Twenty-First Century Fox 2013 Annual Report Download - page 75

“Distinguishing Liabilities from Equity.” Accordingly, the fair values of such purchase arrangements are classified
in redeemable noncontrolling interests.
As disclosed in the notes to the accompanying consolidated financial statements, the Company and News
Corp are subject to ongoing investigations by U.K. and U.S. regulators and governmental authorities relating to
phone hacking, illegal data access and inappropriate payments to officials at The News of the World and The Sun
and related matters (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”). Upon Separation, the parent-
subsidiary relationship between the Company and News Corp no longer exists and, as such, the Indemnity is
subject to recognition under ASC 460 by the Company. 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, the Company will update the liability provision for the Indemnity. Any changes to the fair value of the
liability provision for the Indemnity in the future will impact the results of operations for that period. The
liability provision for the Indemnity was estimated by probability weighting expected payments to be made to
News Corp under such Agreement and discounting probability-weighted expected payments to the valuation
date, using a discount rate based on the Company’s cost of debt.
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.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a
matter of course, the Company is regularly audited by federal, state and foreign tax authorities. The Company
believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently
anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its
consolidated financial condition, future results of operations or liquidity.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to the Company's financial condition and
results and if it requires significant judgment and estimates on the part of management in its application. The
development and selection of these critical accounting policies have been determined by management of the
Company and the related disclosures have been reviewed with the Audit Committee of the Company’s Board of
Directors. For the Company's summary of significant accounting policies, see Note 2 to the Consolidated
Financial Statements of Twenty-First Century Fox.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect the amounts
that are reported in the consolidated financial statements and accompanying disclosures. Although these
estimates are based on management’s best knowledge of current events and actions that the Company may
undertake in the future, actual results may differ from the estimates.
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