Twenty-First Century Fox 2014 Annual Report Download - page 73

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The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than
not to be realized. 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
The measurement and recognition of costs of the Company’s various pension and OPEBs require the use of
significant management judgments, including discount rates, expected return on plan assets, future compensation
and other actuarial assumptions.
The Company participates in and/or sponsors various pension, savings and postretirement benefit plans
covering a significant number of its employees and retirees. The major pension plans and postretirement benefit
plans are closed to new participants (with the exception of groups covered by collective bargaining agreements). In
connection with the Separation, the Company entered into an Employee Matters Agreement (as defined in Note 4 –
Discontinued Operations to the accompanying Consolidated Financial Statements of Twenty-First Century Fox)
with News Corp which provides that employees of News Corp no longer participate in benefit plans sponsored or
maintained by the Company as of the Separation date. Upon Separation, the Company’s plans transferred assets and
obligations to News Corp resulting in a net decrease in sponsored pension and postretirement plan obligations of
$558 million. Additionally, as a result of the Separation, deferred items of approximately $500 million were
transferred to News Corp.
For financial reporting purposes, net periodic pension expense is calculated based upon a number of actuarial
assumptions, including a discount rate for plan obligations, an expected rate of return on plan assets and mortality.
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 48% equity securities, 37% fixed-income
securities and 15% in cash and other investments. The mortality assumption reflects the experience of recent studies
which indicate improvements in mortality. The assumption selected by the Company assumes there will be
continuous improvement in future mortality.
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 the Company’s expected benefit payments for the primary
plans to a hypothetical yield curve developed using a portfolio of several hundred high-quality corporate bonds.