Twenty-First Century Fox 2006 Annual Report Download - page 79

News Corporation
Notes totheConsolidated Financial Statements (CONTINUED)
Subscriber acquisition costs
Subscriber acquisition costs in the Direct Broadcast Satellite Television segmentprimarily consist of amounts paid for third-
party customer acquisitions, which consist of the cost of commissions paid to authorized retailers and dealers for sub-
scribers 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. Addi-
tional 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, 2006, 2005, and 2004 totaled $2.3
billion, $2.2 billion and$1.8 billion, respectively.
Translation of foreign currencies
Income and expense accounts of foreign subsidiaries and affiliates are translatedinto 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 accumulatedasacompo-
nent of accumulated other comprehensive income (loss). Foreign currency receivables and payables are translatedat appro-
priate year-end current rates and the resulting translation gains or losses are takeninto income currently.
The Company enters into limited forward foreign exchange contracts with theobjective 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 con-
struction phases are capitalizeduntil production or operations commence. Once production or operations commence, the
interest costs are expensed as incurred. Capitalized interest is amortized over futureperiods on abasis consistent with that
of the project towhich it relates. Total interest capitalized was $28 million, $31 million and $42 million, for the years
ended June 30, 2006, 2005 and 2004, respectively. Amortization of capitalized interest for the years ended June 30, 2006,
2005 and 2004 was $44 million, $48 million and$40million, respectively.
Income taxes
The Company accounts for income taxesin accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”).
SFAS 109 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 undistributedearnings of
foreign subsidiaries to the extent amounts are expected to be reinvested indefinitely.
Earnings per share
Net income available to the Company’s common stockholders is allocated between the Company’s two classes of common
stock, Class ACommon Stock and Class BCommon Stock. The allocation between classes is based upon the two-class
method. Under the two-class method, earnings per shareforeach class of common stock is allocated according to dividends
declared and participation rights in undistributed earnings. (See Note 20 Earnings Per Share for the calculation of basic and
diluted earnings per share underthetwo-class method.)
Basic earnings per shareforClass AandClass BCommon Stock is calculated by dividing net income or loss, less divi-
dends on perpetual preference shares, by the weighted average number of shares of Class AandClass BCommon Stock
outstanding. Diluted earnings per share for Class AandClass BCommon Stock is calculated similarly, except that the
calculation includes the dilutive effect of the assumedissuance of shares under the Company’s equity based compensation
plans and the dilutive effect of convertible securities.
ANNUAL REPORT 79