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EX-12.1 - EX-12.1 - TWENTY-FIRST CENTURY FOX, INC.fox-ex121_9.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 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
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 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

 

     

Page

Part I. Financial Information  

 

    Item 1.

 

Financial Statements

   

 

Unaudited Consolidated Statements of Operations for the three and nine months ended March 31, 2016 and 2015

3

   

 

Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2016 and 2015

4

   

 

Consolidated Balance Sheets as of March 31, 2016 (unaudited) and June 30, 2015 (audited)

5

   

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2016 and 2015

6

   

 

Notes to the Unaudited Consolidated Financial Statements

7

    Item 2.

 

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

34

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

46

    Item 4.

 

Controls and Procedures

48

Part II. Other Information

 

    Item 1.

 

Legal Proceedings

49

    Item 1A.

 

Risk Factors

50

    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

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.

CONSOLIDATED BALANCE SHEETS

(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

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 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

)