NOTE 15. RETIREMENT BENEFIT OBLIGATIONS

Employees Participation in Pension Plans Subsequent to the Separation

The Company’s employees participate in various defined benefit pension and postretirement plans sponsored by the Company and its subsidiaries (“Direct Plans”). Plans in the U.S., U.K. and Australia are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through income are recorded in Accumulated other comprehensive income net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets and mortality rates. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The funded status of the plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2014, 2013 and 2012.

Employees Participation in Pension Plans Prior to the Separation

Prior to the Separation, certain of the Company’s employees participated in shared plans which were sponsored by 21st Century Fox and included participants of the Company’s subsidiaries and other 21st Century Fox subsidiaries (“Shared Plans”). Such Shared Plans were accounted for as multiemployer benefit plans. Therefore, no asset or liability was recorded to recognize the funded status. The related pension expenses allocated to the Company were based primarily on pensionable compensation of active participants and accounted for in a manner similar to a defined contribution plan.

During the fourth quarter of fiscal 2013, pursuant to the Employee Matters Agreement, the assets and liabilities of the Shared Plans allocable to the Company’s employees were transferred to newly-established plans of the Company. Assets of $58 million, projected benefit obligations of $106 million and $36 million of Other comprehensive income ($22 million, net of tax) were recorded for pension benefits in the U.S. transferred from 21st Century Fox, in addition to a $20 million pension contribution made by the Company. A projected benefit obligation of $11 million and $3 million of Other comprehensive income ($2 million, net of tax) were recorded for an unfunded retirement plan in the U.S. transferred from 21st Century Fox. Such plans were considered Direct Plans as of June 30, 2013 and were accounted for as defined benefit pension and postretirement plans subsequent to the Separation.

Summary of Funded Status

The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The combined domestic and foreign pension and postretirement plans resulted in a net pension liability of $217 million and $353 million at June 30, 2014 and 2013, respectively.

During the fiscal year ended June 30, 2014, the Company reduced its Retirement benefit obligations by approximately $69 million due to plan changes. Of the total reduction, $41 million was due to changes made to the Company’s retiree medical plans during the first quarter of fiscal 2014. The reduction was recognized in Other comprehensive income during the period and will be amortized over the remaining expected life of the plans’ participants as actuarially determined. The remaining $28 million resulted from the decision to freeze future benefits for certain domestic pension benefit plans in the third quarter of fiscal 2014. These reductions were recognized in Other comprehensive income during the period in which the plan changes were made and will be amortized over the remaining expected life of the plans’ participants as actuarially determined.

In addition, during the first quarter of fiscal 2014 approximately $37 million of contributions were made by a third party in connection with the sale of a business in a prior period on behalf of former employees who retained certain pension benefits. This contribution further reduced the Company’s Retirement benefit obligation and resulted in a gain being recognized in Other, net in the Statement of Operations during the fiscal year ended June 30, 2014.

The Company recognized these amounts in the Balance Sheets at June 30, 2014 and June 30, 2013 as follows:


	Pension Benefits
	Domestic						Foreign						Postretirement Benefits
	As of June 30,
	2014			2013			2014			2013			2014			2013
	(in millions)
Other non-current assets	$	—		$	—		$	67		$	6		$	—		$	—
Other current liabilities		—			(1	)		(1	)		(1	)		(11	)		(12	)
Retirement benefit obligations		(49	)		(86	)		(84	)		(88	)		(139	)		(171	)

Net amount recognized	$	(49	)	$	(87	)	$	(18	)	$	(83	)	$	(150	)	$	(183	)

The following table sets forth the change in the projected benefit obligation, change in the fair value of the Company’s plan assets and funded status:


	Pension Benefits
	Domestic						Foreign						Postretirement Benefits
	As of June 30,
	2014			2013			2014			2013			2014			2013
	(in millions)
Projected benefit obligation, beginning of the year	$	342		$	257		$	1,114		$	1,159		$	183		$	230
Service cost		4			1			12			18			1			1
Interest cost		16			11			51			51			7			8
Benefits paid		(15	)		(14	)		(47	)		(47	)		(10	)		(11	)
Settlements^(a)		(12	)		(10	)		(36	)		(103	)		—			—
Actuarial (gain)/loss^(b)		35			(20	)		39			81			9			(44	)
Foreign exchange rate changes		—			—			117			(53	)		2			(1	)
Liabilities assumed upon Separation		—			117			—			—			—			—
Plan curtailments		(20	)		—			—			4			(1	)		—
Amendments, transfers and other		—			—			2			4			(41	)		—

Projected benefit obligation, end of the year		350			342			1,252			1,114			150			183

Change in the fair value of plan assets for the Company’s benefit plans:
Fair value of plan assets, beginning of the year		255			189			1,031			960			—			—
Actual return on plan assets		36			11			73			110			—			—
Employer contributions^(c)		37			21			100			159			—			—
Benefits paid		(15	)		(14	)		(47	)		(47	)		—			—
Settlements^(a)		(12	)		(10	)		(36	)		(103	)		—			—
Foreign exchange rate changes		—			—			111			(51	)		—			—
Assets received upon Separation^(d)		—			58			—			—			—			—
Amendments, transfers and other		—			—			2			3			—			—

Fair value of plan assets, end of the year		301			255			1,234			1,031			—			—

Funded status	$	(49	)	$	(87	)	$	(18	)	$	(83	)	$	(150	)	$	(183	)

^(a)	Amounts related to payments made to former employees of the Company in full settlement of their deferred pension benefits.

^(b)

Fiscal 2014 actuarial losses for domestic pension and postretirement benefits primarily related to changes in the discount rate and strengthening of the mortality tables utilized in measuring plan obligations as of June 30, 2014. Fiscal 2014 actuarial losses for foreign pension benefits primarily related to changes in the discount rate as of June 30, 2014. Fiscal 2013 actuarial gains for domestic pension benefits primarily related to changes in the discount rate and for postretirement benefits primarily related to changes in the discount rate as of June 30, 2013 and improvements in claims experience in measuring plan obligations as of June 30, 2013. Fiscal 2013 actuarial losses for foreign pension benefits primarily related to inflation rate changes and strengthening of the mortality tables utilized in measuring plan obligations as of June 30, 2013.

^(c)

During the first quarter of fiscal 2014 approximately $37 million of contributions were made by a third party in connection with the sale of a business in a prior period on behalf of former employees who retain certain pension benefits. In fiscal 2013, the Company made approximately $115 million in contributions in connection with the Separation.

^(d)	Of the $58 million in assets received as part of the Separation, $20 million related to a receivable from 21st Century Fox which was received during the first quarter of fiscal 2014.

Amounts recognized in Accumulated other comprehensive income consist of:


	Pension Benefits								Postretirement Benefits
	Domestic				Foreign				Postretirement Benefits
	As of June 30,
	2014		2013		2014		2013		2014			2013
	(in millions)
Actuarial losses	$	108	$	121	$	420	$	351	$	18		$	9
Prior service (benefit)		—		—		—		—		(54	)		(27	)

Net amounts recognized	$	108	$	121	$	420	$	351	$	(36	)	$	(18	)

Amounts in Accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost in fiscal 2015:


	Pension Benefits				Postretirement Benefits
	Domestic		Foreign		Postretirement Benefits
	As of June 30, 2014
	(in millions)
Actuarial losses	$	3	$	13	$	—
Prior service (benefit)		—		—		(13	)

Net amounts recognized	$	3	$	13	$	(13	)

Accumulated pension benefit obligations as of June 30, 2014 and 2013 were $1,590 million and $1,424 million, respectively. Below is information about funded and unfunded pension plans.


	Domestic Pension Benefits
	Funded Plans				Unfunded Plans				Total
	As of June 30,
	2014		2013		2014		2013		2014		2013
	(in millions)
Projected benefit obligation	$	339	$	324	$	11	$	18	$	350	$	342
Accumulated benefit obligation		339		302		11		17		350		319
Fair value of plan assets		301		255		—		—		301		255


	Foreign Pension Benefits
	Funded Plans				Unfunded Plans				Total
	As of June 30,
	2014		2013		2014		2013		2014		2013
	(in millions)
Projected benefit obligation	$	1,183	$	1,057	$	69	$	57	$	1,252	$	1,114
Accumulated benefit obligation		1,171		1,048		69		57		1,240		1,105
Fair value of plan assets		1,234		1,031		—		—		1,234		1,031

The accumulated benefit obligation exceeds the fair value of plan assets for all domestic pension plans. Below is information about foreign pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.


	Funded Plans				Unfunded Plans
	As of June 30,
	2014		2013		2014		2013
	(in millions)
Projected benefit obligation	$	237	$	691	$	69	$	57
Accumulated benefit obligation		237		691		69		57
Fair value of plan assets		221		660		—		—

Summary of Net Periodic Benefit Costs

The Company recorded $7 million, $56 million and $45 million in net periodic benefit costs in the Statements of Operations for the fiscal years ended June 30, 2014, 2013 and 2012, respectively. Costs associated with the Company’s Direct Plans are included in net periodic benefit costs—Direct below. Costs associated with the Shared Plans prior to the Separation are included in the net periodic benefit costs—Employees participation in 21st Century Fox plans below. In addition, a portion of certain other benefit plan costs incurred by 21st Century Fox were allocated to the Company prior to the Separation and these costs are included in net periodic benefit costs—Corporate allocations. Benefit costs related to employee participation in 21st Century Fox plans and Corporate allocations did not recur in periods subsequent to the Separation.

The amortization of amounts related to unrecognized prior service costs (credits) and deferred losses were reclassified out of Other comprehensive income as a component of net periodic benefit costs. In addition, approximately $4 million related to settlements, curtailments and other was reclassified out of Other comprehensive income as a component of net periodic benefit costs during the fiscal year ended June 30, 2014.

The components of net periodic benefits costs were as follows:


	Pension Benefits																		Postretirement Benefits
	Domestic									Foreign									Postretirement Benefits
	For the fiscal years ended June 30,
	2014			2013			2012			2014			2013			2012			2014			2013			2012
	(in millions)
Service cost benefits earned during the period	$	4		$	1		$	—		$	12		$	18		$	19		$	1		$	1		$	2
Interest costs on projected benefit obligations		16			11			13			51			51			60			7			8			10
Expected return on plan assets		(17	)		(13	)		(13	)		(76	)		(65	)		(69	)		—			—			—
Amortization of deferred losses		4			3			2			12			15			14			(1	)		3			1
Amortization of prior service costs		—			—			—			—			—			—			(13	)		(13	)		(16	)
Settlements, curtailments and other		4			—			—			3			15			8			—			—			—

Net periodic benefits costs- Direct		11			2			2			2			34			32			(6	)		(1	)		(3	)
Employees participation in 21st Century Fox plans		—			16			10			—			—			—			—			—			—
Corporate allocations^(a)		—			5			4			—			—			—			—			—			—

Net periodic benefits costs- Total	$	11		$	23		$	16		$	2		$	34		$	32		$	(6	)	$	(1	)	$	(3	)

^(a)	The allocated expense includes corporate executives of 21st Century Fox, allocated using a proportional allocation methodology, which management has deemed as reasonable.


	Pension Benefits
	Domestic									Foreign									Postretirement Benefits
	For the fiscal years ended June 30,
	2014			2013			2012			2014			2013			2012			2014			2013			2012
Additional information:
Weighted-average assumptions used to determine benefit obligations
Discount rate		4.5	%		5.0	%		4.3	%		4.2	%		4.5	%		4.5	%		4.0	%		4.7	%		3.8	%
Rate of increase in future compensation		N/A			5.3	%		3.3	%		3.6	%		3.7	%		3.3	%		N/A			N/A			N/A

Weighted-average assumptions used to determine net periodic benefit cost
Discount rate		5.0	%		4.3	%		5.8	%		4.5	%		4.5	%		5.7	%		4.7	%		3.8	%		5.3	%
Expected return on plan assets		7.0	%		7.0	%		7.0	%		6.8	%		6.7	%		7.0	%		N/A			N/A			N/A
Rate of increase in future compensation		5.3	%		5.3	%		3.3	%		3.7	%		3.3	%		3.8	%		N/A			N/A			N/A

N/A—not applicable

The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:


	Postretirement Benefits
	Fiscal 2014			Fiscal 2013
Health care cost trend rate		6.6	%		6.7	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.5	%		5.1	%
Year that the rate reaches the ultimate trend rate		2027			2019

Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement health care plan. The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate would have the following effects on the results for fiscal 2014:


	Service and Interest Costs			Benefit Obligation
	(in millions)
One percentage point increase	$	1		$	15
One percentage point decrease	$	(1	)	$	(13	)

The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:


	Expected Benefit Payments
	Pension Benefits				Postretirement Benefits
	Domestic		Foreign		Postretirement Benefits
	(in millions)
Fiscal year:
2015	$	21	$	62	$	11
2016		19		60		12
2017		19		63		12
2018		20		64		11
2019		19		67		11
2020-2024		100		366		52

Plan Assets

The Company applies the provisions of ASC 715, which requires disclosures including: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.

The table below presents the Company’s plan assets by level within the fair value hierarchy, as described in Note 2—Summary of Significant Accounting Policies, as of June 30, 2014 and 2013:


	As of June 30, 2014								As of June 30, 2013
			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in millions)
Assets
Short-term investments	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Pooled funds:^(a)
Money market funds		6		—		6		—		49		—		49		—
Domestic equity funds		87		—		87		—		65		—		65		—
International equity funds		332		105		227		—		373		126		247		—
Domestic fixed income funds		149		—		149		—		108		—		108		—
International fixed income funds		543		—		543		—		304		—		304		—
Balanced funds		377		—		377		—		350		—		350		—
Other		41		29		—		12		37		26		—		11

Total	$	1,535	$	134	$	1,389	$	12	$	1,286	$	152	$	1,123	$	11

^(a)	Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published net asset value (“NAV”). Other pooled funds are valued at the NAV provided by the fund issuer.

The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 assets as of June 30, 2014 and 2013:


	Partnership Interests			Other			Total
	(in millions)
Balance, June 30, 2012	$	4		$	12		$	16
Actual return on plan assets:
Relating to assets still held at end of period		—			(1	)		(1	)
Relating to assets sold during the period		—			—			—
Purchases, sales, settlements and issuances		(4	)		—			(4	)
Transfers in and out of Level 3		—			—			—

Balance, June 30, 2013	$	—		$	11		$	11
Actual return on plan assets:
Relating to assets still held at end of period		—			2			2
Relating to assets sold during the period		—			—			—
Purchases, sales, settlements and issuances		—			(1	)		(1	)
Transfers in and out of Level 3		—			—			—

Balance, June 30, 2014	$	—		$	12		$	12

The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company’s practice is to conduct a periodic strategic review of its asset allocation. The Company’s current broad strategic targets are to have a pension asset portfolio comprised of 31% equity securities, 53% fixed income securities and 16% in cash and other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash to provide for expected benefits to be paid in the short term. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally.

The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:


	Pension benefits
	As of June 30,
	2014			2013
Asset Category:
Equity securities		30	%		37	%
Debt securities		52	%		39	%
Cash and other		18	%		24	%

Total		100	%		100	%

Required pension plan contributions for the next fiscal year are expected to be approximately $10 million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.