10-Q 1 fox-10q_20140930.htm 10-Q

 

 

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
of Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

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

   

 

Unaudited Consolidated Statements of Operations for the three months ended September 30, 2014 and 2013

3

   

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended September 30, 2014 and 2013

4

   

 

Consolidated Balance Sheets as of September 30, 2014 (unaudited) and June 30, 2014 (audited)

5

   

 

Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2014 and 2013

6

   

 

Notes to the Unaudited Consolidated Financial Statements

7

    Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

44

    Item 4.

 

Controls and Procedures

46

Part II. Other Information

 

    Item 1.

 

Legal Proceedings

47

    Item 1A.

 

Risk Factors

48

    Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

55

    Item 3.

 

Defaults Upon Senior Securities

55

    Item 4.

 

Mine Safety Disclosures

55

    Item 5.

 

Other Information

55

    Item 6.

 

Exhibits

56

Signature

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.

CONSOLIDATED BALANCE SHEETS

(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

 

 

NOTE 1. BASIS OF PRESENTATION

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

 

 

(a)

Reclassifications of amounts related to hedging activity are included in Operating expenses or Selling, general and administrative expenses, as appropriate, in the Unaudited Consolidated Statements of Operations for the three months ended September 30, 20