Twenty-First Century Fox 2013 Annual Report Download - page 37

U.S. Citizenship Requirements May Limit Common Stock Ownership and Voting Rights.
The Company owns broadcast station licensees in connection with its ownership and operation of U.S.
television stations. Under U.S. law, no broadcast station licensee may be owned by a corporation if more than
25% of its stock is owned or voted by non-U.S. persons, their representatives, or by any other corporation
organized under the laws of a foreign country. The Company’s Restated Certificate of Incorporation authorizes
the Board of Directors to prevent, cure or mitigate the effect of stock ownership above the applicable foreign
ownership threshold by taking any action including: refusing to permit any transfer of common stock to or
ownership of common stock by a non-U.S. stockholder; voiding a transfer of common stock to a non-U.S.
stockholder; suspending rights of stock ownership if held by a non-U.S. stockholder; or redeeming common
stock held by a non-U.S. stockholder. In order to maintain compliance with U.S. law, as of April 2013, the
suspension of voting rights of the Class B Common Stock held by non-U.S. stockholders was 40%. This
suspension will remain in place for as long as the Company deems it necessary to maintain compliance with
applicable U.S. law, and may be adjusted by the Audit Committee as it deems appropriate. The Company is not
able to predict whether it will need to adjust the suspension or whether additional action pursuant to its Restated
Certificate of Incorporation may be necessary. The FCC could review the Company’s compliance with applicable
U.S. law in connection with its consideration of the Company’s renewal applications for licenses to operate the
broadcast stations the Company owns.
The Company and News Corp Face Investigations Regarding Allegations of Phone Hacking, Illegal Data Access,
Inappropriate Payments to Public Officials and Other Related Matters and Related Civil Lawsuits.
U.S. regulators and governmental authorities are conducting investigations relating to the U.K. Newspaper
Matters. The Company is cooperating with these investigations. It is not possible at this time to estimate the
liability, if any, of the Company relating to these investigations.
In connection with the Separation, the Company and News Corp agreed in the Separation and Distribution
Agreement that the Company will indemnify News Corp, on an after-tax basis, for payments made after the
Separation arising out of civil claims and investigations relating to the U.K. Newspaper Matters, as well as legal
and professional fees and expenses paid in connection with the related criminal matters, other than fees, expenses
and costs relating to employees who are not (i) directors, officers or certain designated employees or (ii) with
respect to civil matters, co-defendants with News Corp (the “Indemnity”). As of June 30, 2013, the Company
recognized approximately $40 million related to the fair value of amounts accrued by News Corp as of the date
of the Separation which are expected to be covered by the indemnity and has provided an additional $110 million
for the fair value of expected future payments to be made under the Indemnity. If additional information becomes
available and as payments are made, the Company will update the liability provision for the Indemnity.
It is possible that these proceedings and any adverse resolution thereof, including any fines or other
penalties associated with any plea, judgment or similar result could damage the Company’s reputation, impair its
ability to conduct its business and adversely affect its results of operations and financial condition.
Risks Related to the Separation
If the Separation, Together with Certain Related Transactions, Were Ultimately Determined to be Taxable
Transactions for U.S. Federal Income Tax Purposes, then We Could Be Subject to Significant Tax Liability.
The Company received (i) a private letter ruling from the IRS substantially to the effect that, among other
things, the distribution of Class A Common Stock and Class B Common Stock of News Corp qualifies as tax-free
under Sections 368 and 355 of the Internal Revenue Code of 1986, as amended (the “Code”) except for cash
received in lieu of fractional shares of News Corp stock and (ii) an opinion from the law firm of Hogan Lovells
US LLP confirming the tax-free status of the distribution for U.S. federal income tax purposes, including
confirming the satisfaction of the requirements under Section 368 and 355 of the Code not specifically addressed
in the IRS private letter ruling. The opinion of Hogan Lovells US LLP will not be binding on the IRS or the
courts, and there is no assurance that the IRS or a court will not take a contrary position.
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