Twenty-First Century Fox 2006 Annual Report Download - page 62

Results of Operations (CONTINUED)
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 oper-
ators are recognized as revenue in the period that services are provided, net of amortization of cable distribution invest-
ments. The Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the
contract period.
Filmed Entertainment and Television Programming Costs
Accounting for the production and distribution of motion pictures and television programming is in accordance with SOP
00-2, which requires management’s judgment as it relates to total revenues to be received and costs to be incurred
throughout the life of each program or its licenseperiod. These judgments are used to determine the amortization of cap-
italized filmed entertainment and television programming costs, the expensing of participation andresidual costs asso-
ciated with revenues earned and any fair value adjustments.
In accordance with SOP 00-2, the Company amortizes filmed entertainment and television programming costs using
the individual-film-forecast method. Under the individual-film-forecast method, such programming costs are amortizedfor
each film or television program in the ratio that current period actual revenue for such title bears to management’s esti-
mated remaining unrecognized ultimate revenue as of the beginning of the current fiscal year to be recognized over
approximately a six year period or operating profits to be realized from all media and markets for such title. Management
regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a
change in the rate of amortization and/or a write down of the asset tofair value.
The costs of national sports contracts at FOX and at the Cable Network Programming segment and for international
sports rights agreements are chargedto 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 aspecified number of events, are amortizedonan
event-by-event basis. Those costs, which are for aspecified season, are amortizedover the season on astraight-line basis,
and if applicable, a portion of the cost is allocated to rebroadcasts.
Original cableprogramming is amortized on an accelerated basis. Management regularly reviews, and revises when
necessary, its total revenue estimates on acontract basis, which may result in a change in the rate of amortization and/or a
write down of the asset tofair value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and are depreciated on a straight-line method over the estimated useful
lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s business model or
capital strategy could result in the actual useful lives differing from the Company’s estimates. In those caseswhere the
Company determines that the useful life of buildings and equipment should be shortened, the Company would depreciate
the assetover its revised remaining useful life thereby increasing depreciation expense.
Intangible Assets
The Company has a significant amount of intangible assets, including goodwill, FCC licenses, and other copyright products
and trademarks. Intangible assets acquired in business combinations are recorded at their estimated fair market value at the
date of acquisition. Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair
values assigned to its tangible and identifiable intangible netassets and is assigned to one or more reporting units for pur-
poses of testing for impairment. The judgments made in determining the estimated fair value assignedtoeach class of
intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact net income.
The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of acquis-
itions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase
price overtheestimated fair values of the tangible net assetsacquired is recorded as intangibles.Amounts recorded as
goodwill are assignedtoone or more reporting units. Determining the fair value of assets acquired and liabilities assumed
requires management’s judgment and often involves the use of significant estimates and assumptions, including assump-
tions with respect tofuture cash inflows and outflows, discount rates, asset lives and market multiples, among other items.
Identifying reporting units and assigning goodwill thereto requires judgment involving the aggregation of business units
with similar economic characteristics and the identification of existing business units that benefit from the acquiredgood-
will.
Carrying values of goodwill and intangible assets with indefinite lives are reviewed periodically for possible impairment
in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). The Company’s impairment
review is based on, among other methods, a discounted cash flow approach that requires significant management judg-
ments. Impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of the cash
62 NEWS CORPORATION