Twenty-First Century Fox 2005 Annual Report Download - page 75

NEWS CORPORATION
Notes to the Consolidated Financial Statements (continued)
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 decisions, 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
represents either definite-lived intangibles, indefinite-lived intangibles or goodwill. The Company follows SFAS No. 142, “Goodwill and Other
Intangible Assets,” which requires that Equity method definite-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.
Cost method investments
Investments in which there is no significant influence (generally less than a 20% ownership interest) are accounted for under the cost method of
accounting. The Company reports investments in marketable equity securities at fair value based on quoted market prices or, if quoted prices are
not available, the Company makes its estimate of fair value by considering other available information, including discounted expected cash flows
using market rates commensurate with credit quality and maturity of the investment. Substantially all investment securities are designated as
available for sale with unrealized gains and losses included in accumulated other comprehensive income (loss), net of applicable taxes and other
adjustments. The Company regularly reviews investment securities for impairment based on criteria that include the extent to which the
investment’s carrying value exceeds its related market value, the duration of the market decline, the Company’s ability to hold until recovery and
the financial strength and specific prospects of the issuer of the security. Unrealized losses that are other than temporary are recognized in
earnings. Realized gains and losses are accounted for on the specific identification method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over an estimated useful life of three to
forty years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the life of the lease.
Costs associated with the repair and maintenance of property are expensed as incurred. Changes in circumstances such as technological
advances, changes to the Company’s business model or capital strategy could result in the actual useful lives differing from the Company’s
estimates. In those cases where the Company determines that the useful life of buildings and equipment should be shortened, the Company
would depreciate the asset over its revised remaining useful life thereby increasing depreciation expense.
Goodwill and intangible assets
The Company has a significant amount of intangible assets, including goodwill, film and television libraries, Federal Communications Commission
(“FCC”) licenses, newspaper mastheads, distribution networks, publishing rights and other copyright products and trademarks. Goodwill is
recorded as the difference between the cost of acquiring entities and amounts assigned to their tangible and identifiable intangible net assets. In
accordance with SFAS No. 142, the Company’s goodwill and indefinite-lived intangible assets, which primarily consist of FCC licenses are no
longer amortized but are tested annually for impairment or earlier if events occur or circumstances change that would more likely than not reduce
the fair value below its carrying amount. Intangible assets with finite lives, are generally amortized using the straight-line method over their
estimated useful lives, which range from 5 to 20 years and are reviewed for impairment at least annually. SFAS No. 142 requires the Company to
perform an annual impairment assessment of its goodwill and indefinite-lived intangible assets. This impairment assessment compares the fair
value of these intangible assets to their carrying value. As a result of the tests performed, the Company determined that the goodwill and
indefinite-lived intangible assets included in the consolidated balance sheets were not impaired.
For all of its television station acquisitions through June 30, 2005, the Company utilized the “residual” method to estimate the fair value of
the stations’ FCC licenses. Under the residual method, a portion of a station’s purchase price is allocated to its tangible net assets and certain
identifiable intangible assets in accordance with independent third party appraisals with any remaining excess purchase price allocated to the
FCC license. This results in goodwill being included in the FCC license value. In addition to utilizing the residual method to estimate the fair value
of its FCC licenses for allocating the purchase price of its television station acquisitions, the Company also utilized this method to estimate the
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