UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|
x |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2014 |
or
|
¨ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to |
Commission file number 001-32352
TWENTY-FIRST CENTURY FOX, INC.
(Exact Name of Registrant as Specified in its Charter)
|
Delaware |
|
26-0075658 |
|
(State or Other Jurisdiction |
|
(I.R.S. Employer |
|
1211 Avenue of the Americas, New York, New York |
|
10036 |
|
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code (212) 852-7000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
x |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 31, 2014, 1,357,602,096 shares of Class A Common Stock, par value $0.01 per share, and 798,520,953 shares of Class B Common Stock, par value $0.01 per share, were outstanding.
TWENTY-FIRST CENTURY FOX, INC.
FORM 10-Q
TABLE OF CONTENTS
|
|
Page |
||
|
Part I. Financial Information |
|
||
|
Item 1. |
|
Financial Statements |
|
|
|
|
3 |
|
|
|
|
4 |
|
|
|
|
Consolidated Balance Sheets as of September 30, 2014 (unaudited) and June 30, 2014 (audited) |
5 |
|
|
|
6 |
|
|
|
|
7 |
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
|
Item 3. |
|
44 |
|
|
Item 4. |
|
46 |
|
|
Part II. Other Information |
|
||
|
Item 1. |
|
47 |
|
|
Item 1A. |
|
48 |
|
|
Item 2. |
|
55 |
|
|
Item 3. |
|
55 |
|
|
Item 4. |
|
55 |
|
|
Item 5. |
|
55 |
|
|
Item 6. |
|
56 |
|
|
57 |
|||
2
TWENTY-FIRST CENTURY FOX, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
|
For the three months ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
Revenues |
$ |
7,887 |
|
|
$ |
7,061 |
|
|
Operating expenses |
|
(5,052 |
) |
|
|
(4,447 |
) |
|
Selling, general and administrative |
|
(1,079 |
) |
|
|
(1,018 |
) |
|
Depreciation and amortization |
|
(276 |
) |
|
|
(313 |
) |
|
Equity earnings of affiliates |
|
379 |
|
|
|
92 |
|
|
Interest expense, net |
|
(305 |
) |
|
|
(272 |
) |
|
Interest income |
|
14 |
|
|
|
8 |
|
|
Other, net |
|
35 |
|
|
|
(35 |
) |
|
Income from continuing operations before income tax expense |
|
1,603 |
|
|
|
1,076 |
|
|
Income tax expense |
|
(503 |
) |
|
|
(300 |
) |
|
Income from continuing operations |
|
1,100 |
|
|
|
776 |
|
|
(Loss) income from discontinued operations, net of tax |
|
(7 |
) |
|
|
487 |
|
|
Net income |
|
1,093 |
|
|
|
1,263 |
|
|
Less: Net income attributable to noncontrolling interests |
|
(56 |
) |
|
|
(8 |
) |
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders |
$ |
1,037 |
|
|
$ |
1,255 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders - basic and diluted |
$ |
1,044 |
|
|
$ |
768 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
Basic |
|
2,191 |
|
|
|
2,306 |
|
|
Diluted |
|
2,195 |
|
|
|
2,309 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted |
$ |
0.48 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted |
$ |
0.47 |
|
|
$ |
0.54 |
|
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
3
TWENTY-FIRST CENTURY FOX, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
|
|
For the three months ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
Net income |
$ |
1,093 |
|
|
$ |
1,263 |
|
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
(900 |
) |
|
|
390 |
|
|
Unrealized holding losses on securities |
|
(10 |
) |
|
|
(12 |
) |
|
Benefit plan adjustments |
|
6 |
|
|
|
6 |
|
|
Other comprehensive (loss) income, net of tax |
|
(904 |
) |
|
|
384 |
|
|
Comprehensive income |
|
189 |
|
|
|
1,647 |
|
|
Less: Net income attributable to noncontrolling interests(a) |
|
(56 |
) |
|
|
(8 |
) |
|
Less: Other comprehensive loss (income) attributable to noncontrolling interests |
|
182 |
|
|
|
(93 |
) |
|
Comprehensive income attributable to Twenty-First Century Fox, Inc. stockholders |
$ |
315 |
|
|
$ |
1,546 |
|
|
(a) |
Net income attributable to noncontrolling interests includes $24 million and $23 million for the three months ended September 30, 2014 and 2013, respectively, relating to redeemable noncontrolling interests. |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
4
TWENTY-FIRST CENTURY FOX, INC.
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(unaudited) |
|
|
(audited) |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
4,656 |
|
|
$ |
5,415 |
|
|
Receivables, net |
|
6,350 |
|
|
|
6,468 |
|
|
Inventories, net |
|
3,385 |
|
|
|
3,092 |
|
|
Other |
|
559 |
|
|
|
401 |
|
|
Total current assets |
|
14,950 |
|
|
|
15,376 |
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
Receivables |
|
483 |
|
|
|
454 |
|
|
Investments |
|
3,734 |
|
|
|
2,859 |
|
|
Inventories, net |
|
6,748 |
|
|
|
6,442 |
|
|
Property, plant and equipment, net |
|
2,794 |
|
|
|
2,931 |
|
|
Intangible assets, net |
|
7,831 |
|
|
|
8,072 |
|
|
Goodwill |
|
17,609 |
|
|
|
18,052 |
|
|
Other non-current assets |
|
562 |
|
|
|
607 |
|
|
Total assets |
$ |
54,711 |
|
|
$ |
54,793 |
|
|
Liabilities and Equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Borrowings |
$ |
814 |
|
|
$ |
799 |
|
|
Accounts payable, accrued expenses and other current liabilities |
|
4,383 |
|
|
|
4,183 |
|
|
Participations, residuals and royalties payable |
|
1,674 |
|
|
|
1,546 |
|
|
Program rights payable |
|
1,615 |
|
|
|
1,638 |
|
|
Deferred revenue |
|
672 |
|
|
|
690 |
|
|
Total current liabilities |
|
9,158 |
|
|
|
8,856 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Borrowings |
|
19,395 |
|
|
|
18,259 |
|
|
Other liabilities |
|
3,516 |
|
|
|
3,507 |
|
|
Deferred income taxes |
|
2,562 |
|
|
|
2,729 |
|
|
Redeemable noncontrolling interests |
|
540 |
|
|
|
541 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Class A common stock(a) |
|
14 |
|
|
|
14 |
|
|
Class B common stock(b) |
|
8 |
|
|
|
8 |
|
|
Additional paid-in capital |
|
14,868 |
|
|
|
15,041 |
|
|
Retained earnings |
|
2,131 |
|
|
|
2,389 |
|
|
Accumulated other comprehensive loss |
|
(756 |
) |
|
|
(34 |
) |
|
Total Twenty-First Century Fox, Inc. stockholders' equity |
|
16,265 |
|
|
|
17,418 |
|
|
Noncontrolling interests |
|
3,275 |
|
|
|
3,483 |
|
|
Total equity |
|
19,540 |
|
|
|
20,901 |
|
|
Total liabilities and equity |
$ |
54,711 |
|
|
$ |
54,793 |
|
|
(a) |
Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,375,359,332 shares and 1,408,305,942 shares issued and outstanding, net of 123,687,371 treasury shares at par, at September 30, 2014 and June 30, 2014, respectively. |
|
(b) |
Class B common stock, $0.01 par value per share, 3,000,000,000 shares authorized, 798,520,953 shares issued and outstanding, net of 356,993,807 treasury shares at par, at September 30, 2014 and June 30, 2014. |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
5
TWENTY-FIRST CENTURY FOX, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
|
|
For the three months ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
$ |
1,093 |
|
|
$ |
1,263 |
|
|
Less: (Loss) income from discontinued operations, net of tax |
|
(7 |
) |
|
|
487 |
|
|
Income from continuing operations |
|
1,100 |
|
|
|
776 |
|
|
Adjustments to reconcile income from continuing operations to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Amortization of cable distribution investments |
|
23 |
|
|
|
22 |
|
|
Equity-based compensation |
|
53 |
|
|
|
37 |
|
|
Depreciation and amortization |
|
276 |
|
|
|
313 |
|
|
Equity earnings of affiliates |
|
(379 |
) |
|
|
(92 |
) |
|
Cash distributions received from affiliates |
|
3 |
|
|
|
13 |
|
|
Other, net |
|
(35 |
) |
|
|
35 |
|
|
Deferred income taxes |
|
91 |
|
|
|
(83 |
) |
|
Change in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Receivables and other assets |
|
26 |
|
|
|
(150 |
) |
|
Inventories net of program rights payable |
|
(590 |
) |
|
|
(718 |
) |
|
Accounts payable and other liabilities |
|
(111 |
) |
|
|
192 |
|
|
Net cash provided by operating activities from continuing operations |
|
457 |
|
|
|
345 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
(127 |
) |
|
|
(171 |
) |
|
Acquisitions, net of cash acquired |
|
- |
|
|
|
(7 |
) |
|
Investments in equity affiliates |
|
(950 |
) |
|
|
(137 |
) |
|
Other investments |
|
(13 |
) |
|
|
(14 |
) |
|
Proceeds from dispositions |
|
69 |
|
|
|
3 |
|
|
Net cash used in investing activities from continuing operations |
|
(1,021 |
) |
|
|
(326 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
Borrowings |
|
1,289 |
|
|
|
987 |
|
|
Repayment of borrowings |
|
(114 |
) |
|
|
- |
|
|
Issuance of shares |
|
48 |
|
|
|
66 |
|
|
Repurchase of shares |
|
(1,273 |
) |
|
|
(913 |
) |
|
Dividends paid |
|
(82 |
) |
|
|
(58 |
) |
|
Purchase of subsidiary shares from noncontrolling interests |
|
- |
|
|
|
(75 |
) |
|
Distribution to News Corporation |
|
- |
|
|
|
(10 |
) |
|
Net cash used in financing activities from continuing operations |
|
(132 |
) |
|
|
(3 |
) |
|
Net decrease in cash and cash equivalents from discontinued operations |
|
(17 |
) |
|
|
(29 |
) |
|
Net decrease in cash and cash equivalents |
|
(713 |
) |
|
|
(13 |
) |
|
Cash and cash equivalents, beginning of year |
|
5,415 |
|
|
|
6,659 |
|
|
Exchange movement on cash balances |
|
(46 |
) |
|
|
35 |
|
|
Cash and cash equivalents, end of period |
$ |
4,656 |
|
|
$ |
6,681 |
|
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
6
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Twenty-First Century Fox, Inc. and its subsidiaries (together, “Twenty-First Century Fox” or the “Company”) is a Delaware corporation. Twenty-First Century Fox is a diversified global media and entertainment company, which manages and reports its businesses in five segments: Cable Network Programming, Television, Filmed Entertainment, Direct Broadcast Satellite Television (“DBS”) and Other, Corporate and Eliminations.
The accompanying Unaudited Consolidated Financial Statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these Unaudited Consolidated Financial Statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015.
These interim Unaudited Consolidated Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014 as filed with the Securities and Exchange Commission (“SEC”) on August 14, 2014 (the “2014 Form 10-K”).
The Unaudited Consolidated Financial Statements include the accounts of Twenty-First Century Fox. All significant intercompany accounts and transactions have been eliminated in consolidation, including the intercompany portion of transactions with equity method investees. Investments in and advances to equity or joint ventures in which the Company has significant influence, but less than a controlling voting interest, are accounted for using the equity method. Investments in which the Company has no significant influence are designated as available-for-sale investments if readily determinable market values are available. If an investment’s fair value is not readily determinable, the Company accounts for its investment at cost.
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates.
Certain fiscal 2014 amounts have been reclassified to conform to the fiscal 2015 presentation. Unless indicated otherwise, the information in the notes to the Unaudited Consolidated Financial Statements relate to the Company’s continuing operations.
Recently Adopted and Recently Issued Accounting Guidance
Adopted
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”, (“ASU 2013-05”). The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets or a business within a foreign entity. ASU 2013-05 is effective for the Company for interim reporting periods beginning July 1, 2014. The Company’s adoption of ASU 2013-05 did not have a material effect on the Company’s consolidated financial statements.
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
The Company’s acquisitions support the Company’s strategic priority of increasing its brand presence and reach in key domestic and international markets, acquiring greater control of investments that complement its portfolio of businesses, creating new pay-TV sports franchises and leveraging its sports broadcasting rights.
Fiscal 2015
Acquisitions
San Francisco-Bay Area Television Stations
In October 2014, the Company acquired two San Francisco-Bay area television stations, KTVU-TV FOX 2 and KICU-TV 36, from Cox Media Group in exchange for the Company’s FOX Broadcasting Company (“FOX”) affiliated stations WHBQ-TV FOX 13 and WFXT-TV FOX 25, located in the Memphis and Boston markets, respectively.
7
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dispositions
Sky Italia and Sky Deutschland
In July 2014, the Company entered into agreements with British Sky Broadcasting Group plc (“BSkyB”) to sell its 100% and 57% (on a fully diluted basis) ownership stakes in Sky Italia and Sky Deutschland AG (“Sky Deutschland”), respectively, for approximately $8.7 billion (based on foreign currency exchange rates as of September 30, 2014) comprised of approximately $8.1 billion in cash and the transfer to the Company of BSkyB’s 21% interest in NGC Network International LLC and NGC Network Latin America LLC (collectively “NGC International”), increasing the Company’s ownership stake to 73% in NGC International. The carrying value of the Company’s investment in Sky Italia and Sky Deutschland was approximately $4.2 billion as of September 30, 2014 which excludes noncontrolling interests of approximately $2.1 billion. In connection with this transaction, the Company participated in BSkyB’s equity offering in July 2014 by purchasing additional shares in BSkyB for approximately $900 million and maintained the Company’s 39% ownership interest. On October 6, 2014, BSkyB shareholders approved the agreements; however the agreements are subject to customary closing conditions. The sale is expected to be completed in the second quarter of fiscal 2015, and upon completion, Sky Italia and Sky Deutschland will thereafter cease to be consolidated subsidiaries of the Company. The Company expects to record a gain on this transaction and anticipates it will use most of its U.S. capital loss carryforwards and foreign tax credit carryforwards to offset a substantial amount of the taxable gain which is likely to be recognized.
In January 2011, the Company purchased a convertible bond from Sky Deutschland for approximately $225 million. In October 2014, the Company exercised its right to convert the bonds into 53.9 million Sky Deutschland shares increasing the Company’s ownership interest to 57%.
Shine Group
In October 2014, the Company and funds managed by Apollo Global Management, LLC (“Apollo”) agreed to form a joint venture to which the Company will contribute its interests in the Shine Group and cash, comprising an aggregate carrying value of approximately $800 million. The joint venture will be comprised of the Shine Group, Endemol, and the CORE Media Group and will be jointly managed by the Company and Apollo, with each owning 50%. The agreements are subject to regulatory approvals and customary closing conditions. The transaction is expected to be completed by the end of the second quarter of fiscal 2015, and upon completion, the Shine Group will thereafter cease to be a consolidated subsidiary of the Company.
Fiscal 2014
Acquisitions
Yankees Entertainment and Sports Network
On February 28, 2014, the Company acquired an additional 31% interest in the Yankees Entertainment and Sports Network (“YES Network”), increasing the Company’s ownership interest to 80%, for approximately $680 million, net of cash acquired. The aggregate excess purchase price has been preliminarily allocated, based on a provisional valuation of 100% of the YES Network, as follows: approximately $1.7 billion to intangible assets consisting of multi-channel video programming distributor (“MVPD”) affiliate agreements and relationships with useful lives of 20 years and advertiser relationships with useful lives of 6 years, and the indefinite-lived YES Network trade name; approximately $1.7 billion to debt; approximately $1.6 billion representing the goodwill on the transaction; and other net assets.
As the accounting for the business combination is based on provisional amounts and the allocation of the excess purchase price is not final, the amounts allocated to intangibles and goodwill, the estimates of useful lives and the related amortization expense are subject to changes pending the completion of the final valuation of certain assets and liabilities. A change in the purchase price allocation and any estimates of useful lives could result in a change in the value allocated to the intangible assets that could impact future amortization expense.
NOTE 3. DISCONTINUED OPERATIONS
Separation of News Corp
On June 28, 2013, the Company completed the separation of its business into two independent publicly traded companies (the “Separation”) by distributing to its stockholders all of the outstanding shares of the new News Corporation (“News Corp”). The Company retained its interests in a global portfolio of media and entertainment assets spanning six continents. News Corp holds the Company’s former businesses including newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia. The Company completed the Separation by distributing to its stockholders one share of News Corp Class A common stock for every four shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”) held on June 21, 2013, and one share of
8
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
News Corp Class B common stock for every four shares of the Company’s Class B common stock, par value $0.01 per share (“Class B Common Stock”) held on June 21, 2013. The Company’s stockholders received cash in lieu of fractional shares. Following the Separation, the Company does not beneficially own any shares of News Corp Class A common stock or News Corp Class B common stock.
Effective June 28, 2013, the Separation qualified for discontinued operations treatment in accordance with Accounting Standards Codification (“ASC”) 205-20, “Discontinued Operations”, and accordingly the Company deconsolidated News Corp’s balance sheet as of June 30, 2013, and presented its results for the three months ended September 30, 2014 and 2013 as discontinued operations on the Unaudited Consolidated Statements of Operations and the Unaudited Consolidated Statements of Cash Flows.
Summarized Financial Information
(Loss) income from discontinued operations related to News Corp were as follows:
|
|
For the three months ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in millions, except per share data) |
|
|||||
|
(Loss) income before income tax (expense) benefit(a) |
$ |
(7 |
) |
|
$ |
487 |
|
|
(Loss) income from discontinued operations, net of tax |
$ |
(7 |
) |
|
$ |
487 |
|
|
Income from discontinued operations, net of tax attributable to Twenty-First Century Fox stockholders per share - basic and diluted |
$ |
- |
|
|
$ |
0.21 |
|
|
(a) |
Includes the net tax refund recognized, pursuant to the tax sharing and indemnification agreement with News Corp, of approximately $500 million during the three months ended September 30, 2013. |
Net cash used in operating activities from discontinued operations of News Corp for the three months ended September 30, 2014 and 2013 were $17 million and $29 million, respectively.
NOTE 4. RECEIVABLES, NET
Receivables, net are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible.
Receivables, net consist of:
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(in millions) |
|
|||||
|
Total receivables |
$ |
7,596 |
|
|
$ |
7,737 |
|
|
Allowances for returns and doubtful accounts |
|
(763 |
) |
|
|
(815 |
) |
|
Total receivables, net |
|
6,833 |
|
|
|
6,922 |
|
|
Less: current receivables, net |
|
(6,350 |
) |
|
|
(6,468 |
) |
|
Non-current receivables, net |
$ |
483 |
|
|
$ |
454 |
|
9
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVENTORIES
The Company’s inventories were comprised of the following:
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(in millions) |
|
|||||
|
Programming rights |
$ |
6,344 |
|
|
$ |
5,812 |
|
|
DVDs, Blu-rays and other merchandise |
|
89 |
|
|
|
81 |
|
|
Filmed entertainment costs: |
|
|
|
|
|
|
|
|
Films: |
|
|
|
|
|
|
|
|
Released |
|
1,124 |
|
|
|
1,025 |
|
|
Completed, not released |
|
93 |
|
|
|
317 |
|
|
In production |
|
930 |
|
|
|
819 |
|
|
In development or preproduction |
|
185 |
|
|
|
151 |
|
|
|
|
2,332 |
|
|
|
2,312 |
|
|
Television productions: |
|
|
|
|
|
|
|
|
Released |
|
811 |
|
|
|
862 |
|
|
In production |
|
556 |
|
|
|
463 |
|
|
In development or preproduction |
|
1 |
|
|
|
4 |
|
|
|
|
1,368 |
|
|
|
1,329 |
|
|
Total filmed entertainment costs, less accumulated amortization(a) |
|
3,700 |
|
|
|
3,641 |
|
|
Total inventories, net |
|
10,133 |
|
|
|
9,534 |
|
|
Less: current portion of inventories, net(b) |
|
(3,385 |
) |
|
|
(3,092 |
) |
|
Total non-current inventories, net |
$ |
6,748 |
|
|
$ |
6,442 |
|
|
(a) |
Does not include $327 million and $335 million of net intangible film library costs as of September 30, 2014 and June 30, 2014, respectively, which were included in intangible assets subject to amortization in the Consolidated Balance Sheets. |
|
(b) |
Current portion of inventories as of September 30, 2014 and June 30, 2014 was comprised of programming rights ($3,296 million and $3,011 million, respectively), DVDs, Blu-rays and other merchandise. |
NOTE 6. INVESTMENTS
The Company’s investments were comprised of the following:
|
|
|
|
Ownership percentage as of September 30, 2014 |
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
|||
|
|
|
|
|
|
|
|
(in millions) |
|
|||||
|
Equity method investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Sky Broadcasting Group plc(a) |
|
U.K. DBS operator |
|
39% |
|
|
$ |
3,253 |
|
|
$ |
2,359 |
|
|
Other equity method investments |
|
|
various |
|
|
|
226 |
|
|
|
197 |
|
|
|
Fair value of available-for-sale investments(b) |
|
|
various |
|
|
|
74 |
|
|
|
124 |
|
|
|
Other investments |
|
|
various |
|
|
|
181 |
|
|
|
179 |
|
|
|
Total investments |
|
|
|
|
|
|
$ |
3,734 |
|
|
$ |
2,859 |
|
|
(a) |
The Company’s investment in BSkyB had a market value of $9.6 billion at September 30, 2014 and was valued using the quoted market price on the London Stock Exchange. (a Level 1 measurement as defined in Note 7 – Fair Value) |
|
(b) |
The balance as of June 30, 2014 includes the carrying value of the Company’s investment in Bona Film Group (“Bona”), a film distributor in China. In July 2014, the Company sold its entire interest in Bona for approximately $70 million in cash. |
BSkyB
BSkyB’s shareholders and board of directors have authorized a share repurchase program. Since BSkyB’s market purchases of shares is subject to shareholder authorization, favorable market conditions and availability in the market, the number of shares
10
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
repurchased may vary from period to period. The current authorization is effective until the 2014 annual general meeting of BSkyB shareholders. However, BSkyB’s share repurchase program was suspended in July 2014.
In July 2014, the Company participated in BSkyB’s equity offering by purchasing approximately $900 million of additional shares in BSkyB and maintained the Company’s 39% ownership interest. (See Note 2 – Acquisitions, Disposals and Other Transactions)
In July 2014, BSkyB sold a portion of its investment in ITV plc, and as a result, the Company’s pro rata portion of the gain on this transaction, of approximately $280 million, is included in Equity earnings of affiliates in the Unaudited Consolidated Financial Statements of Operations for the three months ended September 30, 2014.
NOTE 7. FAIR VALUE
In accordance with ASC 820, “Fair Value Measurement”, fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”).
The tables below present information about financial assets and liabilities carried at fair value on a recurring basis:
|
|
|
Fair value measurements |
|
|||||||||||||
|
|
|
As of September 30, 2014 |
|
|||||||||||||
|
Description |
|
Total |
|
|
Quoted prices in active markets for identical instruments (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
||||
|
|
|
(in millions) |
|
|||||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities(a) |
|
$ |
74 |
|
|
$ |
74 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Derivatives(b) |
|
|
116 |
|
|
|
- |
|
|
|
116 |
|
|
|
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration(c) |
|
|
(135 |
) |
|
|
- |
|
|
|
- |
|
|
|
(135 |
) |
|
Redeemable noncontrolling interests(d) |
|
|
(540 |
) |
|
|
- |
|
|
|
- |
|
|
|
(540 |
) |
|
Total |
|
$ |
(485 |
) |
|
$ |
74 |
|
|
$ |
116 |
|
|
$ |
(675 |
) |
|
|
|
As of June 30, 2014 |
|
|||||||||||||
|
Description |
|
Total |
|
|
Quoted prices in active markets for identical instruments (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
||||
|
|
|
(in millions) |
|
|||||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities(a) |
|
$ |
124 |
|
|
$ |
124 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(b) |
|
|
(10 |
) |
|
|
- |
|
|
|
(10 |
) |
|
|
- |
|
|
Contingent consideration(c) |
|
|
(134 |
) |
|
|
- |
|
|
|
- |
|
|
|
(134 |
) |
|
Redeemable noncontrolling interests(d) |
|
|
(541 |
) |
|
|
- |
|
|
|
- |
|
|
|
(541 |
) |
|
Total |
|
$ |
(561 |
) |
|
$ |
124 |
|
|
$ |
(10 |
) |
|
$ |
(675 |
) |
|
(a) |
See Note 6 – Investments. |
|
(b) |
Primarily represents derivatives associated with the Company’s foreign currency forward contracts and interest rate swap contracts which are valued using an income approach. |
|
(c) |
Represents contingent consideration related to the acquisitions of Eredivisie Media & Marketing and SportsTime Ohio in fiscal 2013. |
11
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
(d) |
The Company accounts for redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity”, because their exercise is outside the control of the Company. The redeemable noncontrolling interests recorded at fair value are put arrangements held by the noncontrolling interests in certain of the Company’s majority-owned sports networks. The Company utilizes the market, income or cost approaches or a combination of these valuation techniques for its Level 3 fair value measures, using observable inputs such as market data obtained from independent sources. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the asset (liability). As of September 30, 2014, one minority shareholder’s put right is currently exercisable and another minority shareholder’s put right will become exercisable in March 2015. The remaining redeemable noncontrolling interest is currently not exercisable and is not material. |
Financial Instruments
The carrying value of the Company’s cash and cash equivalents, receivables, payables and cost method investments, approximates fair value.
Borrowings
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(in millions) |
|
|||||
|
Fair value of borrowings |
$ |
23,716 |
|
|
$ |
22,692 |
|
|
Carrying value of borrowings |
$ |
20,209 |
|
|
$ |
19,058 |
|
Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (a Level 1 measurement).
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts primarily to hedge certain exposures to foreign currency exchange risks associated with the cost of producing or acquiring films and television programming as well as its investment in certain foreign operations.
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(in millions) |
|
|||||
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of cash flow hedges |
$ |
516 |
|
|
$ |
393 |
|
|
Fair value of cash flow hedges |
$ |
3 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
Net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of net investment hedges |
$ |
4,156 |
|
|
$ |
- |
|
|
Fair value of net investment hedges |
$ |
69 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
Economic hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of economic hedges |
$ |
4,899 |
|
|
$ |
305 |
|
|
Fair value of economic hedges |
$ |
50 |
|
|
$ |
(1 |
) |
The increase in balances as of September 30, 2014 is primarily due to the Company’s use of foreign currency forward contracts as economic hedges (not designated and qualifying as hedging instruments under ASC 815, “Derivatives and Hedging”) in connection with upcoming transactions.
12
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swap Contracts
The Company uses interest rate swap contracts to hedge certain exposures to interest rate risks associated with certain borrowings.
|
|
As of September 30, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
(in millions) |
|
|||||
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of interest rate swap contracts |
$ |
284 |
|
|
$ |
308 |
|
|
Fair value of interest rate swap contracts |
$ |
(6 |
) |
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Economic hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of interest rate swap contracts |
$ |
268 |
|
|
$ |
270 |
|
|
Fair value of interest rate swap contracts |
$ |
- |
|
|
$ |
- |
|
The following table shows the changes in fair value of derivatives designated as cash flow hedges and other derivatives:
|
|
For the three months ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in millions) |
|
|||||
|
Beginning of period |
$ |
(10 |
) |
|
$ |
3 |
|
|
Changes in fair value recorded in accumulated other comprehensive income (loss), net of settlements |
|
75 |
|
|
|
(9 |
) |
|
Reclassified losses (gains) from accumulated other comprehensive loss to net income |
|
1 |
|
|
|
(2 |
) |
|
Other |
|
50 |
|
|
|
(3 |
) |
|
End of period |
$ |
116 |
|
|
$ |
(11 |
) |
The effective changes in the fair values of derivative contracts designated as cash flow hedges are reclassified from accumulated other comprehensive loss to net income when the underlying hedged item is recognized in earnings. For foreign currency forward contracts designated as cash flow hedges, the Company expects to reclassify the cumulative changes in fair values, included in accumulated other comprehensive loss, within the next 12 months. For interest rate swaps designated as cash flow hedges, the Company expects to reclassify changes in fair values included in accumulated other comprehensive loss to earnings during the relevant period as interest payments are made. Cash flows from the settlement of derivative contracts designated as cash flow hedges offset cash flows from the underlying hedged items and are included in operating activities in the Unaudited Consolidated Statements of Cash Flows. For net investment hedges, the Company expects to reclassify changes in fair values included in accumulated other comprehensive loss to earnings on disposal of the foreign operation.
Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.
The Company’s receivables did not represent significant concentrations of credit risk as of September 30, 2014 or June 30, 2014 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.
The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. At September 30, 2014, the Company did not anticipate nonperformance by any of the counterparties.
13
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. BORROWINGS
Borrowings include bank loans, public debt and other borrowings.
Senior Notes Issued
In September 2014, 21st Century Fox America, Inc. (“21CFA”), a wholly-owned subsidiary of the Company, issued $600 million of 3.70% Senior Notes due 2024 and $600 million of 4.75% Senior Notes due 2044. The net proceeds of approximately $1.19 billion will be used for general corporate purposes.
Bank loans
In fiscal 2014, Sky Deutschland amended its credit agreement to increase the size of its revolving credit facility by €78.5 million. Sky Deutschland intends to draw and utilize funds from the enhanced facility for the development of production capabilities. If Sky Deutschland does not draw and utilize the funds by December 31, 2014, this amendment to the credit agreement will be rescinded. The amendment did not materially change the terms of the original credit facility.
NOTE 9. STOCKHOLDERS’ EQUITY
The following table summarizes changes in equity:
|
|
For the three months ended September 30, |
|
|||||||||||||||||||||
|
|
2014 |
|
|
2013 |
|
||||||||||||||||||
|
|
Twenty-First |
|
|
|
|
|
|
|
|
|
|
Twenty-First |
|
|
|
|
|
|
|
|
|
||
|
|
Century Fox |
|
|
Noncontrolling |
|
|
Total |
|
|
Century Fox |
|
|
Noncontrolling |
|
|
Total |
|
||||||
|
|
stockholders |
|
|
interests |
|
|
equity |
|
|
stockholders |
|
|
interests |
|
|
equity |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
|
Balance, beginning of period |
$ |
17,418 |
|
|
$ |
3,483 |
|
|
$ |
20,901 |
|
|
$ |
16,998 |
|
|
$ |
3,127 |
|
|
$ |
20,125 |
|
|
Net income |
|
1,037 |
|
|
|
32 |
|
(a) |
|
1,069 |
|
|
|
1,255 |
|
|
|
(15 |
) |
(a) |
|
1,240 |
|
|
Other comprehensive (loss) income |
|
(722 |
) |
|
|
(182 |
) |
|
|
(904 |
) |
|
|
291 |
|
|
|
93 |
|
|
|
384 |
|
|
Cancellation of shares, net |
|
(1,089 |
) |
|
|
- |
|
|
|
(1,089 |
) |
|
|
(742 |
) |
|
|
- |
|
|
|
(742 |
) |
|
Dividends declared |
|
(273 |
) |
|
|
- |
|
|
|
(273 |
) |
|
|
(287 |
) |
|
|
- |
|
|
|
(287 |
) |
|
Other |
|
(106 |
) |
|
|
(58 |
) |
(b) |
|
(164 |
) |
|
|
(291 |
) |
|
|
(52 |
) |
(b) |
|
(343 |
) |
|
Balance, end of period |
$ |
16,265 |
|
|
$ |
3,275 |
|
|
$ |
19,540 |
|
|
$ |
17,224 |
|
|
$ |
3,153 |
|
|
$ |
20,377 |
|
|
(a) |
Net income attributable to noncontrolling interests excludes $24 million and $23 million for the three months ended September 30, 2014 and 2013, respectively, relating to redeemable noncontrolling interests which are reflected in temporary equity. |
|
(b) |
Other activity attributable to noncontrolling interests excludes $(25) million and $(24) million for the three months ended September 30, 2014 and 2013, respectively, relating to redeemable noncontrolling interests. |
Other Comprehensive Income
Comprehensive income is reported in the Unaudited Consolidated Statements of Comprehensive Income and consists of Net income and other gains and losses, including foreign currency translation adjustments, unrealized holding gains and losses on securities, and benefit plan adjustments, which affect stockholders’ equity, and under GAAP, are excluded from Net income.
14
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity within Other comprehensive (loss) income:
|
|
For the three months ended September 30, 2014 |
|
|||||||||
|
|
Before tax |
|
|
Tax (provision) benefit |
|
|
Net of tax |
|
|||
|
|
(in millions) |
|
|||||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses |
$ |
(1,031 |
) |
|
$ |
131 |
|
|
$ |
(900 |
) |
|
Amount reclassified on hedging activity(a) |
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
|
Other comprehensive loss |
$ |
(1,030 |
) |
|
$ |
130 |
|
|
$ |
(900 |
) |
|
Gains and losses on securities |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains |
$ |
262 |
|
|
$ |
(92 |
) |
|
$ |
170 |
|
|
Amount reclassified on sale of securities(b) |
|
(277 |
) |
|
|
97 |
|
|
|
(180 |
) |
|
Other comprehensive loss |
$ |
(15 |
) |
|
$ |
5 |
|
|
$ |
(10 |
) |
|
Benefit plan adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments realized in net income(c) |
$ |
10 |
|
|
$ |
(4 |
) |
|
$ |
6 |
|
|
Other comprehensive income |
$ |
10 |
|
|
$ |
(4 |
) |
|
$ |
6 |
|
|
|
For the three months ended September 30, 2013 |
|
|||||||||
|
|
Before tax |
|
|
Tax (provision) benefit |
|
|
Net of tax |
|
|||
|
|
(in millions) |
|
|||||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains |
$ |
448 |
|
|
$ |
(57 |
) |
|
$ |
391 |
|
|
Amount reclassified on hedging activity(a) |
|
(2 |
) |
|
|
1 |
|
|
|
(1 |
) |
|
Other comprehensive income |
$ |
446 |
|
|
$ |
(56 |
) |
|
$ |
390 |
|
|
Gains and losses on securities |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses |
$ |
(18 |
) |
|
$ |
6 |
|
|
$ |
(12 |
) |
|
Other comprehensive loss |
$ |
(18 |
) |
|
$ |
6 |
|
|
$ |
(12 |
) |
|
Benefit plan adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments realized in net income(c) |
$ |
10 |
|
|
$ |
(4 |
) |
|
$ |
6 |
|
|
Other comprehensive income |
$ |
10 |
|
|
$ |
(4 |
) |
|
$ |
6 |
|