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EX-31.2 - EX-31.2 - TWENTY-FIRST CENTURY FOX, INC.fox-ex312_9.htm
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EX-12.1 - EX-12.1 - TWENTY-FIRST CENTURY FOX, INC.fox-ex121_7.htm
EX-31.1 - EX-31.1 - TWENTY-FIRST CENTURY FOX, INC.fox-ex311_6.htm

 

 

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, 2015

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 30, 2015, 1,170,751,942 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, 2015 and 2014

3

   

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended September 30, 2015 and 2014

4

   

 

Consolidated Balance Sheets as of September 30, 2015 (unaudited) and June 30, 2015 (audited)

5

   

 

Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2015 and 2014

6

   

 

Notes to the Unaudited Consolidated Financial Statements

7

    Item 2.

 

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

29

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

39

    Item 4.

 

Controls and Procedures

41

Part II. Other Information

 

    Item 1.

 

Legal Proceedings

42

    Item 1A.

 

Risk Factors

43

    Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

48

    Item 3.

 

Defaults Upon Senior Securities

48

    Item 4.

 

Mine Safety Disclosures

48

    Item 5.

 

Other Information

48

    Item 6.

 

Exhibits

49

Signature

50

 

 

 

2


 

TWENTY-FIRST CENTURY FOX, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

 

 

For the three months ended

September 30,

 

 

 

2015

 

 

2014

 

Revenues

 

$

6,077

 

 

$

7,887

 

Operating expenses

 

 

(3,673

)

 

 

(5,052

)

Selling, general and administrative

 

 

(889

)

 

 

(1,079

)

Depreciation and amortization

 

 

(128

)

 

 

(276

)

Equity earnings of affiliates

 

 

35

 

 

 

379

 

Interest expense, net

 

 

(295

)

 

 

(305

)

Interest income

 

 

9

 

 

 

14

 

Other, net

 

 

(83

)

 

 

35

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax expense

 

 

1,053

 

 

 

1,603

 

Income tax expense

 

 

(313

)

 

 

(503

)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

740

 

 

 

1,100

 

Loss from discontinued operations, net of tax

 

 

(3

)

 

 

(7

)

 

 

 

 

 

 

 

 

 

Net income

 

 

737

 

 

 

1,093

 

Less: Net income attributable to noncontrolling interests

 

 

(62

)

 

 

(56

)

 

 

 

 

 

 

 

 

 

Net income attributable to Twenty-First Century Fox, Inc. stockholders

 

$

675

 

 

$

1,037

 

 

 

 

 

 

 

 

 

 

Earnings per share data

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Twenty-First Century Fox, Inc.

  stockholders - basic and diluted

 

$

678

 

 

$

1,044

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

2,009

 

 

 

2,191

 

Diluted

 

 

2,012

 

 

 

2,195

 

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted

 

$

0.34

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Net income attributable to Twenty-First Century Fox, Inc. stockholders per share - basic and diluted

 

$

0.34

 

 

$

0.47

 

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,

 

 

 

2015

 

 

2014

 

Net income

 

$

737

 

 

$

1,093

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(144

)

 

 

(900

)

Losses on interest rate swap contracts

 

 

(5

)

 

 

-

 

Unrealized holding losses on securities

 

 

(4

)

 

 

(10

)

Benefit plan adjustments

 

 

4

 

 

 

6

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

(149

)

 

 

(904

)

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

588

 

 

 

189

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests(a)

 

 

(62

)

 

 

(56

)

Less: Other comprehensive loss attributable to noncontrolling interests

 

 

-

 

 

 

182

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Twenty-First Century Fox, Inc. stockholders

 

$

526

 

 

$

315

 

 

(a) 

Net income attributable to noncontrolling interests includes $28 million and $24 million for the three months ended September 30, 2015 and 2014, 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,

2015

 

 

As of

June 30,

2015

 

 

 

(unaudited)

 

 

(audited)

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,830

 

 

$

8,428

 

Receivables, net

 

 

6,034

 

 

 

5,912

 

Inventories, net

 

 

2,987

 

 

 

2,749

 

Other

 

 

342

 

 

 

287

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

15,193

 

 

 

17,376

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Receivables, net

 

 

386

 

 

 

394

 

Investments

 

 

4,398

 

 

 

4,529

 

Inventories, net

 

 

6,818

 

 

 

6,411

 

Property, plant and equipment, net

 

 

1,667

 

 

 

1,722

 

Intangible assets, net

 

 

6,263

 

 

 

6,320

 

Goodwill

 

 

12,514

 

 

 

12,513

 

Other non-current assets

 

 

758

 

 

 

786

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

47,997

 

 

$

50,051

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Borrowings

 

$

244

 

 

$

244

 

Accounts payable, accrued expenses and other current liabilities

 

 

3,529

 

 

 

3,937

 

Participations, residuals and royalties payable

 

 

1,650

 

 

 

1,632

 

Program rights payable

 

 

1,112

 

 

 

1,001

 

Deferred revenue

 

 

457

 

 

 

448

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

6,992

 

 

 

7,262

 

 

 

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Borrowings

 

 

18,767

 

 

 

18,795

 

Other liabilities

 

 

3,089

 

 

 

3,105

 

Deferred income taxes

 

 

2,278

 

 

 

2,082

 

Redeemable noncontrolling interests

 

 

616

 

 

 

621

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Class A common stock(a)

 

 

12

 

 

 

12

 

Class B common stock(b)

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

12,798

 

 

 

13,427

 

Retained earnings

 

 

4,182

 

 

 

5,343

 

Accumulated other comprehensive loss

 

 

(1,719

)

 

 

(1,570

)

 

 

 

 

 

 

 

 

 

Total Twenty-First Century Fox, Inc. stockholders' equity

 

 

15,281

 

 

 

17,220

 

Noncontrolling interests

 

 

974

 

 

 

966

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

16,255

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

47,997

 

 

$

50,051

 

 

(a) 

Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,177,531,042 shares and 1,239,971,838 shares issued and outstanding, net of 123,687,371 treasury shares at par as of September 30, 2015 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 September 30, 2015 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 three months ended

September 30,

 

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

737

 

 

$

1,093

 

Less: Loss from discontinued operations, net of tax

 

 

(3

)

 

 

(7

)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

740

 

 

 

1,100

 

Adjustments to reconcile income from continuing operations to cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

128

 

 

 

276

 

Amortization of cable distribution investments

 

 

20

 

 

 

23

 

Equity-based compensation

 

 

86

 

 

 

53

 

Equity earnings of affiliates

 

 

(35

)

 

 

(379

)

Cash distributions received from affiliates

 

 

6

 

 

 

3

 

Other, net

 

 

83

 

 

 

(35

)

CLT20 contract termination costs(a)

 

 

(420

)

 

 

-

 

Deferred income taxes and other taxes

 

 

175

 

 

 

91

 

Change in operating assets and liabilities, net of acquisitions and dispositions:

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

(201

)

 

 

26

 

Inventories net of program rights payable

 

 

(516

)

 

 

(590

)

Accounts payable and other liabilities

 

 

(371

)

 

 

(111

)

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities from continuing operations

 

 

(305

)

 

 

457

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(34

)

 

 

(127

)

Investments in equity affiliates

 

 

(86

)

 

 

(950

)

Other investments

 

 

(163

)

 

 

(13

)

Proceeds from dispositions, net

 

 

-

 

 

 

69

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

 

(283

)

 

 

(1,021

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

 

91

 

 

 

1,289

 

Repayment of borrowings

 

 

(119

)

 

 

(114

)

Excess tax benefit from equity-based compensation

 

 

11

 

 

 

48

 

Repurchase of shares

 

 

(1,889

)

 

 

(1,273

)

Dividends paid and distributions

 

 

(56

)

 

 

(82

)

Purchase of subsidiary shares from noncontrolling interests

 

 

(3

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash used in financing activities from continuing operations

 

 

(1,965

)

 

 

(132

)

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents from discontinued operations

 

 

(7

)

 

 

(17

)

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(2,560

)

 

 

(713

)

Cash and cash equivalents, beginning of year

 

 

8,428

 

 

 

5,415

 

Exchange movement on cash balances

 

 

(38

)

 

 

(46

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

5,830

 

 

$

4,656

 

 

 

(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

NOTE 1. BASIS OF PRESENTATION

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 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.

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 is effective for the Company for the interim reporting periods beginning July 1, 2016. The Company is currently evaluating the impact ASU 2015-16 will have on its consolidated financial statements.

 

7


TWENTY-FIRST CENTURY FOX, INC.

NOTES TO THE UNAUDITED 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.

Fiscal 2016

Acquisitions

National Geographic Partners

In September 2015, the Company, through 21st Century Fox America, Inc. (“21CFA”), a wholly-owned subsidiary of the Company, and the National Geographic Society (“NGS”), agreed to form NGC Group Holdings, LLC (“National Geographic Partners”), to which the Company will contribute $625 million in cash and the Company and NGS will contribute their existing interests in NGC Network US, LLC, NGC Network International, LLC and NGC Network Latin America, LLC (collectively “NGC Networks”). The Company currently holds a controlling interest in NGC Networks, a consolidated subsidiary. NGS will also contribute its publishing, travel and certain other businesses to National Geographic Partners for approximately $625 million in cash. Upon completion of the proposed transaction, the Company will hold a 73% controlling interest in National Geographic Partners. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close before December 31, 2015.

MAA Television Network

In February 2015, the Company entered into an agreement to acquire the broadcast business of MAA Television Network Limited (“MAA TV”), an entity in India that broadcasts and operates Telugu language entertainment channels, for approximately $375 million in cash. The acquisition is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close before December 31, 2015.

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 an estimated 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 preliminarily allocated, based on a provisional valuation of true[X], as follows: approximately $30 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.

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.

 

8


TWENTY-FIRST CENTURY FOX, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Total receivables

 

$

6,910

 

 

$

6,812

 

Allowances for returns and doubtful accounts

 

 

(490

)

 

 

(506

)

 

 

 

 

 

 

 

 

 

Total receivables, net

 

 

6,420

 

 

 

6,306

 

Less: current receivables, net

 

 

(6,034

)

 

 

(5,912

)

 

 

 

 

 

 

 

 

 

Non-current receivables, net

 

$

386

 

 

$

394

 

 

 

NOTE 4. INVENTORIES, NET

The Company’s inventories were comprised of the following:

 

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Programming rights

 

$

5,831

 

 

$

5,496

 

DVDs, Blu-rays and other merchandise

 

 

71

 

 

 

67

 

Filmed entertainment costs:

 

 

 

 

 

 

 

 

Films:

 

 

 

 

 

 

 

 

Released

 

 

1,260

 

 

 

1,094

 

Completed, not released

 

 

56

 

 

 

27

 

In production

 

 

1,018

 

 

 

1,170

 

In development or preproduction

 

 

206

 

 

 

185

 

 

 

 

 

 

 

 

 

 

 

 

 

2,540

 

 

 

2,476

 

 

 

 

 

 

 

 

 

 

Television productions:

 

 

 

 

 

 

 

 

Released

 

 

828

 

 

 

868

 

In production

 

 

535

 

 

 

252

 

In development or preproduction

 

 

-

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

1,363

 

 

 

1,121

 

 

 

 

 

 

 

 

 

 

Total filmed entertainment costs, less accumulated amortization(a)

 

 

3,903

 

 

 

3,597

 

 

 

 

 

 

 

 

 

 

Total inventories, net

 

 

9,805

 

 

 

9,160

 

Less: current portion of inventories, net(b)

 

 

(2,987

)

 

 

(2,749

)

 

 

 

 

 

 

 

 

 

Total non-current inventories, net

 

$

6,818

 

 

$

6,411

 

 

 

(a)

Does not include $296 million and $304 million of net intangible film library costs as of September 30, 2015 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 September 30, 2015 and June 30, 2015 was comprised of programming rights ($2,916 million and $2,682 million, respectively), DVDs, Blu-rays and other merchandise.

 

9


TWENTY-FIRST CENTURY FOX, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. INVESTMENTS

The Company’s investments were comprised of the following:

 

 

 

 

 

Ownership percentage as of September 30, 2015

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

 

 

 

 

 

 

(in millions)

 

Sky(a)(b)

 

European DBS operator

 

 

39%

 

 

$

3,183

 

 

$

3,382

 

Endemol Shine Group(b)

 

Global multi-platform content provider

 

 

50%

 

 

 

670

 

 

 

706

 

Other investments

 

 

 

various

 

 

 

545

 

 

 

441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

 

 

 

 

 

 

$

4,398

 

 

$

4,529

 

 

 

(a)

The Company’s investment in Sky had a market value of $10.6 billion as of September 30, 2015 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.

Sky

In July 2014, Sky 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 Statement of Operations for the three months ended September 30, 2014.

Other

In July 2015, the Company invested approximately $150 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. Contemporaneous with the Company’s investment, DraftKings, as part of their wider media program, committed to spend a minimum of $250 million for media placements on the Company’s properties through December 2017.

 

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 September 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives(a)

 

$

17

 

 

$

-

 

 

$

17

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives(a)

 

 

(29

)

 

 

-

 

 

 

(29

)

 

 

-

 

Contingent consideration(b)

 

 

(117

)

 

 

-

 

 

 

-

 

 

 

(117

)

Redeemable noncontrolling interests(c)

 

 

(616

)

 

 

-

 

 

 

-

 

 

 

(616

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(745

)

 

$

-

 

 

$

(12

)

 

$

(733

)

10


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(d)

 

$

18

 

 

$

18

 

 

$

-

 

 

$

-

 

Derivatives(a)

 

 

4

 

 

 

-

 

 

 

4

 

 

 

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives(a)

 

 

(34

)

 

 

-

 

 

 

(34

)

 

 

-

 

Contingent consideration(b)

 

 

(114

)

 

 

-

 

 

 

-

 

 

 

(114

)

Redeemable noncontrolling interests(c)

 

 

(621

)

 

 

-

 

 

 

-

 

 

 

(621

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(747

)

 

$

18

 

 

$

(30

)

 

$

(735

)

 

(a)

Represents derivatives associated with the Company’s foreign currency forward contracts and interest rate swap contracts.

(b)

Represents contingent consideration related to the acquisitions of Eredivisie Media & Marketing and SportsTime Ohio in fiscal 2013.

(c)

The Company accounts for redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity” (“ASC 480-10-S99-3A”), 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, 2015, one minority shareholder’s put right is currently exercisable and another minority shareholder’s put right will become exercisable in March 2016. The remaining redeemable noncontrolling interests are currently not exercisable.

(d)

Available-for-sale securities.

Financial Instruments

The carrying value of the Company’s financial instruments, such as cash and cash equivalents, receivables, payables and cost method investments, approximates fair value.

 

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of borrowings

 

$

21,823

 

 

$

21,998

 

 

 

 

 

 

 

 

 

 

Carrying value of borrowings

 

$

19,011

 

 

$

19,039

 

 

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).

11


TWENTY-FIRST CENTURY FOX, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts primarily to hedge certain exposures to foreign currency exchange rate risks associated with revenues, the cost of producing or acquiring films and television programming as well as its investment in certain foreign operations and equity method investments.

 

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional amount of foreign currency forward contracts

 

$

973

 

 

$

903

 

 

 

 

 

 

 

 

 

 

Fair value of foreign currency forward contracts

 

$

7

 

 

$

(13

)

 

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Net investment hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional amount of foreign currency forward contracts

 

$

198

 

 

$

198

 

 

 

 

 

 

 

 

 

 

Fair value of foreign currency forward contracts

 

$

(6

)

 

$

(13

)

 

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,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional amount of interest rate swap contracts

 

$

717

 

 

$

723

 

 

 

 

 

 

 

 

 

 

Fair value of interest rate swap contracts

 

$

(13

)

 

$

(4

)

 

 

 

As of

September 30,

2015

 

 

As of

June 30,

2015

 

 

 

(in millions)

 

Economic hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional amount of interest rate swap contracts

 

$

250

 

 

$

255

 

 

 

 

 

 

 

 

 

 

Fair value of interest rate swap contracts

 

$

-

 

 

$

-

 

 

Unrealized gains on hedging activity, before tax, of $8 million and $75 million for the three months ended September 30, 2015 and 2014, respectively, are included in other comprehensive loss. 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 3 years. For interest rate swap 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 4 years.

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, 2015 or June 30, 2015 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.

12


TWENTY-FIRST CENTURY FOX, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. As of September 30, 2015, the Company did not anticipate nonperformance by any of the counterparties.

 

 

NOTE 7. BORROWINGS

Borrowings include bank loans and public debt.

Current Borrowings

Included in Borrowings within Current liabilities as of September 30, 2015 was 7.60% Senior Notes of $200 million which was retired in October 2015 and principal payments on the Yankees Entertainment and Sports Network term loan facility of $44 million that are due in the next 12 months.

Senior Notes Issued

In October 2015, 21CFA issued $600 million of 3.70% Senior Notes due 2025 and $400 million of 4.95% Senior Notes due 2045. The net proceeds of $987 million will be used for general corporate purposes.

 

NOTE 8. STOCKHOLDERS’ EQUITY

The following tables summarize changes in stockholders’ equity:

 

 

 

For the three months ended September 30, 2015

 

 

 

Twenty-First Century Fox stockholders

 

 

Noncontrolling interests

 

 

Total

equity

 

 

 

(in millions)

 

Balance, beginning of period

 

$

17,220

 

 

$

966