Twenty-First Century Fox 2005 Annual Report Download - page 74

NEWS CORPORATION
Notes to the Consolidated Financial Statements (continued)
Use of estimates
The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles in the United
States (“GAAP”) requires management to make estimates and assumptions that affect the amounts that are reported in the Consolidated
Financial Statements and accompanying disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.
In fiscal 2004, cash on deposit included cash placed on deposit as security for repayment of indebtedness assumed on consolidation of
SKY Italia. (See Note 8 Borrowings)
Concentration of credit risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable
credit and therefore bear minimal credit risk.
Inventories
Filmed Entertainment Costs:
In accordance with Statement of Position (“SOP”) No. 00-2, “Accounting by Producers or Distributors of Films,” Filmed entertainment costs
include capitalized production costs, overhead and capitalized interest costs, net of any amounts received from outside investors. These costs,
as well as participations and talent residuals, are recognized as operating expenses on an individual film or network series basis in the ratio that
the current year’s gross revenues bear to management’s estimate of total ultimate gross revenues. Estimates for initial domestic syndication and
basic cable revenues are not included in the estimated lifetime revenues of network series until such sales are probable. Marketing costs and
development costs under term deals are charged as operating expenses as incurred. Development costs for projects not produced are written-
off at the earlier of the time the decision is taken not to develop the story or after three years.
Filmed entertainment costs are stated at the lower of unamortized cost or estimated fair value on an individual motion picture or television
product basis. Revenue forecasts for both motion pictures and television products are continually reviewed by management and revised when
warranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a motion picture
or television production has a fair value that is less than its unamortized cost, a loss is recognized currently for the amount by which the
unamortized cost exceeds the film or television production’s fair value.
Programming Costs:
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 63, “Financial Reporting by Broadcasters,” costs incurred in
acquiring program rights or producing programs for the Television, Direct Broadcast Satellite Television and Cable Network Programming
segments are capitalized and amortized over the license period or projected useful life of the programming. Program rights and the related
liabilities are recorded at the gross amount of the liabilities when the license period has begun, the cost of the program is determinable, and the
program is accepted and available for airing. Television broadcast network and original cable programming are amortized on an accelerated
basis. The Company has single and multi-year contracts for broadcast rights of programs and sporting events. At the inception of these contracts
and at each subsequent reporting date, the Company evaluates the recoverability of the costs associated therewith, using aggregate estimated
advertising revenues directly associated with the program material and related expenses. Where an evaluation indicates that a multi-year contract
will result in an ultimate loss, additional amortization is provided to currently recognize that loss. The costs of national sports contracts at the Fox
Broadcasting Company (“FOX”) and Cable Network Programming segment and for international sports rights agreements are charged to
expense based on the ratio of each period’s operating profits to estimated total remaining operating profit of the contract. Estimates of total
operating profit can change and accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future
could be material.
The costs of local and regional sports contracts, which are for a specified number of events, are amortized on an event-by-event basis.
Those costs, which are for a specified season, are amortized over the season on a straight-line basis and if applicable, a portion of the cost is
allocated to rebroadcasts.
Inventories for other divisions are valued at the lower of cost or net realizable value. Cost is primarily determined by the first in first out,
average cost method or by specific identification.
>73<