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 December 31, 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 January 30, 2015, 1,327,614,556 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
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Page |
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Part I. Financial Information |
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Item 1. |
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Financial Statements |
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3 |
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4 |
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Consolidated Balance Sheets as of December 31, 2014 (unaudited) and June 30, 2014 (audited) |
5 |
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Unaudited Consolidated Statements of Cash Flows for the six months ended December 31, 2014 and 2013 |
6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
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Item 3. |
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50 |
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Item 4. |
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52 |
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Part II. Other Information |
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Item 1. |
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53 |
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Item 1A. |
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54 |
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Item 2. |
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60 |
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Item 3. |
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60 |
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Item 4. |
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60 |
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Item 5. |
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60 |
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Item 6. |
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61 |
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62 |
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2
TWENTY-FIRST CENTURY FOX, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
|
|
For the three months ended December 31, |
|
|
For the six months ended December 31, |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Revenues |
|
$ |
8,055 |
|
|
$ |
8,163 |
|
|
$ |
15,942 |
|
|
$ |
15,224 |
|
|
Operating expenses |
|
|
(5,366 |
) |
|
|
(5,551 |
) |
|
|
(10,418 |
) |
|
|
(9,998 |
) |
|
Selling, general and administrative |
|
|
(988 |
) |
|
|
(1,086 |
) |
|
|
(2,067 |
) |
|
|
(2,104 |
) |
|
Depreciation and amortization |
|
|
(201 |
) |
|
|
(260 |
) |
|
|
(477 |
) |
|
|
(573 |
) |
|
Equity earnings of affiliates |
|
|
250 |
|
|
|
168 |
|
|
|
629 |
|
|
|
260 |
|
|
Interest expense, net |
|
|
(310 |
) |
|
|
(274 |
) |
|
|
(615 |
) |
|
|
(546 |
) |
|
Interest income |
|
|
9 |
|
|
|
7 |
|
|
|
23 |
|
|
|
15 |
|
|
Other, net |
|
|
5,040 |
|
|
|
191 |
|
|
|
5,075 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense |
|
|
6,489 |
|
|
|
1,358 |
|
|
|
8,092 |
|
|
|
2,434 |
|
|
Income tax expense |
|
|
(189 |
) |
|
|
(360 |
) |
|
|
(692 |
) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6,300 |
|
|
|
998 |
|
|
|
7,400 |
|
|
|
1,774 |
|
|
(Loss) income from discontinued operations, net of tax |
|
|
(16 |
) |
|
|
225 |
|
|
|
(23 |
) |
|
|
712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6,284 |
|
|
|
1,223 |
|
|
|
7,377 |
|
|
|
2,486 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
(77 |
) |
|
|
(16 |
) |
|
|
(133 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders |
|
$ |
6,207 |
|
|
$ |
1,207 |
|
|
$ |
7,244 |
|
|
$ |
2,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders - basic and diluted |
|
$ |
6,223 |
|
|
$ |
982 |
|
|
$ |
7,267 |
|
|
$ |
1,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2,150 |
|
|
|
2,279 |
|
|
|
2,170 |
|
|
|
2,293 |
|
|
Diluted |
|
|
2,152 |
|
|
|
2,283 |
|
|
|
2,173 |
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.89 |
|
|
$ |
0.43 |
|
|
$ |
3.35 |
|
|
$ |
0.76 |
|
|
Diluted |
|
$ |
2.89 |
|
|
$ |
0.43 |
|
|
$ |
3.34 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.89 |
|
|
$ |
0.53 |
|
|
$ |
3.34 |
|
|
$ |
1.07 |
|
|
Diluted |
|
$ |
2.88 |
|
|
$ |
0.53 |
|
|
$ |
3.33 |
|
|
$ |
1.07 |
|
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 December 31, |
|
|
For the six months ended December 31, |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Net income |
|
$ |
6,284 |
|
|
$ |
1,223 |
|
|
$ |
7,377 |
|
|
$ |
2,486 |
|
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(712 |
) |
|
|
177 |
|
|
|
(1,612 |
) |
|
|
567 |
|
|
Unrealized holding losses on securities |
|
|
(47 |
) |
|
|
(127 |
) |
|
|
(57 |
) |
|
|
(139 |
) |
|
Benefit plan adjustments |
|
|
8 |
|
|
|
7 |
|
|
|
14 |
|
|
|
13 |
|
|
Other comprehensive (loss) income, net of tax |
|
|
(751 |
) |
|
|
57 |
|
|
|
(1,655 |
) |
|
|
441 |
|
|
Comprehensive income |
|
|
5,533 |
|
|
|
1,280 |
|
|
|
5,722 |
|
|
|
2,927 |
|
|
Less: Net income attributable to noncontrolling interests(a) |
|
|
(77 |
) |
|
|
(16 |
) |
|
|
(133 |
) |
|
|
(24 |
) |
|
Less: Other comprehensive loss (income) attributable to noncontrolling interests |
|
|
32 |
|
|
|
(37 |
) |
|
|
214 |
|
|
|
(130 |
) |
|
Comprehensive income attributable to Twenty-First Century Fox, Inc. stockholders |
|
$ |
5,488 |
|
|
$ |
1,227 |
|
|
$ |
5,803 |
|
|
$ |
2,773 |
|
|
(a) |
Net income attributable to noncontrolling interests includes $29 million and $25 million for the three months ended December 31, 2014 and 2013, respectively, and $53 million and $48 million for the six months ended December 31, 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 December 31, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
|
(unaudited) |
|
|
(audited) |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,051 |
|
|
$ |
5,415 |
|
|
Receivables, net |
|
|
6,669 |
|
|
|
6,468 |
|
|
Inventories, net |
|
|
3,226 |
|
|
|
3,092 |
|
|
Other |
|
|
318 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
20,264 |
|
|
|
15,376 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
462 |
|
|
|
454 |
|
|
Investments |
|
|
4,423 |
|
|
|
2,859 |
|
|
Inventories, net |
|
|
6,364 |
|
|
|
6,442 |
|
|
Property, plant and equipment, net |
|
|
1,718 |
|
|
|
2,931 |
|
|
Intangible assets, net |
|
|
6,427 |
|
|
|
8,072 |
|
|
Goodwill |
|
|
12,448 |
|
|
|
18,052 |
|
|
Other non-current assets |
|
|
546 |
|
|
|
607 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
52,652 |
|
|
$ |
54,793 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity: |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
$ |
227 |
|
|
$ |
799 |
|
|
Accounts payable, accrued expenses and other current liabilities |
|
|
3,628 |
|
|
|
4,183 |
|
|
Participations, residuals and royalties payable |
|
|
1,763 |
|
|
|
1,546 |
|
|
Program rights payable |
|
|
1,091 |
|
|
|
1,638 |
|
|
Deferred revenue |
|
|
530 |
|
|
|
690 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,239 |
|
|
|
8,856 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
18,901 |
|
|
|
18,259 |
|
|
Other liabilities |
|
|
3,395 |
|
|
|
3,507 |
|
|
Deferred income taxes |
|
|
1,782 |
|
|
|
2,729 |
|
|
Redeemable noncontrolling interests |
|
|
547 |
|
|
|
541 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Class A common stock(a) |
|
|
13 |
|
|
|
14 |
|
|
Class B common stock(b) |
|
|
8 |
|
|
|
8 |
|
|
Additional paid-in capital |
|
|
14,099 |
|
|
|
15,041 |
|
|
Retained earnings |
|
|
7,168 |
|
|
|
2,389 |
|
|
Accumulated other comprehensive loss |
|
|
(1,475 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Twenty-First Century Fox, Inc. stockholders' equity |
|
|
19,813 |
|
|
|
17,418 |
|
|
Noncontrolling interests |
|
|
975 |
|
|
|
3,483 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
20,788 |
|
|
|
20,901 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
52,652 |
|
|
$ |
54,793 |
|
|
(a) |
Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,333,264,947 shares and 1,408,305,942 shares issued and outstanding, net of 123,687,371 treasury shares at par, as of December 31, 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, as of December 31, 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 six months ended December 31, |
|
|||||
|
|
|
2014 |
|
|
2013 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,377 |
|
|
$ |
2,486 |
|
|
Less: (Loss) income from discontinued operations, net of tax |
|
|
(23 |
) |
|
|
712 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
7,400 |
|
|
|
1,774 |
|
|
Adjustments to reconcile income from continuing operations to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
477 |
|
|
|
573 |
|
|
Amortization of cable distribution investments |
|
|
44 |
|
|
|
40 |
|
|
Equity-based compensation |
|
|
91 |
|
|
|
53 |
|
|
Equity earnings of affiliates |
|
|
(629 |
) |
|
|
(260 |
) |
|
Cash distributions received from affiliates |
|
|
221 |
|
|
|
221 |
|
|
Other, net |
|
|
(5,075 |
) |
|
|
(156 |
) |
|
Deferred income taxes |
|
|
(246 |
) |
|
|
(214 |
) |
|
Change in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
Receivables and other assets |
|
|
(809 |
) |
|
|
(906 |
) |
|
Inventories net of program rights payable |
|
|
(940 |
) |
|
|
(962 |
) |
|
Accounts payable and other liabilities |
|
|
318 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations |
|
|
852 |
|
|
|
548 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(261 |
) |
|
|
(329 |
) |
|
Acquisitions, net of cash acquired |
|
|
- |
|
|
|
(12 |
) |
|
Investments in equity affiliates |
|
|
(1,076 |
) |
|
|
(101 |
) |
|
Other investments |
|
|
(39 |
) |
|
|
(26 |
) |
|
Proceeds from dispositions, net |
|
|
8,613 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities from continuing operations |
|
|
7,237 |
|
|
|
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
2,447 |
|
|
|
987 |
|
|
Repayment of borrowings |
|
|
(2,059 |
) |
|
|
- |
|
|
Issuance of shares |
|
|
48 |
|
|
|
66 |
|
|
Repurchase of shares |
|
|
(2,730 |
) |
|
|
(1,735 |
) |
|
Dividends paid |
|
|
(436 |
) |
|
|
(397 |
) |
|
Purchase of subsidiary shares from noncontrolling interests |
|
|
(650 |
) |
|
|
(75 |
) |
|
Distribution to News Corporation |
|
|
- |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities from continuing operations |
|
|
(3,380 |
) |
|
|
(1,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents from discontinued operations |
|
|
(28 |
) |
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,681 |
|
|
|
(366 |
) |
|
Cash and cash equivalents, beginning of year |
|
|
5,415 |
|
|
|
6,659 |
|
|
Exchange movement on cash balances |
|
|
(45 |
) |
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
10,051 |
|
|
$ |
6,345 |
|
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 DBS segment consisted entirely of the operations of Sky Italia and Sky Deutschland AG (“Sky Deutschland”). On November 12, 2014, Twenty-First Century Fox completed the previously announced sale of Sky Italia and its 57% interest in Sky Deutschland to British Sky Broadcasting Group plc, which was subsequently renamed Sky plc (“Sky”) (See Note 2 – Acquisitions, Disposals and Other Transactions). Sky is a pan-European digital television provider, which operates in Italy, Germany, Austria, the United Kingdom and Ireland. Following the sale of the DBS businesses, the Company continues to report in five segments for comparative purposes, and there is no future activity in the DBS segment.
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.
7
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, with a fair value of approximately $220 million 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. The aggregate excess purchase price of $175 million has been preliminarily allocated, based on a provisional valuation of the two San Francisco-Bay area television stations, as follows: approximately $170 million to intangible assets, of which approximately $105 million has been allocated to FCC licenses with indefinite lives and $65 million to amortizable intangible assets, primarily retransmission agreements with useful lives of approximately 8 years; and the balance of the excess representing the goodwill on the transaction.
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 intangible assets that could impact future amortization expense.
Dispositions
Sky Italia and Sky Deutschland
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%.
On November 12, 2014, the Company sold its 100% and 57% ownership stakes in Sky Italia and Sky Deutschland, respectively, to Sky for approximately $8.8 billion in value comprised of approximately $8.2 billion in cash received, net of $650 million of cash paid to acquire Sky’s 21% interest in NGC Network International LLC and NGC Network Latin America LLC (collectively “NGC International”), increasing the Company’s ownership stake in NGC International to 73%. In connection with this transaction, the Company participated in Sky’s equity offering in July 2014 by purchasing additional shares in Sky for approximately $900 million and maintained the Company’s 39% ownership interest. As a result of the transaction, Sky Italia and Sky Deutschland ceased to be consolidated subsidiaries of the Company. The Company recorded a gain of $5.0 billion on this transaction, which was included in Other, net in the Unaudited Consolidated Statements of Operations for the three and six months ended December 31, 2014. The resulting current income tax liability on this transaction will be substantially offset by the utilization of capital loss carryforwards and foreign tax credits (See Note 14 – Additional Financial Information).
The historical operating results of Sky Italia and Sky Deutschland and the gain on their disposal have not been classified as discontinued operations in the Unaudited Consolidated Financial Statements, as the Company has a continuing involvement in Sky.
The following table presents the summarized assets and liabilities of Sky Italia and Sky Deutschland:
|
|
|
As of November 12, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
|
(in millions) |
|
|||||
|
Total current assets |
|
$ |
1,563 |
|
|
$ |
1,200 |
|
|
Goodwill and intangible assets, net |
|
|
5,830 |
|
|
|
6,451 |
|
|
Other non-current assets |
|
|
1,363 |
|
|
|
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,756 |
|
|
$ |
9,144 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
1,885 |
|
|
$ |
1,801 |
|
|
Total non-current liabilities |
|
|
674 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
2,559 |
|
|
$ |
2,436 |
|
8
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Shine Group
The Company and funds managed by Apollo Global Management, LLC (“Apollo”) formed Endemol Shine Group in December 2014, to which the Company contributed its interests in Shine Group and cash, comprising an aggregate carrying value of approximately $830 million. The joint venture, a global multi-platform content provider, is comprised of Shine Group, Endemol, and CORE Media Group and is jointly managed by the Company and Apollo, with each owning 50%. As a result of the transaction, Shine Group ceased to be a consolidated subsidiary of the Company. The Company recorded a gain of $63 million on this transaction which was included in Other, net in the Unaudited Consolidated Statements of Operations for the three and six months ended December 31, 2014. For income tax purposes, this was structured as a tax free transaction. The Company’s investment in the Endemol Shine Group is accounted for using the equity method of accounting.
The historical operating results of Shine Group and the gain on its disposal have not been classified as discontinued operations in the Unaudited Consolidated Financial Statements, as the Company has a continuing involvement in Endemol Shine Group.
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 (the “YES Network”), increasing the Company’s ownership interest to 80%, for approximately $680 million, net of cash acquired. Subsequent to the acquisition, the Company has consolidated the balance sheet and operating results of the YES Network, including $1.7 billion in debt. The remaining 20% of the YES Network not owned by the Company has been recorded at a fair value of approximately $385 million on the acquisition date based on the Company’s valuation of the YES Network business using a market approach (a Level 3 measurement as defined in Note 7 – Fair Value). The carrying amount of the Company’s previously held equity interest in the YES Network was revalued to its fair value of approximately $860 million as of the acquisition date. The aggregate excess purchase price has been allocated, based on a 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. The goodwill reflects the synergies and increased market penetration expected from combining the operations of the YES Network and the Company.
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 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 and six months ended December 31, 2014 and 2013 as discontinued operations on the Unaudited Consolidated Statements of Operations and as discontinued operations on the Unaudited Consolidated Statements of Cash Flows for the six months ended December 31, 2014 and 2013.
9
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Summarized Financial Information
(Loss) income from discontinued operations were as follows:
|
|
|
For the three months ended December 31, |
|
|
For the six months ended December 31, |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
|
|
(in millions, except per share data) |
|
|||||||||||||
|
(Loss) income from discontinued operations before income tax expense(a) |
|
$ |
(2 |
) |
|
$ |
225 |
|
|
$ |
(9 |
) |
|
$ |
712 |
|
|
(Loss) income from discontinued operations, net of tax |
|
$ |
(16 |
) |
|
$ |
225 |
|
|
$ |
(23 |
) |
|
$ |
712 |
|
|
(Loss) income from discontinued operations, net of tax attributable to Twenty-First Century Fox stockholders per share - basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
0.10 |
|
|
$ |
(0.01 |
) |
|
$ |
0.31 |
|
|
(a) |
Includes the net tax refund recognized, pursuant to the tax sharing and indemnification agreement with News Corp, of approximately $220 million and $720 million during the three and six months ended December 31, 2013, respectively. |
Net cash (used in) provided by operating activities from discontinued operations for the six months ended December 31, 2014 and 2013 were $(28) million and $495 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 December 31, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
|
(in millions) |
|
|||||
|
Total receivables |
|
$ |
7,878 |
|
|
$ |
7,737 |
|
|
Allowances for returns and doubtful accounts |
|
|
(747 |
) |
|
|
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total receivables, net |
|
|
7,131 |
|
|
|
6,922 |
|
|
Less: current receivables, net |
|
|
(6,669 |
) |
|
|
(6,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
Non-current receivables, net |
|
$ |
462 |
|
|
$ |
454 |
|
10
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVENTORIES, NET
The Company’s inventories were comprised of the following:
|
|
|
As of December 31, 2014 |
|
|
As of June 30, 2014 |
|
||
|
|
|
(in millions) |
|
|||||
|
Programming rights |
|
$ |
5,922 |
|
|
$ |
5,812 |
|
|
DVDs, Blu-rays and other merchandise |
|
|
80 |
|
|
|
81 |
|
|
Filmed entertainment costs: |
|
|
|
|
|
|
|
|
|
Films: |
|
|
|
|
|
|
|
|
|
Released |
|
|
1,300 |
|
|
|
1,025 |
|
|
Completed, not released |
|
|
95 |
|
|
|
317 |
|
|
In production |
|
|
744 |
|
|
|
819 |
|
|
In development or preproduction |
|
|
156 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295 |
|
|
|
2,312 |
|
|
|
|
|
|
|
|
|
|
|
|
Television productions: |
|
|
|
|
|
|
|
|
|
Released |
|
|
821 |
|
|
|
862 |
|
|
In production |
|
|
472 |
|
|
|
463 |
|
|
In development or preproduction |
|
|
- |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,293 |
|
|
|
1,329 |
|
|
|
|
|
|
|
|
|
|
|
|
Total filmed entertainment costs, less accumulated amortization(a) |
|
|
3,588 |
|
|
|
3,641 |
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net |
|
|
9,590 |
|
|
|
9,534 |
|
|
Less: current portion of inventories, net(b) |
|
|
(3,226 |
) |
|
|
(3,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total non-current inventories, net |
|
$ |
6,364 |
|
|
$ |
6,442 |
|
|
(a) |
Does not include $319 million and $335 million of net intangible film library costs as of December 31, 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 December 31, 2014 and June 30, 2014 was comprised of programming rights ($3,146 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 December 31, 2014 |
|
|
As of December 31, 2014 |
|
|
As of June 30, 2014 |
|
|||
|
|
|
|
|
|
|
|
(in millions) |
|
|||||
|
Sky plc(a)(c) |
|
European DBS operator |
|
39% |
|
|
$ |
3,148 |
|
|
$ |
2,359 |
|
|
Endemol Shine Group(b)(c) |
|
|
|
50% |
|
|
|
872 |
|
|
|
- |
|
|
Other investments |
|
|
various |
|
|
|
403 |
|
|
|
500 |
|
|
|
Total investments |
|
|
|
|
|
|
$ |
4,423 |
|
|
$ |
2,859 |
|
|
(a) |
The Company’s investment in Sky had a market value of $9.4 billion as of December 31, 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) |
See Note 2 – Acquisitions, Disposals and Other Transactions. |
|
(c) |
Equity method investment. |
Sky
In July 2014, the Company participated in Sky’s equity offering by purchasing approximately $900 million of additional shares in Sky and maintained the Company’s 39% ownership interest (See Note 2 – Acquisitions, Disposals and Other Transactions). The Company received dividends of approximately $210 million and $195 million from Sky for the six months ended December 31, 2014 and 2013, respectively. Included in Equity earnings of affiliates in the Unaudited Consolidated Statements of Operations for the three
11
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
and six months ended December 31, 2014 were the Company’s proportionate share of approximately $200 million and $480 million, respectively, of Sky’s gains related to the sale of its investments in NGC International and ITV plc.
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 December 31, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(a) |
|
$ |
19 |
|
|
$ |
19 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(b) |
|
|
(9 |
) |
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
Contingent consideration(c) |
|
|
(133 |
) |
|
|
- |
|
|
|
- |
|
|
|
(133 |
) |
|
Redeemable noncontrolling interests(d) |
|
|
(547 |
) |
|
|
- |
|
|
|
- |
|
|
|
(547 |
) |
|
Total |
|
$ |
(670 |
) |
|
$ |
19 |
|
|
$ |
(9 |
) |
|
$ |
(680 |
) |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(a) |
|
$ |
124 |
|
|
$ |
124 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(b) |
|
|
(10 |
) |
|
|
- |
|
|
|
(10 |
) |
|
|
- |
|
|
Contingent consideration(c) |
|
|
(134 |
) |
|
|
- |
|
|
|
- |
|
|
|
(134 |
|