Twenty-First Century Fox 2008 Annual Report Download - page 75

NEWSCORP
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The Company maintains defined benefit pension plans covering a significant number of its employees and retirees. The primary plans have
been closed to employees hired after January 1, 2008. 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 58% equities, 39%
fixed-income securities 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 fiscal 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 by matching our expected benefit payments
for the primary plans to a hypothetical yield curve developed using a portfolio of several hundred high quality non-callable corporate bonds.
The key assumptions used in developing the Company’s fiscal 2008, 2007 and 2006 net periodic pension expense (income) for its plans
consists of the following:
2008 2007 2006
($ in millions)
Discount rate used to determine net periodic benefit cost 6.0% 5.9% 5.1%
Assets:
Expected rate of return 7.0% 7.0% 7.5%
Expected return $ 166 $ 135 $122
Actual return $(140) $232 $186
(Loss)/Gain $(306) $ 97 $ 64
One year actual return (4.4)% 12.3% 11.1%
Five year actual return 8.2% 9.0% 4.7%
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 6.7% in calculating
the fiscal 2009 net periodic pension expense for its plans. The Company will continue to use a weighted average long-term rate of return of 7% for
fiscal 2009 based principally on a combination of asset mix and historical experience of actual plan returns. The accumulated net losses on the
Company’s pension plans at June 30, 2008 were $433 million which increased from $301 million at June 30, 2007. This increase of $132 million was
due primarily to the recent performance of the global equity markets partially offset by a higher discount rate. Higher discount rates decrease the
present values of benefit obligations and reduce the Company’s accumulated net loss and also decrease subsequent-year pension expense; lower
discount rates increase present values of benefits obligations and increase the Company’s deferred losses and also increase subsequent-year
pension expense. The net accumulated losses at June 30, 2007 were primarily a result of economic conditions and the strengthening of the
mortality assumptions. Economic conditions impacting the Company’s defined benefit pension plans were the lower interest rate environment for
high-quality fixed income debt instruments through fiscal 2006 and the downturn in the global equity markets in the earlier part of this
decade. These deferred losses are being systematically recognized in future 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 the market-related value of plan
assets or the plans projected benefit obligation are recognized over the average future service of the plan participants.
The Company made contributions of $57 million, $67 million and $149 million to its pension plans in fiscal 2008, 2007 and 2006, respectively.
These were primarily voluntary contributions made to improve the funded status of the plans which were impacted by the economic conditions
noted above. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements.
Assuming that actual plan returns are consistent with the Company’s expected plan returns in fiscal 2009 and beyond, and that interest rates
remain constant, the Company would not be required to make any material statutory contributions to its primary U.S. pension plans for the
immediate future. The Company will continue to make voluntary contributions as necessary to improve funded status.
74 NEWSCORP 2008 Annual Report