Twenty-First Century Fox 2006 Annual Report Download - page 111

News Corporation
Notes totheConsolidated Financial Statements (CONTINUED)
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. In particular, this is due to the
uncertainty of generating capital gains, as well as generating taxable income within the requisite period in various foreign
jurisdictions and the uncertainty of fully utilizing the capital losses and net operating losses before they expire through tax
planning strategies or reversing taxable temporary differences in the foreseeable future. Accordingly, valuation allowances
of $1.9 billion and$1.3 billion have been established to reflect the expected realization of the deferred tax assets as to
June 30, 2006 and 2005, respectively. The netincrease in the valuation allowance during fiscal 2006 of $553 million was
primarily due to the confirmation of capital losses in a foreign jurisdiction for which afull valuation allowance is provided.
Except for amounts repatriated under the AJCA, the Company has not provided for possible U.S. taxes on the undis-
tributed 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 $5.0 billion at June 30, 2006. (See Note 2
Summary of Significant Accounting Policies).
NOTE 19. SEGMENT INFORMATION
The Company is a diversified entertainment company, which manages and reports its businesses in eight segments:
•Filmed Entertainment,which principally consists of the production andacquisition of live-action andanimated
motion pictures for distribution andlicensing in all formats in all entertainment media worldwide, and the
production of original television programminginthe UnitedStates and Canada.
•Television,which principally consists of the operation of 35 full power broadcast television stations, including nine
duopolies, in the UnitedStates (Of these stations, 25 are affiliatedwith theFOXnetwork, nine are currently affiliated
with theUPNnetwork and one is an independent station. In September 2006, the nine UPN affiliated stations and
the independent station will become affiliated with the MyNetworkTV network); the broadcasting of network
programming in the United States, and the development, production and broadcasting of television programmingin
Asia.
•Cable Network Programming,which principally consists of the production andlicensing of programming
distributed through cable television systems and DBS operators in the UnitedStates.
•Direct Broadcast Satellite Television,which principally consists of the distribution of premium programming
services via satellite directly to subscribers in Italy.
•Magazines and Inserts,which principally consists of the publication of free standing inserts, which are
promotional booklets containing consumer offersdistributed through insertion in local Sunday newspapers in the
United States, and providing in-store marketing products and services, primarily to consumer packaged goods
manufacturers in the UnitedStates and Canada.
•Newspapers,which principally consists of the publication of four national newspapers in the United Kingdom, the
publication of more than 110 newspapers in Australia, and the publication of amass circulation, metropolitan
morning newspaper in the United States.
•Book Publishing,which principally consists of the publication of English language books throughout the world.
•Other,which includes NDS, a Company engaged in the business of supplying open end-to-end digital technology
and services to digital pay-television platform operators and content providers; News Outdoor, an advertising
business which offers display advertising in locationsprimarily throughout Russia and Eastern Europe; FIM, which
operates the Company’s Internet activities; and Global Cricket Corporation, which has the exclusive rights to
broadcast the CricketWorld Cup and other related events through 2007.
The Company’s operating segments have been determined in accordance with the Company’s internal management
structure, which is organized based on operating activities. The Company evaluates performance based upon several factors,
of which the primary financial measures are segment operating income (loss) and Operating income (loss) before deprecia-
tion andamortization.
Operating income (loss) before depreciation andamortization, defined as operating income (loss) plus depreciation and
amortization andtheamortization of cable distribution investments, eliminates the variable effect across all business seg-
ments of non-cash depreciation and amortization. Depreciation andamortization expense includesthedepreciation of
property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution invest-
ments represents a reduction against revenues over the term of acarriage arrangement and as such it is excluded from
Operating income (loss) before depreciation andamortization. Operating income (loss) before depreciation andamor-
tization is anon-GAAP measure and it should be considered in addition to, not as asubstitute for, operating income (loss),
net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. Operating
income (loss) before depreciation andamortization does not reflect cash available to fund requirements, and the items
excluded from Operating income (loss) before depreciation andamortization, such as depreciation and amortization, are
significant componentsin assessing the Company’s financial performance.
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