Twenty-First Century Fox 2005 Annual Report Download - page 63

NEWS CORPORATION
Changes in net periodic pension expense may occur in the future due to changes in the Company’s expected rate of return on plan assets
and discount rate resulting from economic events. The following table highlights the sensitivity of the Company’s pension obligations and
expense to changes in these assumptions, assuming all other assumptions remain constant:
Changes in Assumption
Impact on Annual
Pension Expense Impact on PBO
0.25 percentage point decrease in discount rate Increase $10 million Increase $80 million
0.25 percentage point increase in discount rate Decrease $10 million Decrease $80 million
0.25 percentage point decrease in expected rate of return on assets Increase $4 million —
0.25 percentage point increase in expected rate of return on assets Decrease $4 million —
SFAS No. 87 requires recognition of an additional minimum pension liability if the fair value of plan assets is less than the accumulated
benefit obligation at the end of the plan year. In fiscal 2005, the Company recorded a non-cash adjustment to equity through accumulated other
comprehensive income of approximately $100 million which increased the additional minimum pension liability to approximately $400 million. The
increase was due to the current year’s discount rate and mortality change. In fiscal 2004, the Company recorded a non-cash adjustment to
equity through accumulated other comprehensive income of approximately $100 million which reduced the additional minimum pension liability to
approximately $300 million. In fiscal 2003, due to the poor performance of the equity markets which adversely affected the Company’s pension
assets and a decline in the discount rate, the Company recorded a non-cash adjustment to equity through accumulated other comprehensive
income of approximately $300 million which increased the accumulated additional minimum pension liability to approximately $400 million. Equity
market returns and interest rates significantly impact the funded status of the Company’s pension plans. Based on future plan asset performance
and interest rates, additional adjustments to equity may be required.
Recent Accounting Pronouncements
In September 2004, the Emerging Issues Task Force issued Topic No. D-108, “Use of the Residual Method to Value Acquired Assets Other
Than Goodwill” (“Topic D-108”) which will impact the Company’s carrying value of its acquired FCC licenses. Topic D-108 prohibits the use of
the residual method and precludes companies from reclassifying to goodwill any goodwill that was originally included in the value of FCC
licenses as determined under the residual method of valuation. Pursuant to the provisions of Topic D-108, the Company will utilize a direct
method of valuation for an impairment test under SFAS 142 to be performed as of July 1, 2005, the required date of adopting this new
accounting pronouncement. While the Company has not yet completed the evaluation of the impact of adopting Topic D-108 on its financial
position or results of operations, the Company believes that the change in accounting principle prescribed by Topic D-108 will be material. Topic
D-108 will become effective for the Company in the first quarter of fiscal 2006 and will be reflected as a cumulative effect of an accounting
change.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment.” This standard
will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values. That cost will be
recognized over the vesting period. SFAS No. 123(R) will become effective for the Company in the first quarter of fiscal 2006.
In October, 2004, the American Jobs Creation Act (the “Act”) was signed into law. The Act includes a temporary incentive for U.S.
multinationals to repatriate foreign earnings at an effective 5.25 percent tax rate. Such repatriations must occur in either an enterprise’s last tax
year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. In
December 2004, the FASB issued a FASB Staff Position, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004” (“FSP FAS 109-2”). FSP FAS 109-2 allows companies additional time to evaluate the effect of
the Act as to whether unrepatriated foreign earnings continue to qualify for the SFAS No. 109 exception regarding non-recognition of deferred
tax liabilities and would require explanatory disclosures from those who need the additional time. The Company is currently considering the
effects of the repatriation provisions of the Act. Through June 30, 2005, the Company had not provided deferred taxes on substantially all of the
undistributed earnings of foreign subsidiaries since substantially all such earnings were expected to be permanently invested in foreign
operations but has started an evaluation of the effects of the repatriation provision. Whether the Company will ultimately take advantage of this
provision depends on a number of factors, including reviewing future Congressional or Treasury Department guidance, before a determination
can be made. The range of possible amounts that the Company is considering for repatriation under this provision is up to approximately $500
million. The related potential range of income tax is up to approximately $30 million.
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