Twenty-First Century Fox 2006 Annual Report Download - page 80

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News Corporation
Notes totheConsolidated Financial Statements (CONTINUED)
Comprehensive income (loss)
The Company follows SFAS No. 130, “Reporting Comprehensive Income,” for the reporting and display of comprehensive
income.
2006 2005 2004
For the years ended June 30, (in millions)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities:
Balance, beginning of year $83$177$169
Fiscal year activity (64) (94) 8
Balance, end of year 19 83 177
Minimum pension liability adjustment:
Balance, beginning of year (246) (212) (274)
Fiscal year activity 167 (34) 62
Balance, end of year (79) (246) (212)
Foreign currency translation adjustments:
Balance, beginning of year (9) (101) (467)
Fiscal year activity 149 92366
Balance, end of year 140 (9) (101)
Total Other comprehensive loss, net of tax $80 $(172) $(136)
Equity based compensation
In July 2005, the Company adopted SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R
requires that the cost resulting from all share-based payment transactions be recognized in the consolidatedfinancial
statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrange-
ments and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-
based payment transactions with employees. The Company adopted SFAS 123R using amodified prospective application, as
permitted under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application, the Com-
pany is required to record compensation expense for all share-based awardsgranted after the date of adoption and for the
unvested portion of previously granted awardsthat remain outstanding at the date of adoption.
Derivatives
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), requires every derivative
instrument (including certain derivative instruments embedded in other contracts) to be recorded on the balance sheet at
fair value as either an asset or a liability. The statement also requires that changes in the fair value of recorded derivatives
be recognized currently in earnings unlessspecific hedge accounting criteria are met.
The Company uses financial instruments designated as cashflow hedges to hedge its limited exposures to foreign cur-
rency exchange risks associated with the costs for producing films abroad. All cash flow hedges are recorded at fair value on
the consolidatedbalance sheet. As of June 30, 2006 and 2005, the notional amount of foreign exchange forward contracts
with foreign currency risk was $39.0 million and$77.4 million, respectively, and the netunrealized gain was approximately
$0.4 million and $0.5 million, respectively. The potential loss in fair value for such financial instruments for a10% adverse
change in quoted foreign currency exchange rates would be approximately $0.5 million and$3.5 million, respectively. The
effective changes in fair value of derivatives designated as cashflow hedges are recorded in accumulated other compre-
hensive income (loss) with foreign currency translation adjustments. Amounts are reclassified from accumulated other
comprehensive income (loss) when the underlying hedged item is recognized in earnings. If derivatives are not designated
as hedges,changes in fair value are recorded in earnings. (See Note 10 Exchangeable Securities.)
Recent accounting pronouncements
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion
No. 20 and FASB Statement No. 3” (“SFAS No. 154”). This standard establishes, unless impracticable, retrospective applica-
tion as the required method for reporting a change in accounting principle in the absence of explicit transition require-
ments specific to the newly adopted accounting principle. SFAS No. 154 will become effective for the Company for
accounting changes and corrections of errors beginning in fiscal 2007. SFAS No. 154 may have asignificant effect on the
Company’s consolidated financial statements to the extent that the Company changes its accounting principles in the
future.
80 NEWS CORPORATION