Twenty-First Century Fox 2007 Annual Report Download - page 74

NEWS CORPORATION
Notes to the Consolidated Financial Statements (continued)
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” (“SOP 00-2”),
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 fiscal year’s gross revenues bear to management’s estimate of
total remaining ultimate gross revenues. Television production costs incurred in excess of the amount of revenue contracted for each
episode in the initial market are expensed as incurred on an episode by episode basis. Estimates for initial syndication and basic
cable revenues are not included in the estimated lifetime revenues of network series until such sales are probable. Television pro-
duction costs incurred subsequent to the establishment of secondary markets are capitalized and amortized. 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, DBS 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 determi-
nable and the program is accepted and available for airing. Television broadcast network and original cable programming are amor-
tized 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 FOX and for international sports rights agree-
ments 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.
Equity method investments
Investments in and advances to equity or joint ventures in which the Company has a substantial ownership interest of approximately
20% to 50% and exercises significant influence, or for which the Company owns more than 50% but does not control policy deci-
sions, are accounted for by the equity method. The difference between the Company’s investment and its share of the fair value of
the underlying net assets of the investee is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the bal-
ance is attributed to goodwill. The Company follows SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),
which requires that equity method finite-lived intangibles be amortized over their estimated useful life while indefinite-lived
intangibles and goodwill are not amortized.
Equity method investments are reviewed for impairment on a quarterly basis by initially comparing their fair value to their
respective carrying amounts each quarter. The Company determines the fair value of its public company investments by reference to
their publicly traded stock price. With respect to private company investments, the Company makes its estimate of fair value by
considering other available information, including recent investee equity transactions, discounted cash flow analyses, estimates
based on comparable public company operating multiples and, in certain situations, balance sheet liquidation values. If the fair value
of the investment has dropped below the carrying amount, management considers several factors when determining whether an
other-than-temporary decline in market value has occurred, including the length of the time and extent to which the market value
has been below cost, the financial condition and near-term prospects of the issuer, the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value and other factors
influencing the fair market value, such as general market conditions.
NEWS CORPORATION 2007 Annual Report 73