Twenty-First Century Fox 2011 Annual Report Download - page 57

Notes to the Consolidated Financial Statements (continued)
Fiscal 2010 Transactions
During fiscal 2010, the Company acquired additional shares of Sky Deutschland, increasing its ownership from approximately 38% at
June 30, 2009 to approximately 45% at June 30, 2010. The aggregate cost of the shares acquired was approximately $200 million and the
majority of the shares were newly registered shares issued pursuant to a capital increase.
During fiscal 2010, the Company acquired an approximate 9% interest in Rotana Holding FZ-LLC (“Rotana”), which operates a diversified
film, television, audio, advertising and entertainment business across the Middle East and North Africa, for $70 million. A significant stockholder
of the Company, who owned approximately 7% of the Company’s Class B Common stock, owns a controlling interest in Rotana. The Company
had an option to purchase an approximate 9% additional interest for $70 million through November 2011. In May 2011, the Company exercised
half of this option and paid $35 million, increasing its ownership in Rotana to approximately 15%. The Company can purchase the remaining
additional interest for $35 million through November 2012. The Company also has an option to sell its interest in Rotana in fiscal year 2015 at
the higher of the price per share based on a bona fide sale offer or the original subscription price.
Fiscal 2009 Transactions
Investment in Sky Deutschland
The Company invested an aggregate of approximately $300 million in shares of Sky Deutschland during fiscal 2009 and, as of June 30, 2009,
the Company had an approximate 38% ownership interest in Sky Deutschland.
Impairment of Investments in Sky Deutschland
On October 2, 2008, Sky Deutschland announced guidance on its earnings before interest, taxes and depreciation (“EBITDA”) indicating
results substantially below prior guidance for calendar year 2008. Sky Deutschland also announced that it had adopted a new classification of
subscribers at September 30, 2008. The day after this announcement, Sky Deutschland experienced a significant decline in its market value. As a
result of this decline, the Company’s carrying value in Sky Deutschland exceeded its market value based upon Sky Deutschland’s closing share
price of €4.38 on October 3, 2008. The Company believes that this decline was not temporary based on the assessment described below and,
accordingly, recorded an impairment charge of $422 million representing the difference between the Company’s carrying value and the market
value which was included in Equity earnings (losses) of affiliates in the Company’s consolidated statements of operations for the fiscal year ended
June 30, 2009.
In determining if the decline in Sky Deutschland’s market value was other-than-temporary, the Company considered a number of factors:
(1) the financial condition, operating performance and near term prospects of Sky Deutschland; (2) the reason for the decline in Sky Deutschland’s
fair value; (3) analysts’ ratings and estimates of 12 month share price targets for Sky Deutschland; and (4) the length of time and the extent to
which Sky Deutschland’s market value had been less than the carrying value of the Company’s investment.
Other
In August 2008, the Company entered into an agreement providing for the restructuring of the Company’s content acquisition agreements
with Balaji Telefilms Ltd (“Balaji”). As part of this restructuring agreement, the Company no longer has representation on Balaji’s board of
directors and does not have significant influence in management decisions; therefore, the Company believes that it no longer has the ability to
exercise significant influence over Balaji. Accordingly, the Company accounts for its investment in Balaji under the cost method of accounting and
the carrying value is adjusted to market value each reporting period as required under ASC 320 “Investments – Debt and Equity Securities.”
In February 2009, the Company, the Permira Newcos and NDS completed the NDS Transaction, resulting in the Permira Newcos and the
Company owning approximately 51% and 49% of NDS, respectively. The Company’s remaining interest in NDS is accounted for under the equity
method of accounting. (See Note 3 – Acquisitions, Disposals and Other Transactions for further discussion)
Impairments of cost method investments
The Company regularly reviews cost method investments for impairments 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 its investment until recovery and
the investment’s financial strength and specific prospects. In the fiscal years ended June 30, 2011, 2010 and 2009, the Company wrote down
certain cost method investments by approximately nil, $3 million and $113 million, respectively. The write-down in the fiscal year ended June 30,
2009 included a $58 million impairment related to an investment in a sports and entertainment company and a $38 million impairment related to
a television content production company. The above write-downs are reflected in Other, net in the consolidated statements of operations and were
taken as a result of either the deteriorating financial position of the investee or due to a permanent impairment resulting from sustained losses and
limited prospects for recovery.
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