $
            1,144,853
            
            $
            897,121
            
            $
            671,898
            
            $
            577,159
            
            $
            387,519Current
                loans
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Other
                current liabilities
            
            
            202,526
            
            
            161,151
            
            
            129,245
            
            
            176,138
            
            
            96,452Non-current
                loans
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            609Other
                non-current liabilities
            
            
            204,054
            
            
            168,276
            
            
            115,900
            
            
            67,677
            
            
            26,030Minority
                interests
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            97Shareholders’
                equity
            
            
            738,273
            
            
            567,694
            
            
            426,753
            
            
            333,344
            
            
            264,331Total
                liabilities and shareholders’ equity
            
            $
            1,144,853
            
            $
            897,121
            
            $
            671,898
            
            $
            577,159
            
            $
            387,519





(1)
              
              See
                  Note 4 to our audited consolidated financial statements for information
                  with respect to significant acquisitions during the fiscal years
                  ended
                  June 30, 2007 and 2006.
 (2)
              
              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.
 (3)
              
              The
                  results of the MediaHighway business have been consolidated from
                  the date
                  of acquisition on December 16,
                  2003.
 (4)
              
              Operating
                  expenses for the fiscal year ended June 30, 2004 include a goodwill
                  impairment charge of $11.4
                  million.




Page
          19




**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 have occurred during the fiscal year ended June
                30, 2007
                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 audited 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, 2007. 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, 2007. 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 stream management, set-top box
      and
      residential gateway middleware, EPGs, 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.




Our
      main
      customers are the digital pay-television platform operators that utilize a
      broadcast infrastructure to deliver video and data to multiple subscribers.
      In
      addition, 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 platform, such as broadcast
      equipment, set-top box, and residential gateway manufacturers. A particular
      platform operator may purchase some components from our competitors. We
      integrate our technologies with those of other suppliers to provide a platform
      operator with the functionality required.




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. Our three largest customers are DIRECTV, BSkyB
      and
      SKY Italia. Together, these three customers contributed, directly and
      indirectly, approximately 62% of our revenues in the fiscal year ended June
      30,
      2007. We expect that a limited number of customers will continue to contribute
      a
      significant portion of our revenues.




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 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
          20




A
      significant portion of our revenues is dependent upon our customers’ subscriber
      bases, the growth in their subscriber bases and the related quantities of
      set-top boxes deployed. Revenues can vary from period to period as our revenues
      reflect 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
      revenues over the term of any post-contract support period.




We
      consider that we operate as a single segment and our business is managed as
      such. 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.




In
      December 2006, we acquired Jungo, an Israeli-based developer and supplier of
      software for residential gateway devices. The residential gateway device and
      the
      software contained in it act as the interface between the broadband network
      and
      the various consumer electronic devices that are attached in a home network.
      The
      residential gateway device plays an important role in controlling the quality
      and management of the individual services. Residential gateway devices have
      grown in sophistication and are increasingly deployed by telecom companies
      as
      the main service termination point in consumers’ premises for the delivery of a
      variety of services, including broadband data, IPTV, VoIP telephony, video
      telephony and convergent wireless/wireline telephony. The acquisition of Jungo
      allows us to provide the underlying software for both the residential gateway
      device, as well as the set-top box, and will allow 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. The acquisition of Jungo did not have a material impact on our revenues,
      operating income or net income during the fiscal year ended June 30,
      2007.




**Recent
      Business Development**




In
      August
      2007, we acquired 100% of the share capital of Cast-Up, Inc. (“Cast-Up”), a
      provider of solutions for the management and delivery of video over the
      Internet, for approximately $11.3 million in cash, plus up to an additional
      $2.5 million payable upon the achievement of certain performance
      objectives.




**Revenues**




We
      derive
      revenues from:




1)
            *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.”




2)
            *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.”




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
      our
      consolidated statement of operations because they are influenced by different
      external factors.




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.




Page
          21




**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, 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 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 executive and other personnel,
      facilities, 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 or 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 audited consolidated financial
      statements.




**Revenue
      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 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:




Page
          22




***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 increased to $180.0 million as of June 30, 2007, from $134.1
      million as of June 30, 2006.




***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, 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
          23




**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 audited 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 and well as the positions to be taken in the tax returns to be filed
      in
      respect of the fiscal year ended June 30, 2007, 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 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. 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(o) to our audited
      consolidated financial statements.




Page
          24




**Results
      of Operations**




***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 have such obligations have postponed the timing
      of changeover from what we had originally estimated. Authorized smart card
      activity in each period was as follows:




**For the fiscal years ended June 30,**(in
                millions)
            
            **2007**
            
            **2006**Number
                of authorized cards, beginning of period
            
            
            65.0
            
            
            56.7Net
                additions
            
            
            10.4
            
            
            8.3Number
                of authorized cards, 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. 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. In the fiscal year ended June 30, 2007,
      we
      recognized 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:




Page
          25




**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)
            Acquisitions
                relates to 2.0 million residential gateway middleware devices, which
                were
                developed and deployed by Jungo, that were recognized at the time
                of the
                acquisition of Jungo.




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.




The
      increase in revenues from new technologies of 35% in the fiscal year ended
      June
      30, 2007, 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 former 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 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**Smart
                card costs
            
            $
            81,448
            
            $
            83,021
            
            $
            (1,573
            )
            
            (2
            )%Operations
                & support
            
            
            166,308
            
            
            139,772
            
            
            26,536
            
            
            19
            %Royalties
            
            
            16,332
            
            
            15,035
            
            
            1,297
            
            
            9
            %Other
            
            
            4,396
            
            
            4,794
            
            
            (398
            )
            
            (8
            )%Total
                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.
  Page
            26




We
      consider that gross margin, defined as revenues less costs and expenses
      associated with those revenues ( *i.e* .,
      cost
      of goods and services sold), 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 revenues. 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.




The
      decrease in smart card costs during the fiscal year ended June 30, 2007,
      compared to the fiscal year ended June 30, 2006, was due to lower unit costs,
      offset in part by higher deliveries of smart cards. Operations and support
      costs
      include employee and facilities costs related to smart card processing, customer
      support and development projects undertaken under customer contracts. The
      increase in operations and support costs in the fiscal year ended June 30,
      2007,
      compared to the fiscal year ended June 30, 2006, was principally due to an
      increase in the number of our employees working on development, integration
      and
      support activities for our customers and, to a lesser extent, wage, salary
      and
      benefit increases during the period.




Royalty
      costs are amounts we pay to third parties for the use of their technology and
      are calculated based on revenues derived from certain technologies. The increase
      in royalty costs for the fiscal year ended June 30, 2007, compared to the fiscal
      year ended June 30, 2006, was primarily due to higher royalties paid to third
      parties in respect of conditional access and EPG revenues.




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
            %




Our
      main
      operating expenses are employee costs (including the cost of equity-based
      awards), facilities costs, depreciation, and travel costs. Our main operating
      expenses have increased 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 costs
      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.




Page
          27




Research
      and development costs increased by 20% for the fiscal year ended June 30, 2007,
      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,
      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, 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, 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 with 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 21.7% of revenue, for the fiscal year ended June 30, 2006. We
      estimate that the weaker U.S. dollar has 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 has 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. In July 2007, the U.K. government enacted
      legislation that reduces the standard U.K. rate of corporation tax to 28% with
      effect from April 1, 2008. The statutory rate of tax on the Company’s U.K.
      taxable profits will be 29.5% in the fiscal year ending June 30, 2008 and 28%
      thereafter.




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.




Page
          28




***Commentary
      on the fiscal year ended June 30, 2006 versus the fiscal year ended June 30,
      2005***




*Revenue*




Revenue
      for the periods under review was as follows:




**For the fiscal years ended June 30,**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **Change**
            
            **%
                Change**Conditional
                access
            
            $
            350,667
            
            $
            339,414
            
            $
            11,253
            
            
            3
            %Integration,
                development & support
            
            
            46,903
            
            
            52,636
            
            
            (5,733
            )
            
            (11
            )%License
                fees & royalties
            
            
            88,686
            
            
            71,443
            
            
            17,243
            
            
            24
            %New
                technologies
            
            
            106,193
            
            
            85,945
            
            
            20,248
            
            
            24
            %Other
            
            
            7,674
            
            
            6,892
            
            
            782
            
            
            11
            %Total
                revenue
            
            $
            600,123
            
            $
            556,330
            
            $
            43,793
            
            
            8
            %




The
      increase in conditional access revenues in the fiscal year ended June 30, 2006,
      compared to the fiscal year ended June 30, 2005, was due to an increase in
      security fees, which was partially offset by lower deliveries of smart
      cards.




Higher
      security fees in the fiscal year ended June 30, 2006, compared to the fiscal
      year ended June 30, 2005, were principally due to increases in the number of
      authorized smart cards in use at our broadcast platform customers, which grew
      as
      follows:




**For the fiscal years ended June 30,**(in
                millions)
            
            **2006**
            
            **2005**Number
                of authorized cards, beginning of period
            
            
            56.7
            
            
            44.0Net
                additions
            
            
            8.3
            
            
            12.7Number
                of authorized cards, end of period
            
            
            65.0
            
            
            56.7




Although
      the number of authorized smart cards continued to grow across most of our
      broadcast platform customers, the increase in the fiscal year ended June 30,
      2006 was less than the increase in the fiscal year ended June 30, 2005, which
      was favorably impacted by the migration of SKY Italia subscribers to NDS
      technology.




The
      decrease in the number of smart cards delivered in the fiscal year ended June
      30, 2006 compared to the fiscal year ended June 30, 2005, reflected lower demand
      from DIRECTV and SKY Italia offset in part by higher shipments to customers
      in
      China.




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




**For the fiscal years ended June 30,**(in
                millions)
            
            **2006**
            
            **2005**Number
                of smart cards delivered
            
            
            24.4
            
            
            30.8




Integration,
      development and support revenues decreased by 11% in the fiscal year ended
      June
      30, 2006 compared to the fiscal year ended June 30, 2005. Revenue in the fiscal
      year ended June 30, 2006 from integration, development and support reflected
      the
      delivery of a series of enhancements to our customers and middleware technology
      development revenue. Revenues in the fiscal year ended June 30, 2005 included
      higher revenue from the migration of SKY Italia subscribers to NDS
      technology.




Page
          29




License
      fee and royalty revenues increased by 24% in the fiscal year ended June 30,
      2006
      compared to the fiscal year ended June 30, 2005. The increase was mainly due
      to
      middleware and EPG technology supplied to DIRECTV, who, in early summer 2005,
      commenced the download of our MediaHighway middleware and related technologies
      to certain models of set-top boxes in use by their subscribers. The increase
      in
      the cumulative number of middleware clients deployed in each period was as
      follows:




**For the fiscal years ended June 30,**(in
                millions)
            
            **2006**
            
            **2005**Number
                of middleware clients deployed, beginning of period
            
            
            20.4
            
            
            18.4Additions
            
            
            21.2
            
            
            2.0Number
                of middleware clients deployed, end of period
            
            
            41.6
            
            
            20.4




The
      increase in revenues from new technologies of 24% in the fiscal year ended
      June
      30, 2006 compared to the fiscal year ended June 30, 2005, was due to the
      increase in revenue from our broadband and IPTV technologies, interactive
      infrastructure and gaming applications. This was due to the higher number of
      subscribers using this technology and the addition of our technology on new
      platforms. We also received higher development and royalty income related to
      the
      deployment of our advanced DVR technologies by several of our
      customers.




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)
            
            **2006**
            
            **2005**Number
                of DVR clients deployed, beginning of period
            
            
            1.4
            
            
            0.4Additions
            
            
            2.1
            
            
            1.0Number
                of authorized cards, end of period
            
            
            3.5
            
            
            1.4




The
      increase in the number of DVR clients deployed using our technology in the
      fiscal year ended June 30, 2006, compared to the fiscal year ended June 30,
      2005, was primarily due to DIRECTV, which commenced deployment of our DVR
      technology within their new generation set-top box in November 2005. Our
      revenues under our set-top box technology contract with DIRECTV were
      significantly influenced by the number of set-top boxes manufactured and
      deployed which use our DVR technologies.




In
      addition to the matters referred to above, comparisons of revenues for the
      fiscal year ended June 30, 2006 with those for the fiscal year ended June 30,
      2005 were also affected by the relative strength of the U.S. dollar over the
      course of the fiscal year. Approximately 48% of our revenues were denominated
      in
      currencies other than the U.S. dollar (principally pounds sterling and euro).
      We
      estimate that the stronger U.S. dollar adversely impacted our total revenues
      by
      approximately 5%.




*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)
            
            **2006**
            
            **2005**
            
            **Change**
            
            **%
                Change**Smart
                card costs
            
            $
            83,021
            
            $
            131,466
            
            $
            (48,445
            )
            
            (37
            )%Operations
                & support
            
            
            139,772
            
            
            72,254
            
            
            67,518
            
            
            93
            %Royalties
            
            
            15,035
            
            
            13,198
            
            
            1,837
            
            
            14
            %Other
            
            
            4,794
            
            
            2,020
            
            
            2,774
            
            
            137
            %Total
                cost of goods and services sold
            
            $
            242,622
            
            $
            218,938
            
            $
            23,684
            
            
            11
            %Gross
                margin
            
            $
            357,501
            
            $
            337,392
            
            $
            20,109
            
            
            6
            %Gross
                margin as a percentage of revenues
            
            
            59.6
            %
            
            60.6
            %
            
            (1.0
            )%
            
            **


**
              Not
                  meaningful.
  Page
            30




The
      decrease in smart card costs in the fiscal year ended June 30, 2006, compared
      to
      the fiscal year ended June 30, 2005, was due to the lower unit costs and lower
      deliveries of smart cards. The increase in operations and support costs during
      the fiscal year ended June 30, 2006 over the fiscal year ended June 30, 2005
      was
      due to an increase in the number of our employees working on development,
      integration and support activities for our customers. Royalty costs are a
      function of particular revenue items and the increase in royalty expense for
      the
      fiscal year ended June 30, 2006 compared to the fiscal year ended June 30,
      2005,
      was due to changes in the mix of revenues.




Because
      cost of goods and services sold increased by more than revenues, gross margin
      as
      a percentage of revenues was 59.6% for the fiscal year ended June 30, 2006,
      compared to 60.6% for the fiscal year ended June 30, 2005.




*Operating
      expenses*




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




**For the fiscal years ended June 30,**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **Change**
            
            **%
                Change**Research
                & development
            
            $
            145,523
            
            $
            166,504
            
            $
            (20,981
            )
            
            (13
            )%Sales
                & marketing
            
            
            30,713
            
            
            25,820
            
            
            4,893
            
            
            19
            %General
                & administration
            
            
            41,083
            
            
            40,528
            
            
            555
            
            
            1
            %Amortization
                of intangibles
            
            
            9,453
            
            
            12,349
            
            
            (2,896
            )
            
            (23
            )%Total
                operating expenses
            
            $
            226,772
            
            $
            245,201
            
            $
            (18,429
            )
            
            (8
            )%




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




**For the fiscal years ended June 30,****2006**
            
            **2005**Number
                of employees, beginning of period
            
            
            2,508
            
            
            2,004Net
                additions
            
            
            481
            
            
            504Number
                of employees, end of period
            
            
            2,989
            
            
            2,508Average
                number of employees during period
            
            
            2,765
            
            
            2,247




During
      the fiscal year ended June 30, 2006, we continued to recruit software
      development engineers and staff supporting customers. As a consequence of higher
      employee numbers, we have occupied additional facilities in the United Kingdom,
      the United States and India, and increased our infrastructure costs.
      Accordingly, our total operating costs (including that portion reported within
      cost of goods and services sold) increased during the fiscal year ended June
      30,
      2006, as compared to the fiscal year ended June 30, 2005.




Research
      and development expenses decreased by 13% during the fiscal year ended June
      30,
      2006, compared to the fiscal year ended June 30, 2005, as a result of a lower
      proportion of development projects being undertaken at our risk. In addition,
      in
      the fiscal year ended June 30, 2006, we received a $5.3 million grant from
      the
      French government as a consequence of being engaged in eligible research
      projects, with no equivalent amount being received in the fiscal year ended
      June
      30, 2005.




During
      the fiscal year ended June 30, 2006, sales and marketing expenses increased
      by
      19% as compared to the fiscal year ended June 30, 2005, as a result of increased
      attendance at trade shows and corporate communications activities, particularly
      in Europe and Asia.




General
      and administrative expenses increased by $0.6 million, or 1%, in the fiscal
      year
      ended June 30, 2006 compared to the fiscal year ended June 30, 2005. During
      the
      fiscal year ended June 30, 2005, our management committed to reoccupy part
      of a
      property in Heathrow, England which we had abandoned in 2000, resulting in
      a
      reversal of the abandoned property lease accrual of $5.5 million which was
      no
      longer needed; in the fiscal year ended June 30, 2006 there was a further
      reversal of $0.2 million. Excluding the effect of the abandoned property lease
      accruals noted above, general and administrative expenses decreased by $6.2
      million in the fiscal year ended June 30, 2006 compared to the fiscal year
      ended
      June 30, 2005. Part of the decrease was a consequence of a lower proportion
      of
      the total number of our employees being engaged in general and administrative
      functions, which in turn, resulted in a reduction in the facilities and
      infrastructure costs included within general and administrative
      expenses.




Page
          31




Additionally,
      legal expenses and that element of stock-based compensation expense which is
      classified as general and administrative expense, were both lower in the fiscal
      year ended June 30, 2006 compared to the fiscal year ended June 30,
      2005.




Amortization
      of finite-lived intangible assets decreased by 23% in the fiscal year ended
      June
      30, 2006 compared to the fiscal year ended June 30, 2005, as a consequence
      of
      certain intellectual property rights becoming fully amortized in May
      2005.




In
      addition to the matters referred to above, comparisons of expenses for the
      fiscal year ended June 30, 2006 with the fiscal year ended June 30, 2005 were
      also affected by the relative strength of the U.S. dollar during the fiscal
      year
      ended June 30, 2006 compared to the fiscal year ended June 30, 2005.
      Approximately 49% of our total expenses are denominated in currencies other
      than
      the U.S. dollar (principally pounds sterling and euro) in the fiscal year ended
      June 30, 2006. We estimate that the stronger U.S. dollar has favorably impacted
      our total expenses by approximately 6%.




*Operating
      income and other items*




As
      a
      result of the factors outlined above, operating income was $130.7 million (or
      21.8% of revenue) for the fiscal year ended June 30, 2006, compared to $92.2
      million (or 16.6% of revenue) for the fiscal year ended June 30,
      2005.




Interest
      income earned on cash deposits was $15.9 million in the fiscal year ended June
      30, 2006 compared to $9.8 million in the fiscal year ended June 30, 2005 due
      to
      higher average cash balances and higher interest rates. We recorded a loss
      on
      investments of $0.6 million in the fiscal year ended June 30, 2005 with no
      comparable transaction in the fiscal year ended June 30, 2006.




Our
      effective tax rate was 30.9% for the fiscal year ended June 30, 2006, compared
      to 27.0% for the fiscal year ended June 30, 2005 due to higher effective
      tax rates in our non-U.K. operations.




As
      a
      consequence of all these factors, net income for the fiscal year ended June
      30,
      2006 was $101.0 million, or $1.80 per share ($1.74 per share on a diluted
      basis), compared to $74.0 million, or $1.35 per share ($1.29 per share on a
      diluted basis) for the fiscal year ended June 30, 2005.




**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, 2007, 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,
      2007.




As
      of
      June 30, 2007, we had cash and cash equivalents totaling $592.8 million. Our
      accumulated cash is being held with the intention of using it for the future
      development of the business and there are currently no plans to pay any
      dividends to shareholders. 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 delivering the goods or services (deferred income) of approximately
      $233 million as of June 30, 2007 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.




In
      August
      2007, we acquired 100% of the share capital of Cast-Up for approximately
      $11.3 million in cash, plus up to an additional $2.5 million payable
      upon the achievement of certain performance objectives.




Page
          32




***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. These arrangements will result
      in
      higher cash payments for the purchase of smart cards in future
      periods.




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
            )




We
      continue to invest in technical equipment for use in research and development
      and in supporting our customers. The decrease in capital expenditure reflects
      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. A further
      payment of up to $17.0 million may be made in the fiscal year ending June 30,
      2008, contingent upon Jungo achieving certain revenue and profitability targets.
      During the fiscal year ended June 30, 2007, we also acquired 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 the fiscal year ended June 30, 2007 and further
      payments of up to $2.3 million may be made under the terms of the acquisition
      agreement over the next two fiscal years.




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.




Page
          33




***Sources
      and uses of cash - fiscal year ended June 30, 2006 versus fiscal year ended
      June
      30, 2005***




We
      had a
      net outflow of cash and cash equivalents of $23.4 million in the fiscal year
      ended June 30, 2006, compared to a net inflow of cash and cash equivalents
      of
      $110.7 million in the fiscal year ended June 30, 2005.




Net
      cash
      provided by operating activities was as follows:




**For the fiscal years ended June 30,**(in
                thousands)
            
            **2006**
            
            **2005**Net
                cash provided by operating activities
            
            $
            163,908
            
            $
            117,692




The
      increase in net cash provided by operating activities in the fiscal year ended
      June 30, 2006 reflects higher receipts from customers and lower payments for
      the
      purchase of smart cards. These factors were offset in part by higher payments
      relating to payroll costs, travel expenses, rent and facilities costs and income
      taxes, compared to fiscal year ended June 30, 2005, as a result of an increase
      in the number of employees.




Net
      used
      in investing activities was as follows:




**For the fiscal years ended June 30,**(in
                thousands)
            
            **2006**
            
            **2005**Capital
                expenditure (net)
            
            $
            (29,416
            )
            $
            (20,545
            )Business
                acquisitions, net of cash acquired
            
            
            (3,118
            )
            
            (17
            )Proceeds
                from sale of investments
            
            
            —
            
            
            264Increase
                in short-term investments
            
            
            (184,401
            )
            
            —Net
                cash used in investing activities
            
            $
            (216,935
            )
            $
            (20,298
            )




The
      increase in capital expenditure was due to investment in new facilities in
      the
      United Kingdom, India and the United States, and higher purchases of technical
      equipment required to support our customers. 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. During the fiscal year ended June
      30, 2006, we invested a portion of our cash with banks on deposit for terms
      of
      up to six months.




Net
      cash
      provided by financing activities was as follows:




**For the fiscal years ended June 30,**(in
                thousands)
            
            **2006**
            
            **2005**Issuance
                of shares
            
            $
            21,769
            
            $
            13,294Excess
                tax benefits realized on exercise of stock options
            
            
            7,828
            
            
            —Net
                cash provided by financing activities
            
            $
            29,597
            
            $
            13,294




During
      the fiscal year ended June 30, 2006, we issued 1,554,716 Series A Ordinary
      Shares upon the exercise by employees, directors and executive officers of
      stock
      options with an average exercise price of $14.00 per share. This compares to
      the
      issue of 1,131,948 Series A Ordinary Shares upon the exercise of stock options
      with an average exercise price of $11.92 per share in the fiscal year ended
      June
      30, 2005. Following the adoption of SFAS No. 123 (R) which became effective
      for
      us on July 1, 2005, such benefits are shown as a financing cash flow to the
      extent that they are realized, rather than as part of cash provided by operating
      activities as previously required.




***Off-balance
      sheet arrangements***




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




Page
          34




***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, 2007.




**Payments
                Due by Period**(in
                thousands)
            
            **Total**
            
            **Less
                than 1 year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than 5 years**Operating
                lease obligations
            
            $
            124,755
            
            $
            22,267
            
            $
            36,088
            
            $
            28,762
            
            $
            37,638Smart
                card purchase obligations
            
            
            39,253
            
            
            29,903
            
            
            9,350
            
            
            —
            
            
            —Payments
                to vendors of businesses acquired(1)
            
            
            753
            
            
            753
            
            
            —
            
            
            —
            
            
            —Other
                long-term obligations reflected on the balance sheet(2)
            
            
            276,177
            
            
            75,777
            
            
            104,658
            
            
            52,859
            
            
            42,883$
            440,938
            
            $
            128,700
            
            $
            150,096
            
            $
            81,621
            
            $
            80,521





(1)
            Amount
                represents accrued consideration payable to the vendors of NT Media
                Limited which we acquired during the fiscal year ended June 30, 2006.
                An
                additional amount of up to $1.5 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. An additional amount of up to $17.0
                million may be payable to the vendors of Jungo, contingent upon the
                revenue and profitability of the acquired business for the period
                ending
                December 31, 2007.




(2)
            Comprising
                deferred income of $233.3 million (of which $75.8 million is included
                within current liabilities), severance pay liabilities of $37.4 million
                and pension liabilities of $5.5
                million.




In
      the
      normal course of business, we provide indemnification agreements of varying
      scopes, including warranties for 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
      the our products or service. The nature of these commitments has been considered
      in determining the revenues and costs recognized in these 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. Such claims
      are
      vigorously defended. Where a liability arising from these claims is probable,
      an
      accrual is made based on management’s best estimate. It is not considered that
      any resulting liability in excess of amounts recognized in these 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. We
      do
      not consider that any resulting liability in excess of amounts recognized in
      our
      consolidated financial statements would materially affect our financial
      position.




Our
      operations are subject to tax in various domestic and international
      jurisdictions. 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.




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




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
      $6
      million.




Page
            35




We
      are
      also exposed to changes in foreign exchange rates. We operate in international
      markets and have an operational presence in several countries. Accordingly,
      our
      costs and revenues are primarily denominated in a mixture of U.S. dollars,
      Israeli shekels, pounds sterling and euros. During the fiscal year ended June
      30, 2007, we amended the terms of employment with our employees in Israel such
      that their salaries and benefits are now denominated in Israeli shekels, rather
      than U.S. dollars as was previously the case. This change brought us in line
      with other companies operating in Israel, but increased our exposure to
      movements in the U.S. dollar - Israeli shekel exchange rate. In the fiscal
      year
      ended June 30, 2007, approximately 50% of our revenues 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. 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. Overall, we
      estimate that the weaker U.S. dollar has reduced 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 has reduced our operating margin by
      approximately one percentage point.




As
      of
      June 30, 2007, approximately 77% of our cash was held in U.S. dollars, 12%
      in
      pounds sterling, and 6% in Israeli Shekels, with most of the balance being
      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. Where we require other currencies
      or
      identify a surplus of non-U.S. dollar cash balances, we make purchases or sales
      on the spot market. Therefore, cash balances are subject to fluctuations in
      foreign exchange rates. As a result of fluctuations in foreign exchange rates,
      we experienced net gains on cash holdings of $4.2 million in the fiscal year
      ended June 30, 2007, of which a loss of approximately $0.7 million was
      recorded within operating expenses, and a gain of approximately $4.9 million
      was
      recorded within other comprehensive income.




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, 2007. Part of our cash holdings in
      currencies other than the U.S. dollar serves to restrict the impact on changes
      in exchange rates on our operating income and net income, but introduces an
      element of exposure to cash balances and stockholders’ equity.




Page
          36




**ITEM8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**




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




**Page**Report
                  of Independent Registered Public Accounting Firm
              
              
              38Consolidated
                  Statements of Operations for the fiscal years ended June 30, 2007,
                  2006
                  and 2005
              
              
              39Consolidated
                  Balance Sheets as of June 30, 2007 and 2006
              
              
              40Consolidated
                  Statements of Cash Flows for the fiscal years ended June 30, 2007,
                  2006
                  and 2005
              
              
              41Consolidated
                  Statements of Shareholders’ Equity and Other Comprehensive Income for the
                  fiscal years ended
                  June 30, 2007, 2006 and 2005
              
              
              42Notes
                  to Consolidated Financial Statements
              
              
              44




Page
          37




**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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the consolidated results of its operations and
      its cash flows for each of the three years in the period ended June 30, 2007,
      in
      conformity with accounting principles generally accepted in the United
      States.





As
      discussed in note 2 to the consolidated financial statements, in fiscal
      year 2007 the Company adopted SFAS No. 158 related to benefit pension and
      other post-retirement plans.





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, 2007, 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
      29, 2007 expressed an unqualified opinion thereon.




Ernst
                & Young LLP




London,
        England
 August
          29, 2007


Page
            38


**NDS
        Group plc**
  **Consolidated
        Statements of Operations**
  **For
                  the years ended June 30,**(in
                  thousands, except per-share amounts)
              
              **2007**
              
              **2006**
              
              **2005****Revenue:**Conditional
                  access
              
              $
              396,420
              
              $
              350,667
              
              $
              339,414Integration,
                  development & support
              
              
              56,201
              
              
              46,903
              
              
              52,636License
                  fees & royalties
              
              
              107,349
              
              
              88,686
              
              
              71,443New
                  technologies
              
              
              143,495
              
              
              106,193
              
              
              85,945Other
              
              
              6,027
              
              
              7,674
              
              
              6,892Total
                  revenue (inclusive of $518,238, $458,042 and $411,857 from related
                  parties)
              
              
              709,492
              
              
              600,123
              
              
              556,330**Cost
                  of goods and services sold (exclusive of items shown separately
                  below):**Smart
                  card costs
              
              
              (81,448
              )
              
              (83,021
              )
              
              (131,466
              )Operations
                  & support
              
              
              (166,308
              )
              
              (139,772
              )
              
              (72,254
              )Royalties
                  (inclusive of $3,036, $2,138 and $3,682 to related
                  parties)
              
              
              (16,332
              )
              
              (15,035
              )
              
              (13,198
              )Other
              
              
              (4,396
              )
              
              (4,794
              )
              
              (2,020
              )Total
                  cost of goods and services sold
              
              
              (268,484
              )
              
              (242,622
              )
              
              (218,938
              )**Gross
                  margin**
              
              
              441,008
              
              
              357,501
              
              
              337,392Operating
                  expenses:Research
                  & development
              
              
              (174,400
              )
              
              (145,523
              )
              
              (166,504
              )Sales
                  & marketing
              
              
              (41,354
              )
              
              (30,713
              )
              
              (25,820
              )General
                  & administration (inclusive of $284, $173 and $263 to related
                  parties)
              
              
              (53,551
              )
              
              (41,083
              )
              
              (40,528
              )Amortization
                  of other intangibles
              
              
              (11,347
              )
              
              (9,453
              )
              
              (12,349
              )Total
                  operating expenses
              
              
              (280,652
              )
              
              (226,772
              )
              
              (245,201
              )**Operating
                  income**
              
              
              160,356
              
              
              130,729
              
              
              92,191**Other
                  income:**Interest
                  income - net
              
              
              25,296
              
              
              15,446
              
              
              9,719Losses
                  on investments
              
              
              ─
              
              
              ─
              
              
              (559
              )Total
                  other income
              
              
              25,296
              
              
              15,446
              
              
              9,160Income
                  before income tax expense
              
              
              185,652
              
              
              146,175
              
              
              101,351Income
                  tax expense
              
              
              (49,925
              )
              
              (45,225
              )
              
              (27,353
              )**Net
                  income**
              
              **$**
              135,727
              
              $
              100,950
              
              $
              73,998**Net
                  income per share:**Basic
                  net income per share
              
              $
              2.37
              
              $
              1.80
              
              $
              1.35Diluted
                  net income per share
              
              $
              2.33
              
              $
              1.74
              
              $
              1.29
 
 The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            39
  **NDS
        Group plc**
  **Consolidated
        Balance Sheets**
  **As
                  of June 30,**(in
                  thousands, except share amounts)
              
              **2007**
              
              **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              592,750
              
              $
              320,636Short-term
                  investments
              
              
              ─
              
              
              184,401Accounts
                  receivable, net (inclusive of $89,711 and $74,295 due from related
                  parties)
              
              
              134,624
              
              
              97,716Accrued
                  income
              
              
              40,605
              
              
              37,050Inventories,
                  net
              
              
              54,133
              
              
              39,340Prepaid
                  expenses
              
              
              19,415
              
              
              17,031Other
                  current assets
              
              
              3,926
              
              
              5,061Total
                  current assets
              
              
              845,453
              
              
              701,235Property,
                  plant & equipment, net
              
              
              54,801
              
              
              46,239Goodwill
              
              
              124,614
              
              
              66,917Other
                  intangibles, net
              
              
              63,080
              
              
              43,299Other
                  non-current assets
              
              
              56,905
              
              
              39,431**Total
                  assets**
              
              $
              1,144,853
              
              $
              897,121**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****Current
                  liabilities:**Accounts
                  payable (inclusive of $2,165 and $4,228 due to related
                  parties)
              
              $
              22,110
              
              $
              26,966Deferred
                  income
              
              
              75,777
              
              
              45,492Accrued
                  payroll costs
              
              
              31,186
              
              
              26,647Accrued
                  expenses
              
              
              37,473
              
              
              26,245Income
                  tax liabilities
              
              
              17,693
              
              
              19,039Other
                  current liabilities
              
              
              18,287
              
              
              16,762Total
                  current liabilities
              
              
              202,526
              
              
              161,151Deferred
                  income
              
              
              157,517
              
              
              134,529Other
                  non-current liabilities
              
              
              46,537
              
              
              33,747**Total
                  liabilities**
              
              
              406,580
              
              
              329,427Commitments
                  and contingencies**Shareholders’
                  equity:**Series
                  A ordinary shares, par value $0.01 per share: 48,000,000 shares
                  authorized; 15,718,904 and 14,873,262 shares outstanding as of
                  June 30,
                  2007 and 2006, respectively
              
              
              157
              
              
              148Series
                  B ordinary shares, par value $0.01 per share: 52,000,000 shares
                  authorized; 42,001,000 shares outstanding as of June 30, 2007 and
                  2006
              
              
              420
              
              
              420Deferred
                  shares, par value £1 per share: 42,000,002 shares authorized and
                  outstanding as of June 30, 2007 and 2006
              
              
              64,103
              
              
              64,103Additional
                  paid-in capital
              
              
              563,388
              
              
              534,668Retained
                  earnings (deficit)
              
              
              56,106
              
              
              (79,621
              )Other
                  comprehensive income
              
              
              54,099
              
              
              47,976Total
                  shareholders’ equity
              
              
              738,273
              
              
              567,694Total
                  liabilities and shareholders’ equity
              
              $
              1,144,853
              
              $
              897,121
 
 The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            40
  **NDS
        Group plc**
  **Consolidated
        Statements of Cash Flows**
  **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005****Operating
                  activities:**Net
                  income
              
              $
              135,727
              
              $
              100,950
              
              $
              73,998Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              19,240
              
              
              17,058
              
              
              15,405Amortization
                  of other intangibles
              
              
              11,347
              
              
              9,453
              
              
              12,349Equity
                  based compensation
              
              
              10,175
              
              
              6,626
              
              
              4,327Other
              
              
              795
              
              
              2,206
              
              
              ─Losses
                  on investments
              
              
              ─
              
              
              ─
              
              
              559Change
                  in operating assets and liabilities, net of acquisitions:Inventories
              
              
              (14,785
              )
              
              2,168
              
              
              (5,536
              )Receivables
                  and other assets
              
              
              (51,407
              )
              
              (48,429
              )
              
              6,273Deferred
                  income
              
              
              51,504
              
              
              45,493
              
              
              36,664Accounts
                  payable and other liabilities
              
              
              11,357
              
              
              28,383
              
              
              (26,347
              )Net
                  cash provided by operating activities (inclusive of $541,256, $479,648
                  and
                  $456,536 from related parties)
              
              
              173,953
              
              
              163,908
              
              
              117,692**Investing
                  activities:**Capital
                  expenditure
              
              
              (25,149
              )
              
              (29,416
              )
              
              (20,545
              )Short-term
                  investments (net)
              
              
              184,401
              
              
              (184,401
              )
              
              ─Proceeds
                  from sale of investments
              
              
              ─
              
              
              ─
              
              
              264Business
                  acquisitions, net of cash acquired
              
              
              (83,215
              )
              
              (3,118
              )
              
              (17
              )Net
                  cash provided by (used in) investing activities
              
              
              76,037
              
              
              (216,935
              )
              
              (20,298
              )**Financing
                  activities:**Issuance
                  of shares (inclusive of realized excess tax benefits of $4,033,
                  $7,828 and
                  $─)
              
              
              17,922
              
              
              29,597
              
              
              13,294Net
                  cash provided by financing activities
              
              
              17,922
              
              
              29,597
              
              
              13,294**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              267,912
              
              
              (23,430
              )
              
              110,688Cash
                  and cash equivalents, beginning of period
              
              
              320,636
              
              
              339,791
              
              
              228,620Currency
                  exchange movements
              
              
              4,202
              
              
              4,275
              
              
              483**Cash
                  and cash equivalents, end of period**
              
              $
              592,750
              
              $
              320,636
              
              $
              339,791
 
 The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            41
  **NDS
        Group plc**
  **Consolidated
        Statements of Shareholders’ Equity and Other Comprehensive
        Income**
 
 **For
                  the years ended June 30,**(in
                  thousands, except share amounts)
              
              **2007**
              
              **2006**
              
              **2005****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount****Series
                  A ordinary shares, par value $0.01 per share:**Balance,
                  beginning of year
              
              
              14,873,262
              
              $
              148
              
              
              13,318,546
              
              $
              133
              
              
              12,186,598
              
              $
              122**Shares
                  issued on exercise of employee stock options**
              
              
              845,642
              
              
              9
              
              
              1,554,716
              
              
              15
              
              
              1,131,948
              
              
              11Balance,
                  end of year
              
              
              15,718,904
              
              
              157
              
              
              14,873,262
              
              
              148
              
              
              13,318,546
              
              
              133**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
              
              
              
              
              
              534,668
              
              
              
              
              
              498,363
              
              
              
              
              
              478,599Shares
                  issued on exercise of employee stock options
              
              
              
              
              
              13,880
              
              
              
              
              
              21,754
              
              
              
              
              
              13,283Equity
                  based compensation (inclusive of tax benefit of $4,665, $7,925
                  and
                  $2,154)
              
              
              
              
              
              14,840
              
              
              
              
              
              14,551
              
              
              
              
              
              6,481Balance,
                  end of year
              
              
              
              
              
              563,388
              
              
              
              
              
              534,668
              
              
              
              
              
              498,363**Retained
                  earnings (deficit):**Balance,
                  beginning of year
              
              
              
              
              
              (79,621
              )
              
              
              
              
              (180,571
              )
              
              
              
              
              (254,569
              )Net
                  income
              
              
              
              
              
              135,727
              
              
              
              
              
              100,950
              
              
              
              
              
              73,998Balance,
                  end of year
              
              
              
              
              
              56,106
              
              
              
              
              
              (79,621
              )
              
              
              
              
              (180,571
              )**Accumulated
                  other comprehensive income:**Balance,
                  beginning of year
              
              
              
              
              
              47,976
              
              
              
              
              
              44,305
              
              
              
              
              
              44,669Other
                  comprehensive income (loss)
              
              
              
              
              
              11,023
              
              
              
              
              
              3,671
              
              
              
              
              
              (364
              )Adjustment
                  to initially apply SFAS No. 158
              
              
              
              
              
              (4,900
              )
              
              
              
              
              ─
              
              
              
              
              
              ─Balance,
                  end of year
              
              
              
              
              
              54,099
              
              
              
              
              
              47,976
              
              
              
              
              
              44,305Retained
                  earnings (deficit) and accumulated other comprehensive income,
                  end of
                  year
              
              
              
              
              
              110,205
              
              
              
              
              
              (31,645
              )
              
              
              
              
              (136,266
              )**Total
                  Shareholders’ Equity**Balance,
                  beginning of year
              
              
              
              
              
              567,694
              
              
              
              
              
              426,753
              
              
              
              
              
              333,344Balance,
                  end of year
              
              
              
              
              $
              738,273
              
              
              
              
              $
              567,694
              
              
              
              
              $
              426,753
 
 The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            42
  **Consolidated
        Statements of Shareholders’ Equity and Other Comprehensive Income
        (continued)**
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005****Comprehensive
                  income:**Net
                  income
              
              $
              135,727
              
              $
              100,950
              
              $
              73,998**Other
                  comprehensive income (loss), net of tax:**Foreign
                  currency translation adjustments (nil tax effect)
              
              
              8,785
              
              
              2,832
              
              
              380Minimum
                  pension liability adjustment, net of tax of ($936), ($361) and
                  $336
              
              
              2,238
              
              
              839
              
              
              (744
              )Total
                  other comprehensive income (loss), net of tax
              
              
              11,023
              
              
              3,671
              
              
              (364
              )**Total
                  comprehensive income**
              
              $
              146,750
              
              $
              104,621
              
              $
              73,634**Elements
                  of accumulated other comprehensive income:***Foreign
                  currency translation adjustments:*Balance,
                  beginning of year
              
              $
              50,214
              
              $
              47,382
              
              $
              47,002Fiscal
                  year activity (nil tax effect)
              
              
              8,785
              
              
              2,832
              
              
              380Balance,
                  end of year
              
              
              58,999
              
              
              50,214
              
              
              47,382*Pension
                  liability adjustments:*Balance,
                  beginning of year
              
              
              (2,238
              )
              
              (3,077
              )
              
              (2,333
              )Fiscal
                  year activity, net of tax of ($936), ($361) and $336
              
              
              2,238
              
              
              839
              
              
              (744
              )Adjustment
                  to initially apply SFAS No. 158, net of tax of $2,100
              
              
              (4,900
              )
              
              ─
              
              
              ─Balance,
                  end of year
              
              
              (4,900
              )
              
              (2,238
              )
              
              (3,077
              )**Total
                  accumulated other comprehensive income:**Total
                  other comprehensive income (loss) for year, net of tax
              
              
              11,023
              
              
              3,671
              
              
              (364
              )Adjustment
                  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
              
              
              47,976
              
              
              44,305
              
              
              44,669Total
                  accumulated other comprehensive income, net of tax, end of
                  year
              
              $
              54,099
              
              $
              47,976
              
              $
              44,305
 
 The
        accompanying notes form an integral part of these consolidated financial
        statements.
  Page
            43
  **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, India, China, Hong Kong, South Korea, Australia
        and the
        United States. All the revenues, 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.
 
 Certain
        fiscal 2006 and fiscal 2005 amounts have been reclassified to conform to
        the
        fiscal 2007 presentation.
 
 The
        Company maintains a 52-53 week fiscal year ending on the Sunday nearest to
        June
        30th. Fiscal 2007 ended on July 1, 2007 and fiscal 2006 ended on July 2,
        2006
        and both comprised 52 weeks. Fiscal 2005 ended on July 3, 2005 and comprised
        53
        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 the Company’s consolidated financial statements in conformity
        with GAAP requires management to 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. 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
            44
 
 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 six 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.
  **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
            45
  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. The useful life of purchased or licensed intellectual
        property rights is considered on a case-by-case basis. The estimates of the
        periods over which benefits will accrue to the Company in respect of purchased
        or licensed intellectual property rights 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.
 
 *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.
  Page
            46
  **k)**  **Income
        taxes**
  The
        Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
        for Income Taxes” (“SFAS No.109”). SFAS No. 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 when it is determined that
        it is
        more likely than not that some portion or all of the deferred tax assets
        will
        not be realized. Deferred taxes have not been provided on the cumulative
        undistributed earnings of foreign subsidiaries to the extent that amounts
        are
        expected to be reinvested indefinitely.
  **l)**  **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.
  **m)**  **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.
  **n)**  **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.
 
 **o)**  **New
        accounting pronouncements**
  In
        June
        2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes,” (“FIN
        48”), to create a single model to address accounting for uncertainty in tax
        positions. FIN 48 clarifies the accounting for income taxes, by prescribing
        a
        minimum recognition threshold a tax position is required to meet before being
        recognized in the financial statements. FIN 48 also provides guidance on
        derecognition, measurement, classification, interest and penalties, accounting
        in interim periods, disclosure and transition. FIN 48 is effective for fiscal
        years beginning after December 15, 2006. The Company adopted FIN 48 as of
        July
        1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded
        in retained earnings and other accounts as applicable. FIN 48 is not expected
        to
        have a material impact on the Company’s consolidated results of operation or
        financial condition.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
        No. 157”), providing a framework to improve the comparability and consistency of
        fair value measurements in applying GAAP. SFAS No. 157 also expands the
        disclosures regarding fair value measurement. SFAS No. 157 will become effective
        for the Company beginning in fiscal 2009. The Company is currently evaluating
        what effects the adoption of SFAS No. 157 will have on the Company’s future
        consolidated results of operations and financial condition.
  Page
            47
  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 is effective for the Company as of the fiscal year ended June 30,
        2007.
        The adoption of SFAS No. 158 has 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 have been reduced by approximately $4.9
        million (net of tax of approximately $2.1 million) as a result of adopting
        SFAS
        No. 158.
 
 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
        June
        2006, the Emerging Issues Task Force (the “EITF”) of the FASB reached a
        consensus on Issue No. 06-3: “How Taxes Collected from Customers and Remitted to
        Governmental Authorities Should Be Presented in the Income Statement (That
        Is,
        Gross versus Net Presentation)” (“EITF 06-3”). The EITF determined that the
        scope of EITF 06-3 includes any tax assessed by a governmental authority
        that is
        imposed concurrently on a specific revenue-producing transaction between
        a
        seller and a customer, and may include, but is not limited to, sales, use,
        value
        added, and some excise taxes. The EITF also determined that the presentation
        of
        taxes on either a gross basis or a net basis within the scope of EITF 06-3
        is an
        accounting policy decision that should be disclosed. It has been the Company’s
        policy to state revenue net of value added and similar taxes and the Company
        continues to do so.
  **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 years ended June 30,****2007**
              
              **2006**
              
              **2005**Weighted
                  average number of ordinary shares in issue
              
              
              57,224,347
              
              
              56,082,819
              
              
              54,758,479Effect
                  of dilutive equity awards
              
              
              938,599
              
              
              1,917,352
              
              
              2,679,008Denominator
                  for dilutive net income per share
              
              
              58,162,946
              
              
              58,000,171
              
              
              57,437,487Anti-dilutive
                  equity awards excluded from calculation
              
              
              189,593
              
              
              971,168
              
              
              55,042
  **Note
        4.**  **Acquisitions**
  *Fiscal
        200* *7
        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).
        Additional consideration of up to $17.0 million may be payable in cash,
        contingent upon Jungo achieving certain revenue and profitability targets
        in the
        year ending December 31, 2007.
  Page
            48
  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 expects the acquisition of Jungo will enable it to develop 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.
 
 The
        following unaudited pro forma consolidated results of operations for the
        three
        fiscal years ended June 30, 2007 assume that the acquisition of Jungo was
        completed on July 1, 2004.
 
 **For
                  the years ended June 30,**(in
                  thousands, except per-share amounts)
              
              **2007**
              
              **2006**
              
              **2005**Revenue
              
              $
              719,100
              
              $
              612,161
              
              $
              561,606Net
                  income
              
              
              136,455
              
              
              100,015
              
              
              68,442Basic
                  net income per share
              
              $
              2.38
              
              $
              1.78
              
              $
              1.25Diluted
                  net income per shares
              
              $
              2.35
              
              $
              1.72
              
              $
              1.19
 
 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
  Page
            49
  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.
  **Note
        5.**  **Inventories**
  **As of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Unprocessed
                  smart cards and their components
              
              $
              51,630
              
              $
              37,579Other
                  smart card inventory
              
              
              2,476
              
              
              2,731Inventory
                  reserves
              
              
              (2,434
              )
              
              (2,511
              )51,672
              
              
              37,799Contract
                  work-in-progress
              
              
              2,461
              
              
              1,541Total
                  inventories
              
              $
              54,133
              
              $
              39,340
 
 Unprocessed
        smart cards and their components are considered to be in the state of
        work-in-progress. Other smart card inventory represents 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.
  Page
            50
  **Note
        6.**  **Accounts
        receivable**
  **As
                  of June 30,**(in
                  thousands)
              
              
              **2007**
              
              
              **2006**Gross
                  amount due
              
              $
              134,796
              
              $
              98,840Less
                  valuation reserves
              
              
              (172
              )
              
              (1,124
              )$
              134,624
              
              $
              97,716
 
 Three
        customers, all of whom are related parties, accounted for 56% of gross accounts
        receivable as of June 30, 2007. No other customer individually accounted
        for
        more than 5% of gross accounts receivable.
  **Note
        7.**  **Property,
        plant and equipment**
  **Useful lives**
              
              **As
                  of June 30,**(in
                  thousands)
              
              
              
              **2007**
              
              **2006**Leasehold
                  improvements
              
              
              3 to 7 years
              
              $
              26,297
              
              $
              22,380Plant
                  and equipment
              
              
              2 to 5 years
              
              
              120,567
              
              
              100,843146,864
              
              
              123,223Less
                  accumulated depreciation
              
              
              
              
              
              (92,063
              )
              
              (76,984
              )Total
                  property, plant and equipment, net
              
              
              
              
              $
              54,801
              
              $
              46,239
 
 **For
                  the years ended June 30,****2007**
              
              **2006**
              
              **2005**Depreciation
                  related to property, plant and equipment
              
              $
              19,240
              
              $
              17,058
              
              $
              15,405Operating
                  lease expense
              
              $
              18,500
              
              $
              16,118
              
              $
              15,267
 
 Estimated
        future minimum rental payments under operating lease arrangements existing
        as of
        June 30, 2007 were as follows:
 
 (in
                  thousands)
              
              **Minimum**
                **Rental**
                **Payments**Fiscal
                  2008
              
              $
              22,267Fiscal
                  2009
              
              
              19,629Fiscal
                  2010
              
              
              16,459Fiscal
                  2011
              
              
              15,554Fiscal
                  2012
              
              
              13,208Thereafter
              
              
              37,638Total
                  minimum rental payments
              
              $
              124,755
 
 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.
  Page
            51
  **Note
        8.**  **Goodwill
        and other intangible assets**
  *Goodwill*
  The
        movement in goodwill during the fiscal year ended June 30, 2007 was as
        follows:
 
 (in
                  thousands)
              
              **Goodwill**Beginning
                  of year
              
              $
              66,917Additions
                  (see Note 4)
              
              
              54,025Foreign
                  exchange movement
              
              
              3,672End
                  of year
              
              $
              124,614
  *Other
        intangibles*
  Other
        intangible assets primarily comprise intellectual property rights:
 
 **Useful lives**
              
              **As
                  of June 30,**(in
                  thousands)
              
              
              
              
              
              **2007**
              
              
              **2006**Cost
              
              
              3 to 14 years
              
              $
              107,820
              
              $
              76,509Less
                  accumulated amortization
              
              
              
              
              
              (44,740
              )
              
              (33,210
              )Other
                  intangibles, net
              
              
              
              
              $
              63,080
              
              $
              43,299
 
 **For
                  the years ended June 30,****2007**
              
              **2006**
              
              **2005**Amortization
                  of other intangibles
              
              $
              11,347
              
              $
              9,453
              
              $
              12,349
 
 Based
        on
        the current amount of intangible assets subject to amortization, the estimated
        amortization expense for each of the succeeding five fiscal years is as follows:
        fiscal 2008 ─ $12.8 million; fiscal 2009 ─ $12.8 million; fiscal 2010 ─ $12.8
        million; fiscal 2011 ─ $7.7 million; and fiscal 2012 ─ $3.0
        million.
  **Note
        9.**  **Deferred
        income**
  **As
                  of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Deferred
                  security fees
              
              $
              180,009
              
              $
              134,129Advance
                  receipts and other deferred income
              
              
              53,285
              
              
              45,892Total
                  deferred income
              
              $
              233,294
              
              $
              180,021Included
                  within current liabilities
              
              $
              75,777
              
              $
              45,492Included
                  within non-current liabilities
              
              
              157,517
              
              
              134,529$
              233,294
              
              $
              180,021
  Page
            52
  **Note
        10.**  **Abandoned
        property leases**
  **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beginning
                  of year
              
              $
              ─
              
              $
              1,141
              
              $
              8,727Additions
              
              
              ─
              
              
              652
              
              
              ─Reversals
              
              
              ─
              
              
              (225
              )
              
              (5,521
              )Used
              
              
              ─
              
              
              (1,572
              )
              
              (2,118
              )Foreign
                  exchange movements
              
              
              ─
              
              
              4
              
              
              53End
                  of year
              
              $
              ─
              
              $
              ─
              
              $
              1,141
 
 In
        fiscal
        2001, the Company decided to abandon its leased premises at Heathrow, England
        which the Company vacated in September 2000. Additional accruals were made
        in
        the years through fiscal 2004, as the Company was unable to assign the lease
        back to a former tenant. During fiscal 2005, the Company committed to reoccupy
        most of the premises and the Company reversed a part of the accrual previously
        made. The Company reoccupied part of the premises in October 2005; the remaining
        part of the premises was assigned to a third party in fiscal 2006 and the
        remaining part of the accrual was reversed. All amounts accrued and reversed
        have been included within general and administrative expenses in the
        consolidated statement of operations and within accrued expenses in the
        consolidated balance sheet. Additionally, in November 2005, the Company
        consolidated its U.S. operations at a single facility at Costa Mesa, California
        and abandoned its two previous premises in California. An accrual for
        obligations from the cease use date until the termination of the leases of
        those
        two abandoned properties was recorded during fiscal 2006 in the consolidated
        statement of operations within cost of goods and services sold ─
operations.
 
 There
        was
        no remaining accrual as of June 30, 2007 or 2006. The cumulative amount charged
        to the consolidated statement of operations and paid through June 30, 2006
        was
        $10.9 million.
  **Note
        11.**  **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.
 
 The
        two
        classes of ordinary shares entitle the holder to the same 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
        instigation 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.
  **Note
        12.**  **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.
  Page
            53
  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 are BSkyB, DIRECTV, DIRECTV Latin
        America, Sky Brasil, Sky Mexico, 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).
 
 Revenue
        recognized from such related parties was as follows:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Revenue
                  from related parties
              
              $
              518,238
              
              $
              458,042
              
              $
              411,857
 
 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)
              
              **2006**Accounts
                  receivable
              
              $
              89,711
              
              $
              74,295Accrued
                  income
              
              
              26,854
              
              
              25,434Deferred
                  income
              
              
              (200,478
              )
              
              (160,196
              )
 
  **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
        was
        as follows:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Royalties
                  payable to related party
              
              $
              3,036
              
              $
              2,138
              
              $
              3,682
 
 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)
              
              **2007**
              
              **2006**Accrued
                  expenses
              
              $
              3,553
              
              $
              750
  **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.
  Page
            54
  Administration
        fees charged to the Company in respect of these services were as
        follows:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Administration
                  fees charged by related parties
              
              $
              284
              
              $
              173
              
              $
              263
 
 As
        part
        of these administration and finance services, News Corporation pays certain
        costs (principally certain payroll, 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 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)
              
              **2007**
              
              **2006**Accounts
                  payable
              
              $
              2,165
              
              $
              4,228
  **d)**  **Other**
  The
        Company has a short-term loan facility of £30 million (approximately $60
        million) from News Corporation. The facility has no expiry date and no amounts
        were drawn down as of June 30, 2007 or June 30, 2006. 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, 2007 or June 30, 2006 which would
        be covered by these guarantees.
  **Note
        13.**  **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, 2007.
 
 **As
                  of June 30, 2007****Payments
                  due by period**(in
                  thousands)
              
              **Total**
              
              **Less than**
                **1 year**
              
              **1-3 years**
              
              **3-5 years**
              
              **After**
                **5 years**Operating
                  lease obligations
              
              $
              124,755
              
              $
              22,267
              
              $
              36,088
              
              $
              28,762
              
              $
              37,638Smart
                  card purchase obligations
              
              
              39,253
              
              
              29,903
              
              
              9,350
              
              
              ─
              
              
              ─$
              164,008
              
              $
              52,170
              
              $
              45,438
              
              $
              28,762
              
              $
              37,638
  Page
            55
  **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 the Company in the United States District
        Court for the Central District of California. Echostar filed an amended
        complaint on October 8, 2003, which purported to allege claims for violation
        of
        the Digital Millennium Copyright Act (“DMCA”), the Communications Act of 1934
        (“CA”), the Electronic Communications Privacy Act, the Computer Fraud and Abuse
        Act, California’s Unfair Competition statute and the federal 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. On December 22, 2003, all of the claims were dismissed by the
        court, except for the DMCA, CA and unfair competition claims, and the court
        limited these claims to acts allegedly occurring within three years of the
        filing of Echostar’s original complaint.
 
 After
        Echostar filed a second amended complaint, the Company filed a motion to
        dismiss
        this complaint on March 31, 2004. On July 21, 2004, the court issued an order
        directing Echostar to, among other things, file a third amended complaint
        within
        ten days correcting various deficiencies noted in the second amended complaint.
        Echostar filed its third amended complaint on August 4, 2004. On August 6,
        2004,
        the court ruled that the Company was free to file a motion to dismiss the
        third
        amended complaint, which the Company did on September 20, 2004. The hearing
        occurred on January 3, 2005. On February 28, 2005, the court issued an order
        treating the Company’s motion to dismiss as a motion for a more definite
        statement, granting the motion and giving Echostar until March 30, 2005 to
        file
        a fourth amended complaint correcting various deficiencies noted in the third
        amended complaint. On March 30, 2005, Echostar filed a fourth amended complaint,
        which the Company moved to dismiss. On July 27, 2005, the court granted in
        part
        and denied in part the Company’s motion to dismiss, and again limited Echostar’s
        surviving claims to acts allegedly occurring within three years of the filing
        of
        Echostar’s original complaint. The Company believes these surviving claims are
        without merit and intends to vigorously defend against them.
 
 On
        October 24, 2005, the Company filed its Amended Answer with Counterclaims,
        alleging that Echostar misappropriated the Company’s trade secrets, violated the
        Computer Fraud and Abuse Act and engaged in unfair competition. On November
        8,
        2005, Echostar moved to dismiss the Company’s counterclaims for conversion and
        claim and delivery, arguing that these claims were preempted and time-barred.
        Echostar also moved for a more definite statement of the Company’s trade secret
        misappropriation claim. On December 8, 2005, the court granted in part and
        denied in part Echostar’s motion to dismiss and for a more definite statement,
        but granted the Company leave to file amended counterclaims. On December
        13,
        2005, the Company filed a Second Amended Answer with Counterclaims, which
        Echostar answered on December 27, 2005. The court has set this case to go
        to
        trial in February 2008.
  *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. The Company believes that Sogecable’s claims are without
        merit and it will continue to vigorously defend itself 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, the Company has assumed a
        share
        in the cost of DIRECTV, Inc.’s defense. The asserted patent expired on January
        27, 2006.
  Page
            56
  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. There is no schedule for pretrial proceedings or trial date set by
        the
        court, although the court held a patent claim construction hearing on November
        17, 2006. The parties are now awaiting the court’s decision on issues of claim
        construction and further guidance concerning a case schedule.
 
 The
        Company believes that Mr. Thomas’s claims are without merit and it 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 the 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 to June 30, 2007 amounted to approximately $12.9 million. It
        is not anticipated that any repayment will be required. Property, plant and
        equipment situated in Israel with a net book value of $11 million as of
        June 30, 2007 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 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. The nature of these commitments
        has been considered in determining the revenues and costs recognized in these
        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 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.
        Such claims are vigorously defended. Where a liability arising from these
        claims
        is probable, an accrual is made based on management’s best estimate. It is not
        considered that any resulting liability in excess of amounts recognized in
        these
        financial statements would 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 considered that any resulting
        liability in excess of amounts recognized in these financial statements would
        materially affect the Company’s financial position.
  Page
            57
  **14.**  **Equity
        based compensation**
  The
        following amounts have been recorded in the consolidated financial statements
        relating to equity based compensation:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Equity
                  based compensation cost included within the statement of
                  operations:Operating
                  expenses
              
              $
              10,175
              
              $
              6,626
              
              $
              4,327Tax
                  benefit
              
              
              (1,784
              )
              
              (1,179
              )
              
              (1,701
              )Net
                  of tax amount
              
              $
              8,391
              
              $
              5,447
              
              $
              2,626Cash
                  received from exercise of stock options
              
              $
              13,889
              
              $
              21,769
              
              $
              13,294Excess
                  tax benefit from exercise of stock options
              
              $
              4,665
              
              $
              7,925
              
              $
              2,154
 
 As
        of
        June 30, 2007, the total compensation cost related to non-vested equity awards
        not yet recognized was approximately $30.2 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, 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 year ended June 30, 2007, fixed conditional awards (the “Fiscal 2007
        Fixed Conditional Awards”) over an aggregate of 43,500 Series A ordinary shares
        were awarded to certain employees and directors, twenty-five percent of which
        vested and were issued on August 15, 2007. The remaining balance will vest
        in
        three equal annual installments, subject to the individual’s continued
        employment with the Company. The fair value of these awards was $51.57 per
        share.
 
 In
        addition, during the fiscal year ended 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 fiscal year ended June 30, 2007 (the “Fiscal 2007
        Performance-Based Conditional Awards”). To the extent that it was determined
        that the Company’s actual fiscal 2007 operating income 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 (the range for some recipients was from 0% to up to 225%) in
        time-vested Series A ordinary shares. In fiscal 2008, 286,765 ADRs representing
        Series A ordinary shares were awarded in satisfaction of the Fiscal 2007
        Performance-Based Conditional Awards, twenty-five percent of which vested
        and
        were issued on August 15, 2007. The remaining balance will vest in three
        equal
        annual installments over the next three years, subject to the individual’s
        continued employment with the Company. The fair value of the awards was $51.57
        per share.
  **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
            58
  The
        following table summarizes information about the Company’s stock option
        transactions:
 
 **For
                  the year ended June 30, 2007****Number**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Remaining**
                **Contractual**
                **Term**
                **(in years)**
              
              **Aggregate**
                **Intrinsic**
                **Value**
                **(in thousands)**Outstanding
                  at July 1, 2006
              
              
              3,690,761
              
              $
              26.28Granted
              
              
              ─
              
              
              ─Exercised
              
              
              (845,642
              )
              $
              16.68Forfeited
              
              
              (55,517
              )
              $
              33.64Expired
              
              
              ─
              
              
              ─Outstanding
                  at June 30, 2007
              
              
              2,789,602
              
              $
              29.05
              
              
              6.5
              
              $
              50,207Vested
                  or expected to vest (after allowing for expected forfeitures) at
                  June 30,
                  2007
              
              
              2,757,170
              
              $
              28.93
              
              
              6.5
              
              $
              49,944Vested
                  at June 30, 2007
              
              
              1,841,351
              
              $
              24.88
              
              
              5.7
              
              $
              40,897
 
 **For
                  the years ended June 30,**(in
                  thousands, except per share amounts)
              
              **2007**
              
              **2006**
              
              **2005**Weighted
                  average fair value of stock options granted in period using the
                  assumptions set out below
              
              
              ─
              
              $
              29.42
              
              $
              23.59Total
                  intrinsic value of options exercised
              
              $
              27,299
              
              $
              45,975
              
              $
              21,856
 
 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 years ended June 30,****2006**
              
              **2005**Risk
                  free interest rate
              
              
              4.5
              %
              
              4.2
              %Dividend
                  yield
              
              
              ─
              
              
              ─Expected
                  volatility
              
              
              72
              %
              
              80
              %Expected
                  life of stock options
              
              
              6.3 years
              
              
              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
            59
  For
        all
        periods ending prior to July 1, 2005, stock-based compensation was accounted
        for
        by using the intrinsic value-based method in accordance with APB No. 25,
        “Accounting for Stock Issued to Employees” (“APB25”) and the Company followed
        the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based
        Compensation.” The following table reflects the effect on net income and
        earnings per share as if the Company had applied the fair value recognition
        provisions for stock option-based employee compensation using a Black-Scholes
        option valuation methodology, for periods prior to the adoption of
        SFAS No. 123 (R).
 
 (in
                  thousands, except per share amounts)
              
              **For the year ended**
                **June 30, 2005**Net
                  income, as reported
              
              $
              73,998Add:
                  Stock option-based compensation cost included in the determination
                  of net
                  income as reported (net of tax benefits of $1,701)
              
              
              2,626Deduct:
                  Total stock option-based compensation determined under fair value
                  based
                  method for all awards, net of tax benefits of $3,059
              
              
              (18,089
              )Pro-forma
                  net income
              
              $
              58,535Net
                  income per shareBasic
                  net income per share, as reported
              
              $
              1.35Diluted
                  net income per share, as reported
              
              $
              1.29Pro-forma
                  basic net income per share
              
              $
              1.07Pro-forma
                  diluted net income per share
              
              $
              1.02
 
 During
        the year ended June 30, 2005, certain stock options were modified as
        follows:
 
 In
        recognition of his contribution to the Company, the Remuneration Committee
        of
        the Company’s Board of Directors (the “Remuneration Committee”) modified the
        terms of certain vested stock options held by the previous Chief Financial
        Officer such that those stock options were exercisable at any time prior
        to
        September 20, 2006 rather than lapsing on his departure. The additional charge
        under APB25 of this modification, which is included in the consolidated
        statement of operations for the year ended June 30, 2005, was $1.3 million
        net of tax of $0.6 million.
 
 On
        June
        27, 2005, the Remuneration Committee approved the acceleration of vesting
        of
        unvested out-of-the-money stock options granted under the Company’s stock option
        plans. The affected stock options were those with exercise prices greater
        than
        $32.50 per share, which was the closing price of the Company’s Series A ordinary
        shares (as traded in the form of American Depositary Shares on the NASDAQ
        National Market) on June 21, 2005. As a result of this action, the vesting
        of
        approximately 551,000 previously unvested stock options was accelerated and
        those stock options became immediately exercisable. The action did not
        accelerate the vesting of any of the unvested stock options held by Directors,
        the Chief Executive Officer or the Chief Financial Officer. The Remuneration
        Committee’s decision to accelerate the vesting of these stock options was in
        anticipation of compensation expense to be recorded subsequent to the effect
        date of SFAS No. 123 (R) on July 1, 2005. Incremental expense of approximately
        $9.6 million ($8.8 million, net of tax) associated with the acceleration
        was
        recorded in the fiscal 2005 pro forma disclosure.
  Page
            60
  **Note
        15.**  **Income
        taxes**
  Significant
        components of the Company’s provisions for income taxes were as
        follows:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**UK
                  current tax
              
              $
              44,568
              
              $
              39,323
              
              $
              18,476Overseas
                  current tax
              
              
              12,648
              
              
              9,816
              
              
              8,624Double
                  tax relief
              
              
              (5,248
              )
              
              (3,557
              )
              
              (4,073
              )Total
                  current tax
              
              
              51,968
              
              
              45,582
              
              
              23,027UK
                  deferred tax
              
              
              361
              
              
              (105
              )
              
              3,191Overseas
                  deferred tax
              
              
              (2,404
              )
              
              (252
              )
              
              1,135Total
                  deferred tax
              
              
              (2,043
              )
              
              (357
              )
              
              4,326Total
                  income tax expense
              
              $
              49,925
              
              $
              45,225
              
              $
              27,353Tax
                  benefits on stock options, credited to additional paid-in
                  capital
              
              $
              (4,665
              )
              $
              (7,925
              )
              $
              (2,154
              )
 
 Income
        before income taxes arose in the United Kingdom and overseas as
        follows:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**U.K.
                  income before income taxes
              
              $
              150,661
              
              $
              132,176
              
              $
              80,207Overseas
                  income before income taxes
              
              
              34,991
              
              
              13,999
              
              
              21,144Total
                  income before income taxes
              
              $
              185,652
              
              $
              146,175
              
              $
              101,351
 
 The
        reconciliation of income tax computed at the U.K. statutory rate to the income
        tax expense is as follows:
 
 **For
                  the years ended June 30,****2007**
              
              **2006**
              
              **2005**Income
                  tax at UK statutory rate
              
              
              30.0
              %
              
              30.0
              %
              
              30.0
              %Effect
                  of different tax rates
              
              
              (0.5
              )%
              
              (0.4
              )%
              
              (1.4
              )%Research
                  and development allowances
              
              
              (1.9
              )%
              
              (0.7
              )%
              
              (1.6
              )%Equity
                  based compensation
              
              
              0.6
              %
              
              0.6
              %
              
              0.4
              %Other
                  permanent differences
              
              
              0.6
              %
              
              0.5
              %
              
              0.4
              %Losses
                  for which no relief is available
              
              
              0.0
              %
              
              0.0
              %
              
              0.2
              %Movement
                  in valuation reserve
              
              
              (1.4
              )%
              
              0.9
              %
              
              0.0
              %Adjustments
                  in respect of previous years’ accruals
              
              
              (0.5
              )%
              
              0.0
              %
              
              (1.0
              )%Effective
                  income tax rate
              
              
              26.9
              %
              
              30.9
              %
              
              27.0
              %
  Page
            61
  Deferred
        tax assets comprise:
 
 **As
                  of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Property,
                  plant and equipment
              
              $
              774
              
              $
              2,417Other
                  intangibles
              
              
              (632
              )
              
              (767
              )Accrued
                  expenses
              
              
              4,367
              
              
              3,782Pension
                  liability
              
              
              1,643
              
              
              935Equity
                  awards
              
              
              2,711
              
              
              1,139Research
                  and development allowances
              
              
              1,465
              
              
              ─Benefit
                  of operating losses carried forward
              
              
              5,386
              
              
              7,507Benefit
                  of capital losses carried forward
              
              
              660
              
              
              60816,374
              
              
              15,621Valuation
                  reserve
              
              
              (4,774
              )
              
              (8,115
              )Total
                  deferred tax assets, included in other non-current assets
              
              $
              11,600
              
              $
              7,506
 
 Deferred
        tax liabilities comprise:
 
 **As
                  of June 30,****(in
                  thousands)**
              
              **2007**
              
              **2006**Other
                  intangibles
              
              $
              4,054
              
              $
              ─Accrued
                  expenses
              
              
              92
              
              
              ─Benefit
                  of operating losses carried forward
              
              
              (492
              )
              
              ─Total
                  deferred tax liabilities, included in other non-current
                  liabilities
              
              $
              3,654
              
              $
              ─
 
 As
        of
        June 30, 2007, the Company had approximately $20 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.
        Additionally, the Company had approximately $2 million of U.K. capital losses
        available to offset future capital gains. These capital 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 has concluded that it is more likely than not that the Company
        will
        not realize all of the benefits of its deferred tax assets, specifically
        certain
        amounts related to net operating loss carry-forwards and available capital
        losses. Accordingly, valuation allowances of $4.8 million and $8.1 million
        have
        been established to reflect the expected realization of the deferred tax
        assets
        as of June 30, 2007 and 2006, respectively.
 
 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 $106 million as of June 30,
        2007.
  **Note
        16.**  **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 $9.8 million, $7.9 million and $8.6
        million for the years ended June 30, 2007, 2006 and 2005,
        respectively.
  *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 year, as determined by third party actuaries. Company contributions amounted
        to $1.1 million, $0.9 million and $0.8 million for the fiscal years ended
        June 30, 2007, 2006 and 2005 respectively.
  Page
            62
  *Severance
        pay arrangements*
  In
        certain countries in which the Company has operations, principally Israel,
        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 $5.5
        million, $5.6 million and $4.7 million for the fiscal years ended June 30,
        2007,
        2006 and 2005, 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)
              
              **2007**
              
              **2006**Investment
                  funds, included within other non-current assets
              
              $
              30,644
              
              $
              25,244Liability,
                  included within other non-current liabilities
              
              
              (37,408
              )
              
              (30,631
              )
 
  *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:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Service
                  cost
              
              $
              209
              
              $
              178
              
              $
              172Interest
                  cost
              
              
              1,194
              
              
              978
              
              
              893Expected
                  return on assets
              
              
              (1,033
              )
              
              (825
              )
              
              (706
              )Net
                  amortization of loss
              
              
              604
              
              
              583
              
              
              446Net
                  periodic pension expense
              
              $
              974
              
              $
              914
              
              $
              805
 
 The
        following assumptions were used in determining the net periodic benefit costs
        for the plan:
 
 **For
                  the years ended June 30,****2007**
              
              **2006**
              
              **2005**Assumed
                  discount rate
              
              
              5.25
              %
              
              5.00
              %
              
              5.50
              %Expected
                  long-term rate of return on plan assets
              
              
              7.00
              %
              
              7.50
              %
              
              7.50
              %Rate
                  of compensation increase
              
              
              4.50
              %
              
              4.25
              %
              
              4.50
              %
 
 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.
  Page
            63
  The
        funding of the Company’s defined benefit pension plan is as
        follows:
 
 **As
                  of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Fair
                  value of plan assets
              
              $
              17,789
              
              $
              13,670Projected
                  benefit obligation (“PBO”)
              
              
              (23,264
              )
              
              (21,585
              )Funded
                  status
              
              $
              (5,475
              )
              $
              (7,915
              )Unrecognized
                  net loss
              
              
              N/A
              
              
              9,101Net
                  amount recognized, end of year
              
              $
              (5,475
              )
              $
              1,186Amounts
                  recognized in the consolidated balance sheet consist of:Accrued
                  pension
              
              $
              (5,475
              )
              $
              (3,117
              )Other
                  comprehensive income
              
              
              N/A
              
              
              4,303Total
                  amount recorded in consolidated balance sheet
              
              $
              (5,475
              )
              $
              1,186
 
 The
        accumulated benefit obligation of the Company’s defined benefit plan was $16.5
        million and $16.8 million as of June 30, 2007 and 2006,
        respectively.
 
 Amounts
        recognized in accumulated other comprehensive income consist of:
 
 (in
                  thousands)
              
              **As ofJune 30,****2007**Actuarial
                  losses
              
              $
              (7,000
              )Tax
                  benefit thereon
              
              
              2,100Net
                  amount recognized
              
              $
              (4,900
              )
 
 Actuarial
        losses included in accumulated other comprehensive income expected to be
        recognized as a component of net periodic pension costs in fiscal 2008 is
        not
        material.
 
 Additional
        information:
 
 **As
                  of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Decrease
                  (increase) in minimum liability reflected in other comprehensive
                  income
              
              $
              3,174
              
              $
              1,200
              
              $
              (1,080
              )Tax
                  (expense) benefit thereon
              
              
              (936
              )
              
              (361
              )
              
              336Net
                  decrease (increase) in minimum liability reflected in other comprehensive
                  income
              
              $
              2,238
              
              $
              839
              
              $
              (744
              )Weighted-average
                  assumptions used to determine benefit obligations:Discount
                  rate
              
              
              5.75
              %
              
              5.25
              %
              
              5.00
              %Rate
                  of increase in future compensation
              
              
              4.75
              %
              
              4.50
              %
              
              4.25
              %
  Page
            64
  The
        following table is a reconciliation of PBO:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**PBO,
                  beginning of year
              
              $
              21,585
              
              $
              19,406Service
                  cost
              
              
              209
              
              
              178Interest
                  on PBO
              
              
              1,194
              
              
              978Actuarial
                  (gain) loss
              
              
              (1,545
              )
              
              201Benefits
                  paid
              
              
              (257
              )
              
              (256
              )Employee
                  contributions
              
              
              249
              
              
              171Foreign
                  exchange movements
              
              
              1,829
              
              
              907PBO,
                  end of year
              
              $
              23,264
              
              $
              21,585
 
 The
        following table is a reconciliation of the fair value of plan
        assets:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Plan
                  assets at fair value, beginning of year
              
              $
              13,670
              
              $
              10,845Employer
                  contributions
              
              
              1,261
              
              
              1,127Employee
                  contributions
              
              
              249
              
              
              171Benefits
                  paid
              
              
              (257
              )
              
              (256
              )Return
                  on assets
              
              
              1,591
              
              
              1,214Foreign
                  exchange movements
              
              
              1,275
              
              
              569Plan
                  assets at fair value, end of year
              
              $
              17,789
              
              $
              13,670
 
 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
 
 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)
                
                **Fiscal year**
              
              **Expected**
                **pension**
                **payments**2008
              
              $
              2752009
              
              
              2832010
              
              
              2932011
              
              
              3032012
              
              
              3132013
                  to 2017
              
              
              1,722
 
 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
            65
  The
        Company’s benefit plan weighted-average asset allocations as of June 30,
        2007 and 2006, by asset category, are as follows:
 
 **As
                  of June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**Equities
              
              $
              10,673
              
              $
              8,065Debt
                  securities
              
              
              7,116
              
              
              5,605Fair
                  value of plan assets
              
              $
              17,789
              
              $
              13,670
 
 The
        Company’s committed minimum contributions in fiscal 2008 are expected to be $0.3
        million.
  **Note
        17.**  **Segment
        information**
  The
        business is managed as a single operating unit or segment, 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:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**United
                  Kingdom
              
              $
              201,121
              
              $
              163,804
              
              $
              151,083Europe
                  and the Middle East
              
              
              158,280
              
              
              126,157
              
              
              108,454North
                  America
              
              
              213,001
              
              
              215,856
              
              
              183,420Latin-America
              
              
              49,055
              
              
              37,395
              
              
              59,224Asia-Pacific
              
              
              88,035
              
              
              56,911
              
              
              54,149$
              709,492
              
              $
              600,123
              
              $
              556,330
 
 Revenues
        from North America include $212.7 million, $215.7 million and $182.5 million
        from customers in the United States in fiscal 2007, 2006 and 2005, respectively.
        Revenues from Europe and the Middle East include $72.0 million, $72.1 million
        and $60.5 million from customers in Italy in fiscal 2007, 2006 and 2005,
        respectively. No other country accounted for more than 5% of revenues in
        any of
        the three fiscal years in the period ended June 30, 2007.
 
 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, 2007:
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**DIRECTV
                  (U.S.)
              
              $
              194,495
              
              $
              202,630
              
              $
              163,006BSkyB
              
              
              173,426
              
              
              140,364
              
              
              123,165SKY
                  Italia
              
              
              70,223
              
              
              68,251
              
              
              59,895
 
 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.
  Page
            66
  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)
              
              **2007**
              
              **2006**United
                  Kingdom
              
              $
              121,495
              
              $
              122,694Europe
              
              
              26,167
              
              
              14,784Israel
              
              
              122,528
              
              
              36,361United
                  States
              
              
              7,889
              
              
              8,720Asia-Pacific
              
              
              9,721
              
              
              5,821Total
                  long-lived assets (other than deferred tax assets)
              
              $
              287,800
              
              $
              188,380
  **Note
        18.**  **Valuation
        and qualifying accounts**
  **a)**  **Accounts
        receivable reserves**
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beginning
                  of year
              
              $
              1,124
              
              $
              1,427
              
              $
              3,021Additions
                  (reversals)
              
              
              (50
              )
              
              172
              
              
              (1,165
              )Used
              
              
              (902
              )
              
              (475
              )
              
              (379
              )Foreign
                  exchange movements
              
              
              ─
              
              
              ─
              
              
              (50
              )End
                  of year
              
              $
              172
              
              $
              1,124
              
              $
              1,427
  **b)**  **Inventory
        reserves**
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beginning
                  of year
              
              $
              2,511
              
              $
              3,398
              
              $
              4,242Additions
                  (reversals)
              
              
              41
              
              
              (887
              )
              
              (183
              )Used
              
              
              (118
              )
              
              ─
              
              
              (560
              )Foreign
                  exchange movements
              
              
              ─
              
              
              ─
              
              
              (101
              )End
                  of year
              
              $
              2,434
              
              $
              2,511
              
              $
              3,398
  **c)**  **Deferred
        tax valuation reserve**
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beginning
                  of year
              
              $
              8,115
              
              $
              3,455
              
              $
              3,791Additions
                  (reversals)
              
              
              (3,694
              )
              
              4,216
              
              
              (173
              )Foreign
                  exchange movements
              
              
              353
              
              
              444
              
              
              (163
              )End
                  of year
              
              $
              4,774
              
              $
              8,115
              
              $
              3,455
  Page
            67
  **Note
        19.**  **Supplementary
        cash flow disclosures**
 
 **For
                  the years ended June 30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005****Cash
                  receipts and payments:**Cash
                  payments for capital expenditure
              
              $
              (25,520
              )
              $
              (30,018
              )
              $
              (20,584
              )Proceeds
                  from sale of property, plant and equipment
              
              
              371
              
              
              602
              
              
              39Interest
                  received in cash
              
              
              26,338
              
              
              13,226
              
              
              9,510Interest
                  paid in cash
              
              
              (263
              )
              
              (188
              )
              
              (54
              )Cash
                  payments for income taxes
              
              
              (49,525
              )
              
              (27,955
              )
              
              (23,379
              )Cash
                  payments in respect of abandoned property leases
              
              
              ─
              
              
              (1,572
              )
              
              (2,118
              )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
              
              $
              104,917
              
              $
              4,405
              
              $
              ─Less:
                  liabilities assumed
              
              
              (10,592
              )
              
              (1,220
              )
              
              ─Less:
                  cash acquired
              
              
              (13,577
              )
              
              (67
              )
              
              ─80,748
              
              
              3,118
              
              
              ─Cash
                  paid in respect of deferred consideration for acquisitions
              
              
              2,467
              
              
              ─
              
              
              17Net
                  cash paid for business acquisitions
              
              $
              83,215
              
              $
              3,118
              
              $
              17
  **Note
        20.**  **Subsequent
        event**
  In
        August
        2007, the Company acquired 100% of the share capital of Cast-Up for
        approximately $11.3 million in cash, plus up to an additional
        $2.5 million payable upon the achievement of certain performance
        objectives.
  **Note
        2** **1.**  **Quarterly
        data (unaudited)**
 
 **For
                  the three months ended**(in
                  thousands, except per share amounts)
              
              **September
                  30**
              
              **December
                  31**
              
              **March
                  31**
              
              **June
                  30****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
              
              
              42,584Net
                  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**Fiscal
                  2006**Revenue
              
              $
              144,495
              
              $
              152,203
              
              $
              149,204
              
              $
              154,221Gross
                  margin
              
              
              84,672
              
              
              90,427
              
              
              91,244
              
              
              91,158Operating
                  income
              
              
              35,735
              
              
              34,320
              
              
              35,412
              
              
              25,262Net
                  income
              
              
              27,105
              
              
              25,960
              
              
              28,139
              
              
              19,746Basic
                  earnings per share
              
              $
              0.49
              
              $
              0.46
              
              $
              0.50
              
              $
              0.35Diluted
                  earnings per share
              
              $
              0.47
              
              $
              0.45
              
              $
              0.49
              
              $
              0.34
  Page
            68


**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. 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 assessed the
      effectiveness of the Company’s internal control over financial reporting as of
      June 30, 2007. Management based this assessment 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, 2007, 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 issued an attestation report
      on
      the effectiveness of internal control over financial reporting, which is
      reproduced below.




Page
          69




**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,
      2007, 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.





Page
          70




In
      our
      opinion, NDS Group plc maintained, in all material respects, effective internal
      control over financial reporting as of June 30, 2007, based on the COSO
      criteria.




We
      have
      also 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, 2007 and 2006, 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, 2007 of NDS Group plc and our report dated August
      29, 2007 expressed an unqualified opion thereon.




Ernst & Young
                LLP





London,
      England





August
      29, 2007




**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, 2007 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
          71


**PART
      III**




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




The
      information required by this item with respect to the Company’s Directors is
      expected to be contained in the proxy statement for the Company’s 2007 Annual
      General Meeting of Shareholders (the “Proxy Statement”) to be filed with the SEC
      under the headings “Proposal No. 4” and “Directors Continuing in Office,” and is
      incorporated herein by reference in this Annual Report on Form
      10-K.




The
      information required by this item with respect to compliance with Section 16(a)
      of the Exchange Act, if any, will be contained in the Proxy Statement under
      the
      heading “Section 16(a) Beneficial Ownership Reporting Compliance” and is
      incorporated by reference in this Annual Report on Form 10-K.




The
      information required by this item with respect to the Company’s Audit Committee,
      including the Audit Committee’s members and its financial experts will be
      contained in the Proxy Statement under the heading “Corporate Governance —
Meetings and Committees of the Board of Directors — Audit Committee” and is
      incorporated by reference in this Annual Report on Form 10-K.




The
      information required by this item with respect to the Company’s Standards of
      Business Conduct and Code of Ethics governing the Company’s employees, including
      its Chief Executive Officer, senior financial officer and members of the
      Company’s Board of Directors will be contained in the Proxy Statement under the
      heading “Corporate Governance — Other Corporate Governance Matters — Standards
      of Business Conduct and Code of Ethics” and is incorporated by reference in this
      Annual Report on Form 10-K.




The
      information required by this item with respect to the Company executive officers
      will be contained in the Proxy Statement under the heading “Executive Officers
      of the Company” and is incorporated by reference in this Annual Report on Form
      10-K.




The
      information required by this item with respect to how shareholders may recommend
      the nominees to the Board will be contained in the Proxy Statement under the
      heading “Corporate Governance — Other Corporate Governance Matters — Director
      Nomination Procedure” and is incorporated by reference in this Annual Report on
      Form 10-K.




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




The
      information required by this item with respect to executive compensation and
      director compensation will be contained in the Proxy Statement under the heading
      “Executive Compensation and Other Information” and “Non-Management Directors’
Compensation for the Fiscal Year Ended June 30, 2007” and is incorporated by
      reference in this Annual Report on Form 10-K.




The
      information required by this item with respect to compensation interlocks and
      insider participation will be contained in the Proxy Statement under the heading
      “Compensation Interlocks and Insider Participation” and is incorporated by
      reference in this Annual Report on Form 10-K.




The
      compensation report required by this item will be contained in the Proxy
      Statement under the heading “Board of Directors’ Compensation Report” and is
      incorporated by reference in this Annual Report on Form 10-K.




**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.




The
      information required by this item with respect to security ownership of the
      Company will be contained in the Proxy Statement under the heading “Security
      Ownership of the Company” and is incorporated by reference in this Annual Report
      on Form 10-K.




Page
          72




**ITEM13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS****,
                AND DIRECTOR INDEPENDENCE**




The
      information required by this item with respect to certain relationships and
      related transactions will be contained in the Proxy Statement under the heading
      “Certain Relationships and Related-Party Transactions” and is incorporated by
      reference in this Annual Report on Form 10-K.




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




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




The
      information required by this item will be contained in the Proxy Statement
      under
      the headings “Fees Paid to Independent Registered Public Accounting Firm” and
“Audit Committee Pre-approval Policies and Procedures” and is incorporated by
      reference in this Annual Report on Form 10-K.




Page
          73


**PART
      IV**




**ITEM
              15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**




The
      following documents are filed as part of this report:




1.
              The
                  Company’s Consolidated Audited 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 Audited Financial Statements or the Notes to
                  the Consolidated Audited 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
          74




**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
                29, 2007




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 OfficerAbraham
                Peled
            
            (Principal
                Executive Officer)
            
            August
                29, 2007/s/
                David F. DeVoeDavid
                F. DeVoe
            
            Director
            
            August
                29, 2007/s/
                Roger W. EinigerRoger
                W. Einiger
            
            Director
            
            August
                29, 2007/s/
                Nathan GantcherNathan
                Gantcher
            
            Director
            
            August
                29, 2007/s/
                Lawrence A. JacobsLawrence
                A. Jacobs
            
            Director
            
            August
                29, 2007/s/
                Peter J. PowersPeter
                J. Powers
            
            Director
            
            August
                29, 2007/s/
                Arthur M. SiskindArthur
                M. Siskind
            
            Director
            
            August
                29, 2007





Page
          75




**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*
            
            Filed
                herewith.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.




Page
          76




**Exhibit**
            
            **Description**
            
            **Location**


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).