Twenty-First Century Fox 2014 Annual Report Download - page 72

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Goodwill and Intangible Assets
The Company has a significant amount of intangible assets, including goodwill, film and television libraries,
Federal Communications Commission (“FCC”) licenses, MVPD affiliate agreements and relationships and
trademarks and other copyrighted products. Intangible assets acquired in business combinations are recorded at their
estimated fair value at the date of acquisition. Goodwill is recorded as the difference between the consideration paid
to acquire an entity and the estimated fair values assigned to its tangible and identifiable intangible net assets and is
assigned to one or more reporting units for purposes of testing for impairment. The judgments made in determining
the 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 combinations under the acquisition 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 to them
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. The Company allocates goodwill to
disposed businesses using the relative fair value method.
Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for
possible impairment in accordance with ASC 350 “Intangibles—Goodwill and Other.” The Company’s impairment
review is based on, among other methods, a discounted cash flow approach that requires significant management
judgments. 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.
The Company uses direct valuation methods to value identifiable intangibles for acquisition accounting and
impairment testing. 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.
During fiscal 2014, the Company determined that the goodwill and indefinite-lived intangible assets included
in the accompanying Consolidated Balance Sheet of Twenty-First Century Fox as of June 30, 2014 were not
impaired. The Company determined there are no reporting units with goodwill considered to be at risk and will
continue to monitor its goodwill and intangible assets for possible future impairment.
See Note 10 – Goodwill and Other Intangible Assets to the accompanying Consolidated Financial Statements
of Twenty-First Century Fox for further discussion on the annual impairment review.
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
ASC 740.