Twenty-First Century Fox 2014 Annual Report Download - page 93

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TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
87
the closing rates on the period end date. The resulting translation adjustments are accumulated as a component of
Accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included
in income for the period.
Income taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC
740 requires an asset and liability approach for financial accounting and reporting for income taxes. Under the asset
and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Valuation allowances are established where management determines that it is more likely than not that
some portion or all of a deferred tax asset will not be realized. Deferred taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries to the extent amounts are reinvested indefinitely.
Earnings per share
Basic earnings per share for the Class A common stock, par value $0.01 per share (“Class A Common
Stock”), and Class B common stock, par value $0.01 per share (“Class B Common Stock”) is calculated by dividing
Net income attributable to Twenty-First Century Fox stockholders by the weighted average number of outstanding
shares of Class A Common Stock and Class B Common Stock. Diluted earnings per share for Class A Common
Stock and Class B Common Stock is calculated similarly, except that the calculation includes the dilutive effect of
the assumed issuance of shares issuable under the Company’s equity based compensation plans.
Equity based compensation
The Company accounts for share-based payments in accordance with ASC 718, “Compensation—Stock
Compensation” (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be
recognized in the Consolidated Financial Statements. ASC 718 establishes fair value as the measurement objective
in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based
measurement method in accounting for generally all share-based payment transactions with employees. (See Note
14 – Equity Based Compensation)
Financial instruments and derivatives
ASC 815, “Derivatives and Hedging” (“ASC 815”), 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 (See Note 8 – Fair Value). ASC 815 also requires that changes in the fair value of recorded
derivatives be recognized currently in earnings unless specific hedge accounting criteria are met.
The carrying value of the Company’s financial instruments, including cash and cash equivalents and cost
investments, approximate fair value. The fair value of financial instruments is generally determined by reference to
market values resulting from trading on a national securities exchange or in an over-the-counter market.
The Company uses financial instruments designated as cash flow hedges to hedge its limited exposures to
foreign currency exchange risks associated with the costs for producing or acquiring films and television
programming abroad. All cash flow hedges are recorded at fair value on the Consolidated Balance Sheets (See Note
8 – Fair Value). The effective changes in fair value of derivatives designated as cash flow hedges are recorded in
Accumulated other comprehensive (loss) income with foreign currency translation adjustments. Amounts are
reclassified from Accumulated other comprehensive (loss) income when the underlying hedged item is recognized
in earnings. If derivatives are not designated as hedges, changes in fair value are recorded in earnings as Other, net
in the Consolidated Statements of Operations.
Derivative instruments embedded in other contracts, such as convertible debt securities and exchangeable
securities, are separated into their host and derivative financial instrument components. The derivative component is