Twenty-First Century Fox 2008 Annual Report Download - page 90

NEWSCORP
Notes to the Consolidated Financial Statements (continued)
Sales returns
Consistent with industry practice, certain of the Company’s products, such as home entertainment products, 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 DBS 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 fiscal years ended June 30, 2008, 2007, and 2006 totaled $2.5 billion, $2.4 billion and $2.3 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. Gains and losses from
foreign currency transactions are included in income for the period.
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, 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
$44 million, $24 million and $28 million, for the fiscal years ended June 30, 2008, 2007 and 2006, respectively. Amortization of capitalized interest
for the fiscal years ended June 30, 2008, 2007 and 2006 was $33 million, $34 million and $44 million, respectively.
Income taxes
The Company accounts for income taxes in 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 undistributed
earnings of foreign subsidiaries to the extent amounts are expected to be reinvested indefinitely.
On July 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes” (“FIN 48”), which did not have a material impact to the
Company’s liability for unrecognized tax benefits.
The effects of the initial adoption of FIN 48 on the Company’s consolidated balance sheets as of June 30, 2007 included an increase in Other
liabilities of approximately $1.2 billion offset by a similar reduction in deferred income taxes as of July 1, 2007.
The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in millions):
For the year ended June 30, 2008
Beginning of period $1,934
Additions for prior year tax positions 223
Reduction for prior year tax positions (374)
Balance as of June 30, 2008 $1,783
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