Twenty-First Century Fox 2007 Annual Report Download - page 62

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Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be real-
ized. 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) $11,703
Other non-current assets 1,096 (274) 822
Total assets 62,624 (281) 62,343
Other liabilities 3,301 18 3,319
Deferred income taxes 5,999 (100) 5,899
Total stockholders’ equity 33,121 (199) 32,922
Total liabilities and stockholders’ equity 62,624 (281) 62,343
The Company maintains defined benefit pension plans covering a majority of its employees and retirees. For financial reporting
purposes, net periodic pension expense (income) is calculated based upon a number of actuarial assumptions, including a discount
rate for plan obligations and an expected rate of return on plan assets. The Company considers current market conditions, including
changes in investment returns and interest rates, in making these assumptions. In developing the expected long-term rate of return,
the Company considered the pension portfolio’s past average rate of returns, and future return expectations of the various asset
classes. The expected long-term rate of return is based on an asset allocation assumption of 60% equities, 37% fixed-income secu-
rities and 3% in all other investments.
The discount rate reflects the market rate for high-quality fixed-income investments on the Company’s annual measurement
date of June 30 and is subject to change each year. The discount rate assumptions used to account for pension and other
postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined
based on a cash flow matching technique whereby a hypothetical portfolio of high quality debt securities was constructed that
mirrors the specific benefit obligations for each of the Company’s primary plans where appropriate.
The key assumptions used in developing the Company’s fiscal 2007, 2006 and 2005 net periodic pension expense (income) for
its plans consists of the following:
2007 2006 2005
($ in millions)
Discount rate used to determine net periodic benefit cost 5.9% 5.1% 5.7%
Assets:
Expected rate of return 7.0% 7.5% 7.5%
Expected return $ 135 $ 122 $ 111
Actual return $ 232 $ 186 $ 160
Gain $97 $64 $49
One year actual return 12.3% 11.1% 10.8%
Five year actual return 9.0% 4.7% 1.7%
The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the
United States, the United Kingdom and Australia as of the measurement date. The Company will utilize a weighted average discount
rate of 6.0% in calculating the fiscal 2008 net periodic pension expense for its plans. The Company will continue to use a weighted
NEWS CORPORATION 2007 Annual Report 61