Twenty-First Century Fox 2006 Annual Report Download - page 78

News Corporation
Notes totheConsolidated Financial Statements (CONTINUED)
whether current eventsor circumstances indicate that such carrying amounts may not be recoverable. If the carrying
amount of the assetisgreater than the expected undiscounted cash flows to be generated by such asset, an impairment
adjustment is to be recognized. Such adjustment is measured by the amount that the carrying value of such assets exceeds
their fair value. The Company generally measures fair value by considering sale pricesforsimilar assets or by discounting
estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to esti-
mate the fair value of assets, accordingly, actual results could vary significantly from such estimates. Assets to be disposed
of are carried at the lowerof their financial statement carrying amount or fair value less costs to sell. As a result of the tests
performed, the Company determined that the long-livedandintangible assets included in the consolidated balance sheets
were not impaired.
Financial instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, cost investments and
long-term borrowings, approximate fair value. The fair value of financial instruments is generally determined by reference
to market values resulting from trading on anational securities exchange or in an over-the-counter market. Derivative
instruments embedded in other contracts, such as exchangeable securities, are separated into their host and derivative
financial instrument components. The derivative component is recorded at itsestimated fair value in the consolidated
balance sheet withchanges in estimated fair value recorded in Other, net in the consolidatedstatement of operations.
Guarantees
The Company follows FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to recognize, at the inception of aguarantee,
aliability for the fair value of the obligation undertaken in issuingcertain guarantees.
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. The Company considers the terms of each arrangement
to determine the appropriate accounting treatment.
Filmed Entertainment:
Revenues are recognized in accordance with SOP 00-2. Revenues from the distribution of motion pictures are recognized as
they are exhibited, and revenues from home entertainment sales, net of areserve for estimated returns, are recognized on
the date that DVD units are made available for sale by retailers and all Company-imposed restrictions on the sale of DVD
units have expired.
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 Television:
Advertising revenue is recognized as the commercials are aired. Subscriber fees received from cable systems and DBS oper-
ators for cable network programming are recognized as revenue in the period services are provided. DBS subscription and
pay-per-view revenues are recognized when programming is broadcasttosubscribers, while fees for equipment rental are
recognized as revenue is earned.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to acable or DBS oper-
ator to facilitate the launch of acable network) against revenue in accordance with EITF No. 01-09, “Accounting for the
Consideration Given by aVendor to aCustomer or aReseller of the Vendor’s Products.” The Company defers the cable
distribution investments and amortizes the amounts on a straight-line basis over the contract period.
Newspapers, Magazine Inserts and Book Publishing:
Advertising revenue from newspapers, inserts and magazines is recognized when the advertisements are published. Rev-
enues earned from book publishing and from newspaper circulation are recognized upon passing of control to the buyer.
Sales returns
Consistent with industry practice, certain of the Company’s products,such as home entertainment product, books and
newspapers, are sold with the right of return. The Company records, as areduction of revenue, the estimated impact of
such returns. In determining the estimate of product sales that will be returned, management analyzes historical returns,
current economic trends and changes in customer demand and acceptance of the Company’s product. Based on this
information, management reserves apercentage of each dollar of product sales that provide the customer with the right of
return.
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