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 March 31, 2016 |
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 April 29, 2016, 1,095,725,970 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 March 31, 2016 (unaudited) and June 30, 2015 (audited) |
5 |
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Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2016 and 2015 |
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 |
34 |
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Item 3. |
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46 |
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Item 4. |
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48 |
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Part II. Other Information |
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Item 1. |
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49 |
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Item 1A. |
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50 |
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Item 2. |
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55 |
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Item 3. |
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55 |
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Item 4. |
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55 |
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Item 5. |
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55 |
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Item 6. |
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56 |
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57 |
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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 March 31, |
|
|
For the nine months ended March 31, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
Revenues |
|
$ |
7,228 |
|
|
$ |
6,840 |
|
|
$ |
20,680 |
|
|
$ |
22,782 |
|
|
Operating expenses |
|
|
(4,472 |
) |
|
|
(4,357 |
) |
|
|
(12,902 |
) |
|
|
(14,775 |
) |
|
Selling, general and administrative |
|
|
(893 |
) |
|
|
(823 |
) |
|
|
(2,685 |
) |
|
|
(2,890 |
) |
|
Depreciation and amortization |
|
|
(133 |
) |
|
|
(124 |
) |
|
|
(391 |
) |
|
|
(601 |
) |
|
Equity (losses) earnings of affiliates |
|
|
(9 |
) |
|
|
330 |
|
|
|
38 |
|
|
|
959 |
|
|
Interest expense, net |
|
|
(295 |
) |
|
|
(292 |
) |
|
|
(888 |
) |
|
|
(907 |
) |
|
Interest income |
|
|
12 |
|
|
|
8 |
|
|
|
28 |
|
|
|
31 |
|
|
Other, net |
|
|
(47 |
) |
|
|
(67 |
) |
|
|
(272 |
) |
|
|
5,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense |
|
|
1,391 |
|
|
|
1,515 |
|
|
|
3,608 |
|
|
|
9,607 |
|
|
Income tax expense |
|
|
(463 |
) |
|
|
(458 |
) |
|
|
(1,190 |
) |
|
|
(1,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
928 |
|
|
|
1,057 |
|
|
|
2,418 |
|
|
|
8,457 |
|
|
Loss from discontinued operations, net of tax |
|
|
(3 |
) |
|
|
(15 |
) |
|
|
(8 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
925 |
|
|
|
1,042 |
|
|
|
2,410 |
|
|
|
8,419 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
(84 |
) |
|
|
(67 |
) |
|
|
(222 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders |
|
$ |
841 |
|
|
$ |
975 |
|
|
$ |
2,188 |
|
|
$ |
8,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders - basic and diluted |
|
$ |
844 |
|
|
$ |
990 |
|
|
$ |
2,196 |
|
|
$ |
8,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1,916 |
|
|
|
2,111 |
|
|
|
1,961 |
|
|
|
2,151 |
|
|
Diluted |
|
|
1,916 |
|
|
|
2,113 |
|
|
|
1,962 |
|
|
|
2,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted |
|
$ |
0.44 |
|
|
$ |
0.47 |
|
|
$ |
1.12 |
|
|
$ |
3.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted |
|
$ |
0.44 |
|
|
$ |
0.46 |
|
|
$ |
1.12 |
|
|
$ |
3.82 |
|
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 March 31, |
|
|
For the nine months ended March 31, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
Net income |
|
$ |
925 |
|
|
$ |
1,042 |
|
|
$ |
2,410 |
|
|
$ |
8,419 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
77 |
|
|
|
(378 |
) |
|
|
(298 |
) |
|
|
(1,990 |
) |
|
Losses on interest rate swap contracts |
|
|
(8 |
) |
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
Unrealized holding losses on securities |
|
|
- |
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(58 |
) |
|
Benefit plan adjustments |
|
|
5 |
|
|
|
7 |
|
|
|
15 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
|
74 |
|
|
|
(372 |
) |
|
|
(295 |
) |
|
|
(2,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
999 |
|
|
|
670 |
|
|
|
2,115 |
|
|
|
6,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests(a) |
|
|
(84 |
) |
|
|
(67 |
) |
|
|
(222 |
) |
|
|
(200 |
) |
|
Less: Other comprehensive loss attributable to noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Twenty-First Century Fox, Inc. stockholders |
|
$ |
915 |
|
|
$ |
603 |
|
|
$ |
1,893 |
|
|
$ |
6,406 |
|
|
(a) |
Net income attributable to noncontrolling interests includes $36 million and $30 million for the three months ended March 31, 2016 and 2015, respectively, and $96 million and $83 million for the nine months ended March 31, 2016 and 2015, 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 March 31, 2016 |
|
|
As of June 30, 2015 |
|
||
|
|
|
(unaudited) |
|
|
(audited) |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,993 |
|
|
$ |
8,428 |
|
|
Receivables, net |
|
|
6,756 |
|
|
|
5,912 |
|
|
Inventories, net |
|
|
3,522 |
|
|
|
2,749 |
|
|
Other |
|
|
349 |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
15,620 |
|
|
|
17,376 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
461 |
|
|
|
394 |
|
|
Investments |
|
|
4,155 |
|
|
|
4,529 |
|
|
Inventories, net |
|
|
7,108 |
|
|
|
6,411 |
|
|
Property, plant and equipment, net |
|
|
1,660 |
|
|
|
1,722 |
|
|
Intangible assets, net |
|
|
6,707 |
|
|
|
6,320 |
|
|
Goodwill |
|
|
12,732 |
|
|
|
12,513 |
|
|
Other non-current assets |
|
|
805 |
|
|
|
786 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
49,248 |
|
|
$ |
50,051 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity: |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
$ |
475 |
|
|
$ |
244 |
|
|
Accounts payable, accrued expenses and other current liabilities |
|
|
3,828 |
|
|
|
3,937 |
|
|
Participations, residuals and royalties payable |
|
|
1,856 |
|
|
|
1,632 |
|
|
Program rights payable |
|
|
1,519 |
|
|
|
1,001 |
|
|
Deferred revenue |
|
|
598 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,276 |
|
|
|
7,262 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
19,270 |
|
|
|
18,795 |
|
|
Other liabilities |
|
|
3,226 |
|
|
|
3,105 |
|
|
Deferred income taxes |
|
|
2,415 |
|
|
|
2,082 |
|
|
Redeemable noncontrolling interests |
|
|
511 |
|
|
|
621 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Class A common stock(a) |
|
|
11 |
|
|
|
12 |
|
|
Class B common stock(b) |
|
|
8 |
|
|
|
8 |
|
|
Additional paid-in capital |
|
|
12,503 |
|
|
|
13,427 |
|
|
Retained earnings |
|
|
3,814 |
|
|
|
5,343 |
|
|
Accumulated other comprehensive loss |
|
|
(1,865 |
) |
|
|
(1,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Twenty-First Century Fox, Inc. stockholders' equity |
|
|
14,471 |
|
|
|
17,220 |
|
|
Noncontrolling interests |
|
|
1,079 |
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
15,550 |
|
|
|
18,186 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
49,248 |
|
|
$ |
50,051 |
|
|
(a) |
Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,104,848,261 shares and 1,239,971,838 shares issued and outstanding, net of 123,687,371 treasury shares at par as of March 31, 2016 and June 30, 2015, 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 March 31, 2016 and June 30, 2015. |
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 nine months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,410 |
|
|
$ |
8,419 |
|
|
Less: Loss from discontinued operations, net of tax |
|
|
(8 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
2,418 |
|
|
|
8,457 |
|
|
Adjustments to reconcile income from continuing operations to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
391 |
|
|
|
601 |
|
|
Amortization of cable distribution investments |
|
|
53 |
|
|
|
61 |
|
|
Equity-based compensation |
|
|
152 |
|
|
|
80 |
|
|
Equity earnings of affiliates |
|
|
(38 |
) |
|
|
(959 |
) |
|
Cash distributions received from affiliates |
|
|
225 |
|
|
|
223 |
|
|
Other, net |
|
|
272 |
|
|
|
(5,008 |
) |
|
CLT20 contract termination costs(a) |
|
|
(420 |
) |
|
|
- |
|
|
Deferred income taxes and other taxes |
|
|
373 |
|
|
|
204 |
|
|
Change in operating assets and liabilities, net of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
Receivables and other assets |
|
|
(866 |
) |
|
|
(550 |
) |
|
Inventories net of program rights payable |
|
|
(814 |
) |
|
|
(657 |
) |
|
Accounts payable and other liabilities |
|
|
266 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations |
|
|
2,012 |
|
|
|
2,623 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(156 |
) |
|
|
(320 |
) |
|
Acquisitions, net of cash acquired |
|
|
(908 |
) |
|
|
(142 |
) |
|
Investments in equity affiliates |
|
|
(87 |
) |
|
|
(1,108 |
) |
|
Other investments |
|
|
(229 |
) |
|
|
(53 |
) |
|
Proceeds from dispositions, net |
|
|
- |
|
|
|
8,610 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities from continuing operations |
|
|
(1,380 |
) |
|
|
6,987 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
1,195 |
|
|
|
2,534 |
|
|
Repayment of borrowings |
|
|
(502 |
) |
|
|
(2,174 |
) |
|
Excess tax benefit from equity-based compensation |
|
|
11 |
|
|
|
49 |
|
|
Repurchase of shares |
|
|
(3,958 |
) |
|
|
(4,784 |
) |
|
Dividends paid and distributions |
|
|
(465 |
) |
|
|
(494 |
) |
|
Purchase of subsidiary shares from noncontrolling interests |
|
|
(287 |
) |
|
|
(650 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities from continuing operations |
|
|
(4,006 |
) |
|
|
(5,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents from discontinued operations |
|
|
(15 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(3,389 |
) |
|
|
4,053 |
|
|
Cash and cash equivalents, beginning of year |
|
|
8,428 |
|
|
|
5,415 |
|
|
Exchange movement on cash balances |
|
|
(46 |
) |
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,993 |
|
|
$ |
9,276 |
|
|
(a) |
See Note 12 – Additional Financial Information. |
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., a Delaware corporation, and its subsidiaries (together, “Twenty-First Century Fox” or the “Company”) is a diversified global media and entertainment company, which currently manages and reports its businesses in the following segments: Cable Network Programming, Television, Filmed Entertainment and Other, Corporate and Eliminations.
In addition, the Direct Broadcast Satellite Television (“DBS”) segment consisted of the distribution of programming services via satellite, cable and broadband directly to subscribers in Italy, Germany and Austria. The DBS segment consisted entirely of the operations of Sky Italia and Sky Deutschland AG (“Sky Deutschland”) (collectively the “DBS businesses”). On November 12, 2014, Twenty-First Century Fox completed the sale of Sky Italia and its 57% interest in Sky Deutschland to Sky plc (“Sky”). 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 current 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, 2016.
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, 2015 as filed with the Securities and Exchange Commission (“SEC”) on August 13, 2015 (the “2015 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 2015 amounts have been reclassified to conform to the fiscal 2016 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 April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)” (“ASU 2014-08”). The amendments in ASU 2014-08 provide guidance for the recognition of discontinued operations, change the requirements for reporting discontinued operations in Accounting Standards Codification (“ASC”) 205-20, “Discontinued Operations” (“ASC 205-20”) and require additional disclosures about discontinued operations. ASU 2014-08 is effective on a prospective basis for the Company for annual and interim reporting periods beginning July 1, 2015. Certain disposals that occurred in the past were not reported as discontinued operations as they did not meet the criteria under the superseded accounting guidance. Such disposals would have met the criteria to be reported as discontinued operations in accordance with ASU 2014-08.
7
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Issued
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). The amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts, that are identified during the measurement period, in the reporting period in which the adjustment amounts are determined. ASU 2015-16 will be effective for the Company for annual and interim reporting periods beginning July 1, 2016. The Company is currently evaluating the impact ASU 2015-16 will have on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The amendments in ASU 2015-17 require that tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 will be effective for the Company for annual and interim reporting periods beginning July 1, 2017.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments––Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2016-01 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in ASU 2016-02 require recognition of lease assets and liabilities on the balance sheet and disclosure of key information about leasing arrangements. ASU 2016-02 will be effective for the Company for annual and interim reporting periods beginning July 1, 2019. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The amendments in ASU 2016-09 simplify the accounting regarding income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company for annual and interim reporting periods beginning July 1, 2017. The Company is currently evaluating the impact ASU 2016-09 will have on its 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 and acquiring greater control of investments that complement its portfolio of businesses.
For recent acquisitions, the accounting for the business combination, including consideration transferred, 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 valuations of certain assets and liabilities. A change in the purchase price allocations 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.
Fiscal 2016
Acquisitions
National Geographic Partners
In fiscal 2016, the Company, through 21st Century Fox America, Inc. (“21CFA”), a wholly-owned subsidiary of the Company, and the National Geographic Society (“NGS”), formed the entity that became National Geographic Partners, LLC (“National Geographic Partners”), to which, in November 2015, the Company contributed $625 million in cash and the Company and NGS contributed their existing interests in NGC Network US, LLC, NGC Network International, LLC and NGC Network Latin America, LLC (collectively “NGC Networks”). Prior to the transaction, the Company held a controlling interest in NGC Networks, a consolidated subsidiary. NGS also contributed its publishing, travel and certain other businesses (collectively the “NGS Media Business”) to National Geographic Partners. As part of the transaction, National Geographic Partners also acquired the long-term license for the use of certain trademarks owned by NGS related to the NGC Networks and the NGS Media Business. The Company currently holds a 73% controlling interest in National Geographic Partners. The cash paid to NGS of $625 million has been preliminarily allocated as follows: approximately $130 million to certain intangible assets, with useful lives of five years, and other net assets of the NGS Media Business, approximately $440 million to indefinite-lived intangible assets related to the trademark license agreement and approximately $55 million to the increase in the Company’s interest in National Geographic Partners.
8
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MAA Television Network
In December 2015, the Company acquired the entirety of the broadcast business of MAA Television Network Limited (“MAA TV”), an entity in India that broadcasts and operates Telugu language entertainment channels, for approximately $346 million in cash including payments toward non-compete agreements. The excess purchase price of approximately $285 million has been preliminarily allocated, based on a provisional valuation of MAA TV, as follows: approximately $75 million to intangible assets consisting of multi-channel video programming distributor affiliate agreements and relationships with useful lives of 12 years, advertiser relationships with useful lives of nine years and the MAA TV trade name with a useful life of 10 years; and the balance of the excess representing the goodwill on the transaction included in the Cable Network Programming segment. The goodwill is tax deductible and reflects the synergies and increased market penetration expected from combining the operations of MAA TV and the Company.
Other
In February 2016, the Company acquired the 7% interest it did not already own in a regional sports network for $225 million in cash. As a result of this transaction, the Company now owns 100% of the regional sports network. This transaction was accounted for as the purchase of subsidiary shares from noncontrolling interests (See Note 6 – Fair Value under the heading “Redeemable Noncontrolling Interests”).
Fiscal 2015
Acquisitions
trueX media inc.
In February 2015, the Company acquired trueX media inc. (“true[X]”), a video advertising company specializing in consumer engagement and on-demand marketing campaigns, for a total purchase price of approximately $175 million in cash including deferred payments which are subject to the achievement of service and performance conditions. The excess purchase price of approximately $125 million has been allocated as follows: approximately $25 million to intangible assets and the balance of the excess 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 true[X] and the Company.
For fiscal 2016 and 2015, as applicable, the incremental revenues and Segment OIBDA (as defined in Note 11 – Segment Information) related to the acquisitions above included in the Company’s consolidated results of operations were not material individually or in the aggregate.
NOTE 3. RECEIVABLES, NET
Receivables 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 March 31, 2016 |
|
|
As of June 30, 2015 |
|
||
|
|
|
(in millions) |
|
|||||
|
Total receivables |
|
$ |
7,834 |
|
|
$ |
6,812 |
|
|
Allowances for returns and doubtful accounts |
|
|
(617 |
) |
|
|
(506 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total receivables, net |
|
|
7,217 |
|
|
|
6,306 |
|
|
Less: current receivables, net |
|
|
(6,756 |
) |
|
|
(5,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
Non-current receivables, net |
|
$ |
461 |
|
|
$ |
394 |
|
9
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVENTORIES, NET
The Company’s inventories were comprised of the following:
|
|
|
As of March 31, 2016 |
|
|
As of June 30, 2015 |
|
||
|
|
|
(in millions) |
|
|||||
|
Programming rights |
|
$ |
6,510 |
|
|
$ |
5,496 |
|
|
DVDs, Blu-rays and other merchandise |
|
|
78 |
|
|
|
67 |
|
|
Filmed entertainment costs: |
|
|
|
|
|
|
|
|
|
Films: |
|
|
|
|
|
|
|
|
|
Released |
|
|
1,193 |
|
|
|
1,094 |
|
|
Completed, not released |
|
|
6 |
|
|
|
27 |
|
|
In production |
|
|
1,099 |
|
|
|
1,170 |
|
|
In development or preproduction |
|
|
253 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,551 |
|
|
|
2,476 |
|
|
|
|
|
|
|
|
|
|
|
|
Television productions: |
|
|
|
|
|
|
|
|
|
Released |
|
|
1,000 |
|
|
|
868 |
|
|
In production |
|
|
491 |
|
|
|
252 |
|
|
In development or preproduction |
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491 |
|
|
|
1,121 |
|
|
|
|
|
|
|
|
|
|
|
|
Total filmed entertainment costs, less accumulated amortization(a) |
|
|
4,042 |
|
|
|
3,597 |
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net |
|
|
10,630 |
|
|
|
9,160 |
|
|
Less: current portion of inventories, net(b) |
|
|
(3,522 |
) |
|
|
(2,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total non-current inventories, net |
|
$ |
7,108 |
|
|
$ |
6,411 |
|
|
(a) |
Does not include $280 million and $304 million of net intangible film library costs as of March 31, 2016 and June 30, 2015, respectively, which were included in intangible assets subject to amortization in the Consolidated Balance Sheets. |
|
(b) |
Current portion of inventories, net as of March 31, 2016 and June 30, 2015 was comprised of programming rights ($3,444 million and $2,682 million, respectively), DVDs, Blu-rays and other merchandise. |
NOTE 5. INVESTMENTS
The Company’s investments were comprised of the following:
|
|
|
|
|
Ownership percentage as of March 31, 2016 |
|
|
As of March 31, 2016 |
|
|
As of June 30, 2015 |
|
|||
|
|
|
|
|
|
|
|
|
(in millions) |
|
|||||
|
Sky(a)(b) |
|
European DBS operator |
|
|
39% |
|
|
$ |
3,150 |
|
|
$ |
3,382 |
|
|
Endemol Shine Group(b) |
|
Global multi-platform content provider |
|
|
50% |
|
|
|
588 |
|
|
|
706 |
|
|
Other investments |
|
|
|
various |
|
|
|
417 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
|
|
|
|
|
$ |
4,155 |
|
|
$ |
4,529 |
|
|
(a) |
The Company’s investment in Sky had a market value of $9.9 billion as of March 31, 2016 determined using its quoted market price on the London Stock Exchange (a Level 1 measurement as defined in Note 6 – Fair Value). |
|
(b) |
Equity method investment. |
10
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. The Company received dividends of approximately $210 million from Sky for the nine months ended March 31, 2016 and 2015. Included in Equity earnings of affiliates in the Unaudited Consolidated Statements of Operations for the three months ended March 31, 2015 were the Company’s proportionate share of approximately $350 million of Sky’s gains related to the sale of its investment in Sky Betting & Gaming (“Sky Bet”) and for the nine months ended March 31, 2015 were the Company’s proportionate share of approximately $830 million of Sky’s gains related to the sale of its investments in NGC Network International, LLC and NGC Network Latin America, LLC (collectively “NGC International”), Sky Bet and ITV plc.
Other
During the nine months ended March 31, 2016, the Company invested approximately $160 million in cash for a minority equity interest in DraftKings, Inc. (“DraftKings”), a leading operator of online fantasy games and contests. The Company accounts for this investment at cost. During the nine months ended March 31, 2016, based on information concerning DraftKings’ current valuation in a financing transaction, the Company determined that a portion of its investment in DraftKings was impaired and reduced the carrying value by approximately $95 million as reflected in Other, net in the Unaudited Consolidated Statements of Operations for the nine months ended March 31, 2016.
NOTE 6. 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 March 31, 2016 |
|
|||||||||||||
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a) |
|
$ |
12 |
|
|
$ |
- |
|
|
$ |
12 |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a) |
|
|
(38 |
) |
|
|
- |
|
|
|
(38 |
) |
|
|
- |
|
|
Contingent consideration(b) |
|
|
(114 |
) |
|
|
- |
|
|
|
- |
|
|
|
(114 |
) |
|
Redeemable noncontrolling interests |
|
|
(511 |
) |
|
|
- |
|
|
|
- |
|
|
|
(511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(651 |
) |
|
$ |
- |
|
|
$ |
(26 |
) |
|
$ |
(625 |
) |
11
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
As of June 30, 2015 |
|
|||||||||||||
|
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(c) |
|
$ |
18 |
|
|
$ |
18 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Derivatives(a) |
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives(a) |
|
|
(34 |
) |
|
|
- |
|
|
|
(34 |
) |
|
|
- |
|
|
Contingent consideration(b) |
|
|
(114 |
) |
|
|
- |
|
|
|
- |
|
|
|
(114 |
) |
|
Redeemable noncontrolling interests |
|
|
(621 |
) |
|
|
- |
|
|
|
- |
|
|
|
(621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(747 |
) |
|
$ |
18 |
|
|
$ |
(30 |
) |
|
$ |
(735 |
) |