Twenty-First Century Fox 2006 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2006 Twenty-First Century Fox annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 134

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134

Results of Operations (CONTINUED)
The keyassumptions used in developing the Company’s fiscal 2006, 2005, 2004 and 2003 net periodic pension
expense (income) for its plans consists of the following:
2006 2005 2004 2003
($ in millions)
Discount rateused to determine net periodic benefit cost 5.1% 5.7% 5.6% 6.3%
Assets:
Expected rate of return 7.5% 7.5% 7.5% 7.6%
Expected return $122 $111 $88$76
Actual return $186 $160$149 $(20)
Gain/(Loss) $64$49$61$(96)
Highquality fixed income interest rateshave increased during fiscal 2006. Therefore,theCompany will use aweighted aver-
age discount rate of 5.9% in calculating the fiscal 2007 net periodic pension expense for its plans. During fiscal2006, the
Company reduced the plan assets allocated toequities and accordingly evaluated the future asset return expectations which
the Company believes willbelower than fiscal 2006 expectations.Therefore,theCompany will use aweighted average long-
termrateofreturnof 7% for 2007 net periodic pension expenseforitsplans. The unrecognized net losses on the Company’s
pension plans were $348 million atJune 30, 2006, adecrease from $615 million atJune 30, 2005. These unrecognized losses
are primarily aresult ofeconomic conditions and the strengthening of the mortality assumptions. Economic conditions
impacting the plan were lower discount rates utilized in the pastthree fiscal years and the downturn in the equity markets in
the earlier partof this decade. The decrease inunrecognized losses fromJune 30, 2005 to June 30, 2006 is primarily attribut-
able to an increase in the discount rates used to measure plan liabilities. These deferred losses arebeing systematically recog-
nized infuture net periodic pension expense in accordance with SFAS No. 87, “Employers Accounting for Pensions” (“SFAS
No. 87”). Unrecognized losses in excess of 10% of the greater of themarket-related value of plan assets or the plans projected
benefit obligation are recognized over the average future service of the planparticipants.
The Company made contributions of $149 million, $236 million and$214 million to its pension plans in fiscal 2006,
2005 and 2004, respectively. These were primarily voluntary contributions made to improve the funded status of the plans
which were impacted by adeclining interest rate environment, as well as the poor performance of the equity markets earlier
in this decade. Future plan contributions are dependent upon actual plan asset returns and interest rate movements.
Assuming that actual plan returnsareconsistent with theCompany’s expected plan returnsinfiscal 2006 and beyond,and
that interest rates remain constant, the Company would not be required to make any statutory contributions to its primary
U.S. pension plans for the foreseeable future.
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 rateresulting from economic events. The following table highlights the sensitivity of the
Company’s pension obligationsandexpense 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 rateIncrease $12 million Increase $86 million
0.25 percentage point increase in
discount rateDecrease $12 million Decrease $86 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 lessthan the
accumulated benefit obligation at the end of the plan year. In fiscal 2006, the Company recorded anon-cash adjustment to
equity through accumulated other comprehensive income of approximately $286 million which reduced the additional
minimum pension liability to approximately $122 million. In fiscal 2005, the Company recorded anon-cash adjustment to
equity through accumulated other comprehensive income of approximately $106 million which increased the additional
minimum pension liability to approximately $408 million. The fiscal 2006 decrease was due to the current year’s higher
discount rateandasset gains. Equity market returns and interest rates significantly impact the fundedstatus of the Compa-
ny’s pension plans. Based on future plan asset performance and interest rates, additional adjustments to equity may be
required.
64 NEWS CORPORATION