Twenty-First Century Fox 2005 Annual Report Download - page 77

NEWS CORPORATION
Notes to the Consolidated Financial Statements (continued)
The Company classifies the amortization of cable distribution investments (capitalized fees paid to a cable or DBS operator to facilitate the
launch of a cable network) against revenue in accordance with Emerging Issues Task Force (“EITF”) No. 01-09, “Accounting for the
Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products,” as detailed in the following table:
2005 2004 2003
For the years ended June 30, (in millions)
Revenues before amortization of cable distribution investments $23,976 $20,931 $17,505
Amortization of cable distribution investments (117) (129) (125)
Revenues $23,859 $20,802 $17,380
Newspapers, Magazine Inserts and Book Publishing
Advertising revenue from newspapers, inserts and magazines is recognized when the advertisements are published. Revenues 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 a reduction 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 a percentage of each dollar of product sales that
provide the customer with the right of return.
Subscriber acquisition costs
Subscriber acquisition costs in the Direct Broadcast Satellite Television segment primarily consist of amounts paid for third-party customer
acquisitions, which consist of the cost of commissions paid to authorized retailers and dealers for subscribers added through their respective
distribution channels and the cost of hardware and installation subsidies for subscribers. All costs including hardware, installation and
commissions are expensed upon activation. However, where legal ownership is retained in the equipment, the cost of the equipment is
capitalized and depreciated over the useful life. Additional components of subscriber acquisition costs include the cost of print, radio and
television advertising, which are expensed as incurred.
Advertising expenses
The Company expenses advertising costs as incurred, including advertising expenses for theatrical and television product in accordance with
SOP 00-2. Advertising expenses recognized for the years ended June 30, 2005, 2004, and 2003 totaled $2.4 billion, $1.9 billion, and $1.6
billion, respectively.
Translation of foreign currencies
Income and expense accounts of foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method whereby trading
results are converted at the average rate of exchange for the period and assets and liabilities are converted at the closing rates on the period end
date. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income (loss). Foreign
currency receivables and payables are translated at appropriate year-end current rates and the resulting translation gains or losses are taken into
income currently.
The Company enters into limited forward foreign exchange contracts with the objective of protecting the Company against future adverse
foreign exchange fluctuations. Exchange gains or losses on these contracts are included in net income (loss), except where they relate to specific
commitments, whereby they are deferred until the commitment to sell or purchase is satisfied.
Capitalization of interest
Interest cost on funds invested in major projects, primarily theatrical productions, with substantial development and construction phases are
capitalized until production or operations commence. Once production or operations commence, the interest costs are expensed as incurred.
Capitalized interest is amortized over future periods on a basis consistent with that of the project to which it relates. Total interest capitalized was
$31 million, $42 million, and $26 million, for the years ended June 30, 2005, 2004 and 2003, respectively. Amortization of capitalized interest for
the years ended June 30, 2005, 2004 and 2003 was $48 million, $40 million, and $35 million, respectively.
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