Twenty-First Century Fox 2014 Annual Report Download - page 128

TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
122
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 $150 million as its obligation under the Indemnity, of which approximately $40 million related to the
amounts accrued by News Corp as of the date of the Separation and approximately $110 million for the fair value of
expected future payments to be made under the Indemnity. Pursuant to ASC 460, the amount provided for future
payments is being amortized in a systematic pattern that reflects the release from the underlying risks and is
included in Income (loss) from discontinued operations, net of tax, in the Consolidated Statements of Operations. As
of June 30, 2014, the Company has recognized approximately $80 million as its obligation under the Indemnity, of
which approximately $65 million relates to amounts payable to News Corp and approximately $15 million for the
remaining unamortized fair value of expected future payments to be made under the Indemnity. Pursuant to the
Indemnity, the Company made payments of $79 million to News Corp during fiscal 2014. If additional information
becomes available and as payments are made, the Company will update the liability provision for the Indemnity.
Any changes to 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.
Other
Other than as disclosed elsewhere in the notes to the Consolidated Financial Statements, the Company is party
to several other purchase and sale arrangements which become exercisable over the next ten years by the Company
or the counter-party to the agreement. None of these arrangements that become or are exercisable in the next twelve
months are material. Equity purchase arrangements that are exercisable by the counter-party to the agreement, and
that are outside the sole control of the Company, are accounted for in accordance with ASC 480-10-S99-3A.
Accordingly, the fair values of such equity purchase arrangements are classified in Redeemable noncontrolling
interests.
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.
The Company establishes an accrued liability for legal claims when the Company determines that a loss is
both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from
time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation
to matters for which an accrual has been established may be higher or lower than the amounts accrued for such
matters. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in
connection with the various proceedings could affect the Company’s results of operations and financial condition.
For the contingencies disclosed above for which there is at least a reasonable possibility that a loss may be incurred,
other than the accrual provided, the Company was unable to estimate the amount of loss or range of loss.