Twenty-First Century Fox 2008 Annual Report Download - page 74

NEWSCORP
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
estimated fair value assigned to each class of intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact
net income.
The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to
the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the
tangible net assets acquired is recorded as intangibles. Amounts recorded as goodwill are assigned to one or more reporting units. Determining the
fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and
assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among
other items. Identifying reporting units and assigning goodwill thereto requires judgment involving the aggregation of business units with similar
economic characteristics and the identification of existing business units that benefit from the acquired goodwill.
Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance
with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company’s impairment review is based on, among other methods, a discounted
cash flow approach that requires significant management judgments. Impairment occurs when the carrying value of the reporting unit exceeds the
discounted present value of the cash flows for that reporting unit. An impairment charge is recorded for the difference between the carrying value
and the net present value of estimated future cash flows, which represents the estimated fair value of the asset. The Company uses its judgment
in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors,
unanticipated technological change or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset
has become 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. Effective July 1, 2005, the Company adopted EITF D-108. EITF D-108 requires companies who have applied the residual
value method in the valuation of acquired identifiable intangibles for purchase accounting and impairment testing to now use a direct valuation
method. The direct valuation method used for FCC licenses requires, among other inputs, the use of published industry data that are based on
subjective judgments about future advertising revenues in the markets where the Company owns television stations. This method also involves
the use of management’s judgment in estimating an appropriate discount rate reflecting the risk of a market participant in the U.S. broadcast
industry. The resulting fair values for FCC licenses are sensitive to these long-term assumptions and any variations to such assumptions could
result in an impairment to existing carrying values in future periods and such impairment could be material.
Income Taxes
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions in which it operates. The Company computes its annual tax
rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Tax laws
are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is
required in determining the Company’s tax expense and in evaluating its tax positions including evaluating uncertainties under FIN 48.
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making
this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a
change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust
related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
Employee Costs
In June 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the fiscal year in which the changes occur through comprehensive income. (See Note 16
to the Consolidated Financial Statements of News Corporation)
The following table summarizes the incremental effects of the initial adoption of SFAS No. 158 on the Company’s consolidated balance sheet
as of June 30, 2007:
Before application of
SFAS No. 158 SFAS No. 158 adjustment After application of SFAS No. 158
(in millions)
Intangible assets $ 11,710 $ (7) $ 11,703
Other non-current assets 1,096 (274) 822
Total assets 62,624 (281) 62,343
Other liabilities 3,301 18 3,319
Deferred income taxes 5,999 (100) 5,899
Total stockholders’ equity 33,121 (199) 32,922
Total liabilities and stockholders’ equity 62,624 (281) 62,343
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