Twenty-First Century Fox 2005 Annual Report Download - page 60

NEWS CORPORATION
Contingencies
The Company is party to several purchase and sale arrangements which become exercisable over the next ten years by the Company or the
counter-party to the agreement. Total contingent receipts/payments under these agreements (including cash and stock) have not been included
in the Company’s financial statements.
In fiscal 2006, the Company has one significant arrangement that becomes exercisable. The Company owns 75% of News Out of Home, a
joint venture with an affiliate of Capital International, Inc (“Capital”). News Out of Home owns and operates outdoor advertising companies
located in Eastern Europe and also owns 68% of Media Support Services Limited, an outdoor advertising company with operating subsidiaries
located in Russia. In fiscal 2006, the minority shareholders of Media Support Services Limited have the right to put their interests to News Out of
Home and Capital also has the right to put a portion of its interest in News Out of Home to the Company. The Company believes that none of the
purchase and sale arrangements will have a material effect on its consolidated financial condition, future results of operations or liquidity.
The Company experiences routine litigation in the normal course of its business. The Company believes that none of its pending litigation will
have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
Related Party Transactions
Immediately prior to and as part of the Reorganization, the Company acquired from certain trusts the beneficiaries of which include Mr. K.R.
Murdoch, members of his family and certain charities (“the Murdoch Trusts”) the 58% shareholding in QPL which was not already owned by the
Company’s predecessor through the acquisition of the Cruden Group of companies (“the Cruden/QPL Transaction”). The principal assets of the
Cruden Group were shares of News Corporation and a 58% interest in QPL. QPL owns a publishing business which includes two metropolitan
and eight regional newspapers in Queensland, Australia, as well as shares in News Corporation. Following this transaction, Mr. K.R. Murdoch
and the Murdoch Trusts own approximately 29.5% of the Company’s Class B Common Stock.
Critical Accounting Policies
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results, and if it requires significant
judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have
been determined by management of the Company and the related disclosures have been reviewed with the Audit Committee of the Board of
Directors. For a summary of all of the Company’s significant accounting policies, see Note 2 to the accompanying Consolidated Financial
Statements of News Corporation.
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 amounts that are reported in the Consolidated Financial Statements and accompanying disclosures. Although these
estimates are based on management’s best knowledge of current events and actions that the company may undertake in the future, actual
results may differ from the estimates.
Revenue Recognition
Filmed Entertainment
–Revenues from distribution of feature films are recognized in accordance with Statement of Position No. 00-2,
“Accounting by Producers or Distributors of Films” (“SOP 00-2”). Revenues from the theatrical distribution of motion pictures are recognized as
they are exhibited and revenues from home video and DVD sales, net of a reserve for estimated returns, together with related costs, are
recognized on the date that video and DVD units are made widely available for sale by retailers and all Company-imposed restrictions on the sale
of video and DVD units have expired. Revenues from television distribution are recognized when the motion picture or television program is made
available to the licensee for broadcast.
Management bases its estimates of ultimate revenue for each film on the historical performance of similar films, incorporating factors such as
the past box office record of the lead actors and actresses, the genre of the film, pre-release market research (including test market screenings)
and the expected number of theaters in which the film will be released. Management updates such estimates based on information available on
the actual results of each film through its life cycle.
License agreements for the telecast of theatrical and television product in the broadcast network, syndicated television and cable television
markets are routinely entered into in advance of their available date for telecast. Cash received and amounts billed in connection with such
contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred revenue generally relates to
contracts for the licensing of theatrical and television product which have already been produced, the recognition of revenue for such completed
product is principally only dependent upon the commencement of the availability period for telecast under the terms of the related licensing
agreement.
Television, Cable Network Programming and Direct Broadcast Satellite –Advertising revenue is recognized as the commercials
are aired, net of agency commissions. Subscriber fees received from subscribers, cable systems and DBS operators are recognized as revenue
in the period that services are provided, net of amortization of cable distribution investments.
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