The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
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 four segments: Cable Network Programming, Television, Filmed Entertainment and Other, Corporate and Eliminations.
The accompanying Unaudited Consolidated Financial Statements of Twenty-First Century Fox have been prepared in accordance with United States (“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, 2019.
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, 2018 as filed with the Securities and Exchange Commission (the “SEC”) on August 13, 2018 (the “2018 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
. Equity i
nvestments in and advances to entities or joint ventures in which the Company has significant influence, but less than a controlling voting interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest between 20% and 50% and exercises significant influence. Equity investments in which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are recorded at fair value using quoted market prices
.
If an equity investment’s fair value is not readily determinable and does not qualify for the net asset value (“NAV”) practical expedient, the Company will recognize it at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The unrealized gains and losses and the adjustments related to the observable price changes are recognized in net income.
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 may differ from those estimates.
Certain fiscal 2018 amounts have been reclassified to conform to the fiscal 2019 presentation. Unless indicated otherwise, the information in the notes to the Unaudited Consolidated Financial Statements relates to the Company’s continuing operations.
Recently Adopted and Recently Issued Accounting Guidance and U.S. Tax Reform
Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 requires additional disclosure around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the requirements of ASU 2014-09 as of July 1, 2018, utilizing the modified retrospective method of transition which resulted in a transition adjustment for all contracts not completed as of July 1, 2018. The transition adjustment was recorded as an increase to the opening balance of Retained earnings in the Consolidated Balance Sheet
(See Note 7 – Stockholders’ Equity)
.
The new standard impacts the timing of revenue recognition for renewals or extensions of existing licensing agreements for intellectual property, which will be recognized as revenue once the customer can begin to use and benefit from the license rather than when the agreement is extended or renewed, under historical GAAP. The new standard requires the Company’s Filmed Entertainment segment to recognize revenues from certain television license deals earlier as opposed to recognizing those licenses over the term of the agreements. Conversely, revenues from certain of the
5
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Filmed Entertainment segment’s trademark licensing deals will be recognized ov
er the license terms as opposed to recognition at inception as under historical GAAP. The adoption of the standard also resulted in the reclassification of
the Company’s estimates of
sales returns from a contra-asset allowance within receivables to
a liabi
lity
. ASU 2014-09 also requires enhanced disclosures relating to the Company’s revenues from contracts with cus
t
omers (See Note 11 – Revenues), including the disaggregation of revenues.
The following table presents the impact of the adoption of the standard on the Company’s Consolidated Statement of Operations:
|
|
For the three months ended
September 30, 2018
|
|
|
|
As reported
|
|
|
Adjustments
|
|
|
Without adoption of ASC 606
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
7,177
|
|
|
$
|
78
|
|
|
$
|
7,255
|
|
Operating expenses
|
|
|
(4,424
|
)
|
|
|
(53
|
)
|
|
|
(4,477
|
)
|
Selling, general and administrative
|
|
|
(890
|
)
|
|
|
-
|
|
|
|
(890
|
)
|
Depreciation and amortization
|
|
|
(158
|
)
|
|
|
-
|
|
|
|
(158
|
)
|
Impairment and restructuring charges
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(16
|
)
|
Equity earnings (losses) of affiliates
|
|
|
35
|
|
|
|
(3
|
)
|
|
|
32
|
|
Interest expense, net
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
(300
|
)
|
Interest income
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
Other, net
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
1,484
|
|
|
|
22
|
|
|
|
1,506
|
|
Income tax expense
|
|
|
(126
|
)
|
|
|
(5
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1,358
|
|
|
|
17
|
|
|
|
1,375
|
|
Loss from discontinued operations, net of tax
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,351
|
|
|
|
17
|
|
|
|
1,368
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(66
|
)
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox stockholders
|
|
$
|
1,285
|
|
|
$
|
17
|
|
|
$
|
1,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Twenty-First Century Fox stockholders per share - basic and diluted
|
|
$
|
0.69
|
|
|
$
|
0.01
|
|
|
$
|
0.70
|
|
Changes to the opening balances of current assets, total assets, current liabilities and total liabilities resulting from the adoption of the new guidance were as follows:
|
|
June 30, 2018
|
|
|
Adoption of ASC 606 impact
|
|
|
July 1, 2018
|
|
|
|
(in millions)
|
|
Current assets
|
|
$
|
19,333
|
|
|
$
|
491
|
|
|
$
|
19,824
|
|
Total assets
|
|
|
53,831
|
|
|
|
559
|
|
(a)
|
|
54,390
|
|
Current liabilities
|
|
|
8,244
|
|
|
|
256
|
|
|
|
8,500
|
|
Total liabilities
|
|
|
32,269
|
|
|
|
323
|
|
|
|
32,592
|
|
(a)
|
Includes the Company’s proportionate share of Sky, plc’s (“Sky”) transition adjustment of approximately $145 million.
|
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. The Company adopted this guidance as of July 1, 2018 on a modified retrospective basis and recorded a cumulative effect adjustment to reclassify unrealized holding gains on securities within Accumulated other comprehensive loss to Retained earnings and to record certain equity investments at NAV which were previously accounted for at cost (
See Note 7 – Stockholders’ Equity)
.
In addition, the Company recorded changes in the fair value of equity investments with readily determinable fair values in net income rather than in Accumulated other comprehensive loss (See
Note 12 – Additional Financial
6
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Information under the heading “Other, net”).
Cost method investments that do not have readily determinable fair values will be recognized prospectively at cost minus impairment, if any, plus or minus changes resulting from observable pr
ice changes in orderly transactions for the identical or a similar investment of the same issuer. The adjustments related to the observable price changes will also be recognized in net income.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). On July 1, 2018, the Company adopted ASU 2016-16 and recorded a deferred tax asset of approximately $2.3 billion related to the basis difference in an equity method investment on a modified retrospective basis, through a cumulative-effect adjustment to Retained earnings and also recorded a corresponding valuation allowance. As prescribed, a full valuation allowance was required because the Company was not able to establish sufficient evidence of future taxable income of the appropriate character to realize the deferred tax asset. As a result, the adoption of ASU 2016-16 did not have a material impact on the Company’s Consolidated Financial Statements.
Due to the decision to sell Sky which was announced on September 26, 2018, management determined that the valuation allowance was no longer needed. As such, the Company released a portion of the valuation allowance related to its deferred tax asset as part of the estimated annual effective tax rate, resulting in a non-cash tax benefit of approximately $220 million for the three months ended September 30, 2018. The remaining valuation allowance of approximately $2.1 billion will be released during the year pro rata based upon the Company’s Income from continuing operations before income tax
expense (See Note 4 – Investments under the heading “Sky”)
.
On July 1, 2018, the Company early adopted ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) on a prospective basis using the security-by-security approach. The objective of ASU 2018-02 is to eliminate the stranded tax effects resulting from the Tax Act and to improve the usefulness of information reported to financial statement users. The adoption of ASU 2018-02 resulted in a reclassification from Accumulated other comprehensive loss to Retained earnings related to the income tax effects on the change in the federal statutory rate (See Note 7 – Stockholders’ Equity under the heading “Accumulated other comprehensive loss”).
Issued
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). The amendments in ASU 2018-14 modify certain aspects of disclosure about defined benefit pension and other postretirement plans. ASU 2018-14 will be effective for the Company for annual reporting periods beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact ASU 2018-14 will have on its consolidated financial statements.
U.S. Tax Reform
On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. Effective July 1, 2018, the Company’s corporate income tax rate is 21%.
The SEC has issued guidance that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of September 30, 2018, the Company has not completed its analysis of the accounting for all the tax effects of the Tax Act but has recorded provisional amounts for those items which it could reasonably estimate (See Note 2 – Summary of Significant Accounting Policies in the 2018 Form 10-K under the heading “U.S. Tax Reform”). As of September 30, 2018, the Company has not recorded material adjustments to these amounts. The Company currently anticipates finalizing its provisional amounts by the end of the current calendar year based on future interpretive guidance expected to be issued by the U.S. Treasury and the additional time required to refine calculations. There may be adjustments to the provisional amounts recorded during the measurement period and such adjustments could possibly be material.
The Tax Act also includes a new minimum tax on certain foreign earnings (“global intangible low-tax income” or “GILTI”) which imposes a tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries and allows a deduction for foreign-derived intangible income (“FDII”). These provisions are effective for the Company in the current fiscal year. For the three months ended September 30, 2018, the Company computed amounts for both items and included the estimated impacts in its annualized effective tax rate calculation. The Company is still
7
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
evaluating whether to account for the effects of GILTI either as a component of income tax expense
in the period the tax arises or as a component of deferred taxes on the related investments.
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Disney
Transaction/Distribution
of
FOX
On
June
20,
2018,
the
Company
entered
into
an
Amended
and
Restated
Merger
Agreement
and
Plan
of
Merger (the
“Amended
and
Restated
Merger
Agreement”)
with
The
Walt
Disney
Company
(“Disney”)
and
TWDC
Holdco
613
Corp.,
a
newly
formed
holding
company
and
wholly-owned
subsidiary
of
Disney
(“New
Disney”),
which
amends
and restates
in
its
entirety
the
Agreement
and
Plan
of
Merger
that
the
Company
entered
into
with
Disney
in
December
2017, pursuant
to
which,
among
other
things,
at
the
closing,
the
Company
will
merge
with
and
into
a
subsidiary
of
New
Disney (the
“21CF
Merger”),
Disney
will
merge
with
and
into
a
subsidiary
of
New
Disney
(the
“Disney
Merger,”
and
together
with
the
21CF
Merger,
the
“Mergers”),
and
each
of
Disney
and
the
Company
will
become
wholly-owned
subsidiaries
of
New
Disney.
Prior
to
the
consummation
of
the
Mergers,
the
Company
will
transfer
a
portfolio
of
the
Company’s
news,
sports
and
broadcast
businesses,
including
the
FOX News Channel (“FOX News”),
FOX Business Network,
FOX
Broadcasting
Company (the “FOX Network”),
FOX Television Stations
Group,
FS1,
FS2,
FOX
Deportes
and
Big
T
en
Network
and
certain
other
assets
and
liabilities
into
a
newly
formed
subsidiary
(“FOX”)
(the
“
FOX
Separation”)
and
distribute
all
of
the
issued
and
outstanding
common stock
of
FOX
to
the
holders
of
the
outstanding
shares
of
the
Company’s
Class
A
Common
Stock
and
Class
B
Common
Stock
(other
than
holders
that
are
subsidiaries
of
the
Company
(shares
held
by
such
holders,
the
“Hook
Stock”)) on
a
pro
rata
basis
(the
“FOX
Distribution”).
Prior
to
the
FOX
Distribution,
FOX
will
pay
the
Company
a dividend
in
the
amount
of
$8.5
billion.
FOX
will
incur
indebtedness
sufficient
to
fund
the
dividend,
which
indebtedness
will
be
reduced
after
the
Mergers
by
the
amount
of
a
cash
payment
paid
by
Disney
to
FOX.
As
the
FOX Separation
and
FOX
Distribution
will
be
taxable
to
the
Company
at
the
corporate
level,
the
dividend
is
intended
to
fund the
taxes
resulting
from
the
FOX
Separation
and
FOX
Distribution
and
certain
other
transactions
contemplated
by the
Amended
and
Restated
Merger
Agreement
(the
“Transaction
T
ax”)
.
The
Company
will
retain
all
assets
and
liabilities
not
transferred
to
FOX,
including
the
Twentieth
Century
Fox
Film
and
Television
studios
and
certain
cable
and
international
television
businesses,
including
FX
Networks,
National
Geographic
Partners,
LLC,
Regional
Sports
Networks
(“RSNs”),
Fox
Networks
Group
International
and
STA
R
India
(“STAR”),
as
well
as the
Company’s
interests
in
Hulu,
LLC
(“Hulu”),
Sky,
T
a
t
a
Sky
Limited
and
Endemol
Shine
Group.
The
foregoing
proposed
transactions
are
collectively
referred
to
as
the
“Transaction”.
Upon
consummation
of
the
Transaction,
each
share
of
the
Company’s
common
stock
issued
and
outstanding
immediately
prior
to
the
effective
time
of
the
Mergers
(other
than
(i)
shares
held
in
treasury
by
the
Company
that
are
not
held
on
behalf
of
third
parties,
(ii)
shares
that
are
Hook
Stock
and
(iii)
shares
held
by
the
Company’s
stockholders
who
have
not
voted
in
favor
of
the
21CF
Merger
and
perfected
and
not
withdrawn
a
demand
for
appraisal
rights
pursuant
to Delaware
law)
will
be
exchanged
for
consideration
(the
“Merger
Consideration”)
in
the
form
of
either
cash
(the
“Cash Consideration”)
or
a
fraction
of
a
share
of
New
Disney
common
stock
(the
“Stock
Consideration”).
The
value
of
the
Merger Consideration
may
fluctuate
with
the
market
price
of
Disney
common
stock
and
will,
subject
to
the
collar
described
below,
be
determined
based
on
the
volume-weighted
average
trading
price
of
a
share
of
Disney
common
stock
on
the
New
Y
ork
Stock
Exchange
over
the
fifteen
day
consecutive
trading
day
period
ending
on
(and
including)
the
trading
day
that
is
three trading
days
prior
to
the
date
of
the
effective
time
of
the
Disney
Merger
(such
price,
the
“Average
Disney
Price”).
Subject
to
the
election,
proration
and
adjustment
procedures
set
forth
in
the
Amended
and
Restated
Merger
Agreement,
each
share of
the
Company’s
common
stock
will
be
exchanged
for
an
amount
(such
amount,
the
“Per
Share
Value”),
payable
in
cash
or
New
Disney
common
stock,
equal
to
the
sum
of
(i)
$19.00
plus
(ii)
fifty
percent
(50.0%)
of
the
value
(determined
based on
the
Average
Disney
Price)
of
a
number
of
shares
of
Disney
common
stock
equal
to
the
exchange
ratio
described
below.
The
number
of
shares
of
New
Disney
common
stock
to
be
delivered
in
exchange
for
each
share
of
the
Company’s
common
stock
to
the
Company’s
stockholders
electing
to
receive
Stock
Consideration
will
be
equal
to
the
Per
Share
Value
divided
by
the
Average
Disney
Stock
Price.
If
the
Average
Disney
Price
is
greater
than
$114.32,
then
the
exchange
ratio
will
be
0.3324.
If
the
Average
Disney
Price
is
less
than
$93.53,
then
the
exchange
ratio
will
be
0.4063.
If
the
Average
Disney
Price
is
greater
than
or
equal
to
$93.53
but
less
than
or
equal
to
$114.32,
then
the
exchange
ratio
will
be
an amount
equal
to
$38.00
divided
by
the
Average
Disney
Price.
The
Merger
Consideration
is
subject
to
the
proration
provisions
set
forth
in
the
Amended
and
Restated
Merger Agreement,
which
ensure
that
the
aggregate
Cash
Consideration
(before
giving
effect
to
the
adjustment
for
transaction
taxes)
is
equal
to
$35.7
billion.
As
a
result,
the
form
of
consideration
a
stockholder
elects
to
receive
may
be
adjusted
such that
it
may
receive,
in
part,
a
different
form
of
consideration
than
the
form
it
elected.
Any
stockholder
of
the
Company
not
making
an
election
will
receive
the
Cash
Consideration,
the
Stock
Consideration
or
a
combination
of
both,
as
determined by
the
proration
provisions
of
the
Amended
and
Restated
Merger
Agreement.
8
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
T
o
provide
FOX
with
financing
in
connection
with
the
FOX
Distribution,
21st
Century
Fox
America,
Inc.
(“21CFA”),
a
wholly-owned
subsidiary
of
the
Company,
entered
into
a
commitment
letter
on
behalf
of
FOX
with
the
financial
institutions
party
thereto
(the
“Bridge
Commitment
Letter”)
which
provides
for
borrowings
of
up
to
$9
billion.
Given the
Company’s
current
debt
ratings,
21CFA
pays
a
commitment
fee
of
0.1%.
While
the
Company
has
entered
into
the
Bridge
Commitment
Letter,
FOX
intends
to
finance
the
dividend
by
obtaining
permanent
financing
in
the
capital
markets
on
a
standalone
basis.
Under
the
terms
of
the
Amended
and
Restated
Merger
Agreement,
Disney
will
pay
the
Company
$2.5
billion
if
the Mergers
are
not
consummated
under
certain
circumstances
relating
to
the
failure
to
obtain
approvals,
or
there
is
a
final, non-appealable
order
preventing
the
transaction,
in
each
case,
relating
to
antitrust
laws,
communications
laws
or
foreign regulatory
laws.
On
June
27,
2018,
the
Antitrust
Division
of
the
U.S.
Department
of
Justice
announced
that
it
cleared
the
Transaction.
The
Company,
Disney
and
the
U.S.
Department
of
Justice
have
entered
into
a
consent
decree
that
allows
the
Transaction
to
proceed,
while
requiring
New
Disney
and
the
Company
to
sell
the
RSNs
within
90
days
following
the
closing
of
the
Transaction,
which
consent
decree
is
subject
to
court
approval.
At
separate
special
meetings
of
stockholders
on
July
27,
2018,
the
Company’s
stockholders
adopted
the
Amended
and
Restated
Merger
Agreement,
Disney’s
stockholders
approved
the
stock issuance, and each company’s stockholders adopted or approved the other proposals voted on at the special meetings. On November 6, 2018, the European Commission announced that it approved the Transaction conditional on Disney’s divestiture of its ownership interest in the factual channels it controls in the European Economic Area owned by A&E Television Networks.
The
consummation
of
the
Transaction
remains
subject
to
various
conditions,
including
among
others,
(i)
the
consummation
of
the
FOX
Separation,
(ii)
the
receipt
of
certain
tax
opinions
with
respect
to
the
treatment
of
the
Transaction
under
U.S.
and
Australian
tax
laws,
and
(iii)
the
receipt
of
certain
regulatory
approvals
and
governmental
consents.
The
Transaction
is
expected
to
be
completed
in
the
first
half
of
calendar
year
2019.
The
Amended
and
Restated
Merger
Agreement
generally
requires
the
Company
to
operate
its
business
in
the ordinary
course
pending
consummation
of
the
21CF
Merger
and
restricts
the
Company,
without
Disney’s
consent,
from
taking
certain
specified
actions
until
the
Transactions
are
consummated
or
the
Amended
and
Restated
Merger
Agreement
is
terminated,
including
making
certain
acquisitions
and
divestitures,
entering
into
certain
contracts,
incurring
certain indebtedness
and
expenditures,
paying
dividends
in
excess
of
certain
thresholds,
and
repurchasing
or
issuing
securities outside
of
existing
equity
award
programs.
In
February
2018,
the
Compensation
Committee
of
the
Board
of
Directors
of
the
Company
(the
“Compensation Committee”)
established
a
cash
bonus
retention
plan
for
certain
employees
of
approximately
$110
million
of
which
50%
is
payable
at
the
time
of
the
Mergers
and
50%
on
the
10-month
anniversary
of
the
Mergers,
subject
to
each
participant's continued
employment
through
the
applicable
payment
date. Additionally, the
Compensation
Committee
made
a
special
grant
of
approximately
5.9
million
restricted
stock
units
(“Retention RSUs”)
to
certain
of
the
Company’s
senior
executives,
including
named
executive
officers.
The
Retention
RSU
grants
will
vest
50%
at
the
time
of
the
Mergers
and
50%
on
the
15-month
anniversary
of
the
Mergers,
subject
to
each
executive’s
continued
employment
through
the
applicable
vesting
date.
The cash bonus retention payment plans are subject to accelerated payment and
the
Retention
RSU
grants
will
be
subject
to
accelerated vesting
upon
the
occurrence
of
certain
termination
events.
In
the
event
the
Amended
and
Restated
Merger
Agreement
is terminated, the payments under the cash-based retention program will be made and
the
Retention
RSU
grants
will
vest
on
the
later
of
December
13,
2019
and
the
date
of
such
termination.
Other
In March 2017, the
Federal Communications Commission’s (the “FCC”)
concluded a voluntary auction to reclaim television broadcast station spectrum. The Company had three stations’ bids of approximately $350 million to relinquish spectrum accepted by the FCC as part of the auction and received the proceeds in July 2017. As a result, the spectrum previously utilized by its television stations in Washington, DC, Charlotte, NC and Chicago, IL designated market areas, in which the Company operates duopolies, has been relinquished to the FCC. The Company recorded a pre-tax gain of $114
million of which $102 million was recorded in fiscal 2018 and the remaining balance was recorded in Other, net in the Unaudited Consolidated Statement of Operations for the three months ended September 30, 2018
for the spectrum relinquished to the FCC in July 2018. These television stations will continue broadcasting using the spectrum of the existing FOX Network owned and operated station in that market.
9
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVENTORIES, NET
The Company’s inventories were comprised of the following:
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
(in millions)
|
|
Programming rights
|
|
|
|
|
|
|
|
|
Sports Programming rights
|
|
$
|
3,866
|
|
|
$
|
3,676
|
|
Entertainment Programming rights
(a)
|
|
|
3,209
|
|
|
|
3,263
|
|
Filmed entertainment costs
|
|
|
|
|
|
|
|
|
Films
|
|
|
|
|
|
|
|
|
Released, less accumulated amortization
|
|
|
1,175
|
|
|
|
1,249
|
|
Completed, not released
|
|
|
277
|
|
|
|
98
|
|
In production
|
|
|
1,620
|
|
|
|
1,556
|
|
In development or preproduction
|
|
|
220
|
|
|
|
221
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
3,292
|
|
|
|
3,124
|
|
|
|
|
|
|
|
|
|
|
Television productions
|
|
|
|
|
|
|
|
|
Released, less accumulated amortization
|
|
|
556
|
|
|
|
743
|
|
In production, development or preproduction
|
|
|
641
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,197
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
Total filmed entertainment costs, less accumulated amortization
(b)
|
|
|
4,489
|
|
|
|
4,248
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
|
11,564
|
|
|
|
11,187
|
|
Less: current portion of inventories, net
(c)
|
|
|
(3,804
|
)
|
|
|
(3,669
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current inventories, net
|
|
$
|
7,760
|
|
|
$
|
7,518
|
|
(a)
|
Includes DVDs, Blu-rays and other merchandise.
|
(b)
|
Does not include $202 million and $210 million of net intangible film library costs as of September 30, 2018 and June 30, 2018, respectively, which were included in intangible assets subject to amortization in the Consolidated Balance Sheets.
|
(c)
|
Current portion of inventories, net as of September 30, 2018 and June 30, 2018 was comprised of programming rights ($3,758 million and $3,625 million, respectively), DVDs, Blu-rays and other merchandise.
|
NOTE 4. INVESTMENTS
The Company’s investments were comprised of the following:
|
|
|
|
Ownership
percentage
as of
September 30,
2018
|
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Sky
(a)
|
|
European direct broadcast satellite operator
|
|
|
39%
|
|
|
$
|
3,573
|
|
|
$
|
3,306
|
|
Endemol Shine Group
(a)
|
|
Global multi-platform content provider
|
|
|
50%
|
|
|
|
163
|
|
|
|
188
|
|
Other investments
(b)
|
|
|
|
various
|
|
|
|
904
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
|
|
|
|
$
|
4,640
|
|
|
$
|
4,112
|
|
(a)
|
Equity method investment.
|
(
b
)
|
Includes an investment with a readily determinable fair value of $440 million as of September 30, 2018 (See
Note 5 – Fair Value).
|
10
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Sky
In December 2016, the Company announced it reached agreement with Sky, in which the Company had an approximate 39% interest, on the terms of a recommended pre-conditional cash offer by the Company for the fully diluted share capital of Sky which the Company did not already own (the “Sky Acquisition”), at a price of £10.75 per Sky share subject to certain payments of dividends. On July 11, 2018, the Company announced an increased offer price for the Sky Acquisition, of £14.00 per Sky share, payable in cash, subject to reduction if certain dividends or other distributions are paid by Sky (the “Increased Offer”). To provide financing in connection with the Sky Acquisition, the Company and 21CFA entered into a bridge credit agreement with the lenders party thereto (the “Bridge Credit Agreement”) which was subsequently amended as a result of the Increased Offer. The Company purchased foreign currency exchange options to limit its foreign currency exchange rate risk in connection with the Sky Acquisition (See Note 5 – Fair Value under the heading “
Foreign Currency Contracts”
and Note 12 – Additional Financial Information under the heading “Other, net” for additional information).
On September 22, 2018,
the Company made a revised cash offer for the fully diluted share capital of Sky that the Company and its affiliates did not already own at a price of
£15.67 for each Sky share, following the conclusion of the auction process conducted by the U.K. Panel on Takeovers and Mergers. On the same day, Comcast Corporation (“Comcast”) announced a revised cash offer by Comcast for the entire issued and to be issued share capital of Sky at a price of £17.28
for each Sky share (the “Comcast Offer”), which was recommended by the Sky Independent Committee. On September 26, 2018, the Company announced that it intended to lapse its offer on October 6, 2018 and that it intended to either accept the Comcast Offer or to sell its Sky shares to Comcast
at a price of £17.28 for each Sky share.
On October 3, 2018, the Company entered into an agreement to sell its shares to Comcast at a price of £17.28 for each Sky share. As a result,
in October 2018
, the Company received cash consideration of approximately £11.6 billion ($15.1 billion) for its 39% interest in Sky. The Company will record a gain on this transaction, which will be recorded in Other, net in the Unaudited Consolidated Statements of Operations for the three and six months ended December 31, 2018. In connection with the lapsing of the Company’s offer for Sky, the Bridge Credit Agreement has been terminated as of October 6, 2018.
Hulu
The Company owns an equity interest in Hulu. In August 2016, Hulu issued a 10% equity interest to a new investor thereby diluting the Company’s ownership from 33% to 30%. For a period of up to 36 months, under certain limited circumstances arising from regulatory review, the new investor may put its shares to Hulu or Hulu may call the shares from the new investor. If Hulu is required to fund the repurchase of shares from the new investor, the Company has agreed to make an additional capital contribution of up to approximately $300 million to Hulu.
As a result of these conditions, the Company will record a gain on the dilution of its ownership interest upon resolution of the contingency. The Company will continue to account for its interest in Hulu as an equity method investment.
For the three months ended September 30, 2018, the Company invested approximately $115 million in Hulu to maintain its ownership percentage and has committed to an additional investment of approximately $115 million in calendar year 2018.
Other Investments
During the first quarter of fiscal 2019, the Company invested, in the aggregate, approximately $100 million in cash for a minority equity interest in Caffeine, Inc. (“Caffeine”), a social broadcasting platform for gaming, entertainment and other creative content, and Caffeine Studio, LLC (“Caffeine Studios”), a newly formed venture that is jointly owned by the Company and Caffeine. The Company accounts for the investments in Caffeine at cost plus or minus observable price changes and Caffeine Studios as an equity method investment.
NOTE 5. 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”).
11
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
following
tables present information about financial assets and liabilities carried at fair value on a recurring basis
:
|
|
Fair value measurements
|
|
|
|
As of September 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
(a)
|
|
$
|
440
|
|
|
$
|
440
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivatives
(b)
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
Other
(c)
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
Redeemable noncontrolling interests
|
|
|
(551
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(47
|
)
|
|
$
|
440
|
|
|
$
|
6
|
|
|
$
|
(493
|
)
|
|
|
As of June 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
(a)
|
|
$
|
257
|
|
|
$
|
257
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivatives
(b)
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Other
(c)
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
Redeemable noncontrolling interests
|
|
|
(764
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(420
|
)
|
|
$
|
257
|
|
|
$
|
14
|
|
|
$
|
(691
|
)
|
(
a
)
|
Represents an investment in equity securities with a readily determinable fair value.
|
(
b
)
|
Represents derivatives associated with the Company’s foreign currency forward and option contracts and interest rate swap contracts.
|
(
c
)
|
Primarily relates to past acquisitions, including contingent consideration agreements.
|
Redeemable Noncontrolling Interests
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). Two minority shareholders’ put rights will become exercisable in March 2019 and one minority shareholders’ put right will become exercisable in July 2019. The remaining redeemable noncontrolling interests are currently not exercisable.
The changes in redeemable noncontrolling interests classified as Level 3 measurements were as follows:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Beginning of period
|
|
$
|
(764
|
)
|
|
$
|
(694
|
)
|
Net income
|
|
|
(24
|
)
|
|
|
(29
|
)
|
Distributions and other
|
|
|
237
|
|
(a)
|
|
24
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
(551
|
)
|
|
$
|
(699
|
)
|
(a)
|
As a result of the expiration of a put arrangement, approximately $200 million was reclassified into Retained earnings.
|
12
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
The carrying value of the Company’s financial instruments, such as cash and cash equivalents, receivables, payables and investments without a readily determinable fair value and not accounted for using the equity method, approximates fair value.
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
(in millions)
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
22,973
|
|
|
$
|
22,591
|
|
|
|
|
|
|
|
|
|
|
Carrying value
|
|
$
|
19,251
|
|
|
$
|
19,523
|
|
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 Contracts
The Company uses foreign currency forward contracts primarily to hedge certain exposures to foreign currency exchange rate risks associated with the cost of producing or acquiring films and television programming. The Company also entered into a foreign currency option contract to limit its foreign currency exchange rate risk in connection with the Sky Acquisition. For accounting purposes, the option contract did not qualify for hedge accounting and therefore was treated as an economic hedge (See Note 4 – Investments under the heading “Sky”).
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
(in millions)
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
$
|
159
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
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 year.
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
|
(in millions)
|
|
|
Economic Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
$
|
16
|
|
|
$
|
12,788
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
-
|
|
|
$
|
8
|
|
(a)
|
(
a)
|
As of June 30, 2018, the notional amount and fair value primarily relates to a foreign currency option contract to limit the foreign currency exchange rate risk in connection with the Sky Acquisition which had a premium payable of approximately $50 million. In September 2018, the Company paid the premium to settle this foreign currency option contract which was included in Other investing activities, net in the Unaudited Consolidated Statement of Cash Flows.
|
13
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,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
(in millions)
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
$
|
594
|
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
8
|
|
|
$
|
8
|
|
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 two 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, 2018 or June 30, 2018 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. As of September 30, 2018, the Company did not anticipate nonperformance by any of the counterparties.
NOTE 6. BORROWINGS
Borrowings include bank loans and public debt.
Bank Loans
STAR has entered into various unsecured credit facilities (the “STAR Credit Facilities”) that are available for working capital and for acquiring programming rights. These credit facilities are uncommitted and are reviewed periodically for renewal. As of September 30, 2018, the credit facilities have a total capacity for borrowings of INR 14 billion (approximately $195 million) and an outstanding balance of $72 million. Borrowings under the credit facilities are due on demand by the lenders providing up to 60 days’ notice. Borrowings with on demand repayment terms are presented as Current borrowings in the Consolidated Balance Sheets.
Senior Notes Retired
In August 2018, the Company retired $250 million of 8.25% Senior Notes.
Current Borrowings
Included in Borrowings within Current liabilities as of September 30, 2018 was $700 million of 6.90% Senior Notes that are due in March 2019, principal payments on the Yankees Entertainment and Sports Network (the “YES Network”) term loan facility of $31 million that are due in the next 12 months, $69 million related to the STAR term loan and $72 million related to the STAR Credit Facilities.
Bridge
Credit Agreement
See Note 4 – Investments under the heading “Sky”.
14
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCKHOLDERS’ EQUITY
The following table summarizes changes in stockholders’ equity:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Twenty-First Century Fox stockholders
|
|
|
Noncontrolling interests
|
|
|
Total
equity
|
|
|
Twenty-First Century Fox stockholders
|
|
|
Noncontrolling interests
|
|
|
Total
equity
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
19,564
|
|
|
$
|
1,234
|
|
|
$
|
20,798
|
|
|
$
|
15,722
|
|
|
$
|
1,216
|
|
|
$
|
16,938
|
|
Adoption of ASUs
|
|
|
244
|
|
(a)
|
|
-
|
|
|
|
244
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance, beginning of period
|
|
|
19,808
|
|
|
|
1,234
|
|
|
|
21,042
|
|
|
|
15,722
|
|
|
|
1,216
|
|
|
|
16,938
|
|
Net income
|
|
|
1,285
|
|
|
|
42
|
|
(b)
|
|
1,327
|
|
|
|
855
|
|
|
|
36
|
|
(b)
|
|
891
|
|
Other comprehensive (loss) income
|
|
|
(156
|
)
|
|
|
(4
|
)
|
|
|
(160
|
)
|
|
|
142
|
|
|
|
9
|
|
|
|
151
|
|
Issuance of shares
|
|
|
133
|
|
|
|
-
|
|
|
|
133
|
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Dividends declared
|
|
|
(334
|
)
|
|
|
-
|
|
|
|
(334
|
)
|
|
|
(333
|
)
|
|
|
-
|
|
|
|
(333
|
)
|
Other
|
|
|
(38
|
)
|
|
|
(46
|
)
|
(c)
|
|
(84
|
)
|
|
|
(123
|
)
|
|
|
(9
|
)
|
(c)
|
|
(132
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
20,698
|
|
|
$
|
1,226
|
|
|
$
|
21,924
|
|
|
$
|
16,304
|
|
|
$
|
1,252
|
|
|
$
|
17,556
|
|
(
a)
|
Primarily represents the adoption of ASU 2014-09 (See Note 1 – Basis of Presentation under the heading “Recently Adopted and Recently Issued Accounting Guidance and U.S. Tax Reform” for additional information). Approximately $145 million of the transition adjustment relates to the Company’s proportionate share of Sky’s transition adjustment.
|
(
b
)
|
Net income attributable to noncontrolling interests excludes $24 million and $29 million for the three months ended September 30, 2018 and 2017, respectively, relating to redeemable noncontrolling interests which are reflected in temporary equity.
|
(
c
)
|
Other activity attributable to noncontrolling interests excludes $(237) million and $(24) million for the three months ended September 30, 2018 and 2017, respectively, relating to redeemable noncontrolling interests
(See
Note 5 – Fair Value)
.
|
Comprehensive Income
Comprehensive income is reported in the Unaudited Consolidated Statements of Comprehensive Income and consists of Net income and Other comprehensive income (loss), including foreign currency translation adjustments, gains and losses on cash flow hedges, unrealized holding gains and losses on securities, benefit plan adjustments and the Company’s share of other comprehensive income (loss) of equity method investees, which affect stockholders’ equity, and under GAAP, are excluded from Net income.
15
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity within Other comprehensive income (loss):
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Before tax
|
|
|
Tax
(provision)
benefit
|
|
|
Net of tax
|
|
|
Before tax
|
|
|
Tax
(provision)
benefit
|
|
|
Net of tax
|
|
|
|
(in millions)
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains
|
|
$
|
(132
|
)
|
|
$
|
-
|
|
|
$
|
(132
|
)
|
|
$
|
41
|
|
|
$
|
-
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
(a)
|
|
$
|
(132
|
)
|
|
$
|
-
|
|
|
$
|
(132
|
)
|
|
$
|
41
|
|
|
$
|
-
|
|
|
$
|
41
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8
|
|
|
$
|
(3
|
)
|
|
$
|
5
|
|
Reclassifications realized in net income
(b)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
129
|
|
|
$
|
(47
|
)
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
129
|
|
|
$
|
(47
|
)
|
|
$
|
82
|
|
Benefit plan adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications realized in net income
(c)
|
|
$
|
8
|
|
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
(4
|
)
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
8
|
|
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
(4
|
)
|
|
$
|
6
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains and reclassifications
|
|
$
|
(42
|
)
|
|
$
|
8
|
|
|
$
|
(34
|
)
|
|
$
|
34
|
|
|
$
|
(12
|
)
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
$
|
(42
|
)
|
|
$
|
8
|
|
|
$
|
(34
|
)
|
|
$
|
34
|
|
|
$
|
(12
|
)
|
|
$
|
22
|
|
(a)
|
Foreign currency translation adjustments include $(4) million and $9 million for the three months ended September 30, 2018 and 2017, respectively, relating to noncontrolling interests.
|
(
b
)
|
Reclassifications of amounts related to hedging activity are included in Revenues, Operating expenses, Selling, general and administrative expenses, Interest expense, net or Other, net, as appropriate, in the Unaudited Consolidated Statements of Operations (See Note 5 – Fair Value for additional information regarding hedging activity).
|
(
c
)
|
Reclassifications of amounts related to benefit plan adjustments are included in Other, net in the Unaudited Consolidated Statements of Operations.
|
16
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive loss
The following table summarizes the changes in the components of Accumulated other comprehensive loss, net of tax:
|
|
For the three months ended September 30, 2018
|
|
|
|
Foreign currency translation adjustments
|
|
|
Cash flow hedges
|
|
|
Unrealized holding gains on securities
|
|
|
Benefit plan adjustments
|
|
|
Equity method investments
|
|
|
Accumulated other comprehensive loss
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
(1,317
|
)
|
|
$
|
4
|
|
|
$
|
132
|
|
|
$
|
(307
|
)
|
|
$
|
(513
|
)
|
|
$
|
(2,001
|
)
|
Adoption of ASUs
|
|
|
-
|
|
|
|
1
|
|
(a)
|
|
(132
|
)
|
(b)
|
|
(66
|
)
|
(a)
|
|
-
|
|
|
|
(197
|
)
|
Other comprehensive (loss) income, net of tax
|
|
|
(128
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
(34
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(1,445
|
)
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
(367
|
)
|
|
$
|
(547
|
)
|
|
$
|
(2,354
|
)
|
(a)
|
Reflects the adoption of ASU 2018-02 (See Note 1 – Basis of Presentation under the heading “Recently Adopted and Recently Issued Accounting Guidance and U.S. Tax Reform” for additional information).
|
(b)
|
Reflects the adoption of ASU 2016-01 (See Note 1 – Basis of Presentation under the heading “Recently Adopted and Recently Issued Accounting Guidance and U.S. Tax Reform” for additional information).
|
Earnings Per Share Data
The following table sets forth the Company’s computation of Income from continuing operations attributable to Twenty-First Century Fox stockholders:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Income from continuing operations
|
|
$
|
1,358
|
|
|
$
|
904
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(66
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Twenty-First Century Fox stockholders
|
|
$
|
1,292
|
|
|
$
|
839
|
|
Stock Repurchase Program
The Company’s Board of Directors (the “Board”) previously authorized a stock repurchase program, under which the Company is authorized to acquire Class A Common Stock. In August 2016 and 2015, the Board authorized the repurchase of an additional $3 billion and $5 billion, respectively, of Class A Common Stock, excluding commissions. As of September 30, 2018, the Company’s remaining buyback authorization was approximately $3.1 billion representing $3 billion under the fiscal 2017 authorization and approximately $110 million under the fiscal 2016 authorization. Pursuant to the Amended and Restated Merger Agreement (See Note 2 – Acquisitions, Disposals and Other Transactions under the heading “Disney Transaction/Distribution of FOX”), the Company is prohibited from repurchasing any additional shares without Disney’s consent.
The Company did not repurchase any of its Class A Common Stock or Class B Common Stock during the three months ended September 30, 2018.
Dividends
The following table summarizes the dividends declared per share on both the Company’s Class A Common Stock and the Class B Common Stock:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash dividend per share
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
17
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company declared a dividend of $0.18 per share on both the Class A Common Stock and Class B Common Stock in the three months ended September 30, 2018, which was paid in October 2018 to the stockholders of record on September 12, 2018.
NOTE 8. EQUITY-BASED COMPENSATION
The following table summarizes the Company’s equity-based compensation activity:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Equity-based compensation
|
|
$
|
50
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of all settled equity-based awards
|
|
$
|
229
|
|
|
$
|
74
|
|
As of September 30, 2018, the Company’s total estimated compensation cost related to equity-based awards, not yet recognized, was approximately $355 million, and is expected to be recognized over a weighted average period between one and two years. Compensation expense on all equity-based awards is generally recognized on a straight-line basis over the vesting period of the entire award.
Performance Stock Units
The Company’s stock based awards are granted in Class A Common Stock. During the three months ended September 30, 2018, no performance stock units (“PSUs”) were granted and approximately 5.0 million PSUs vested.
During the three months ended September 30, 2017, approximately 6.6 million PSUs were granted and approximately 2.6 million PSUs vested.
Restricted Stock Units
The Company’s stock based awards are granted in Class A Common Stock. During the three months ended September 30, 2018, approximately 2.3 million restricted stock units (“RSUs”) were granted.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The total firm commitments and future debt payments as of September 30, 2018 and June 30, 2018 were approximately $82 billion and $84 billion, respectively. The decrease from June 30, 2018 was primarily due to
payments related to sports programming rights and borrowings
.
Contingent Guarantees
The Company’s contingent guarantees as of September 30, 2018 and June 30, 2018 were approximately $890 million and $1.1 billion, respectively. The decrease from June 30, 2018 was primarily due to the release of the Company’s obligations under a bank guarantee benefiting the Board of Control for Cricket in India.
The commitments and contingent guarantees above do not include obligations and commitments related to the Transaction and Sky Acquisition (See Note 2 – Acquisitions, Disposals and Other Transactions under the heading “Disney Transaction/Distribution of FOX” and Note 4 – Investments under the heading “Sky”).
18
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Hulu
The Company has guaranteed $113 million of Hulu’s $338 million five-year term loan due in August 2022 which is included in the contingent guarantees above. The fair value of this guarantee was calculated using Level 3 inputs and was included in the Consolidated Balance Sheets in Other liabilities.
In addition to the contingent guarantees mentioned above, the Company is party to capital funding agreements related to Hulu (See Note 4 – Investments under the heading “Hulu”).
Contingencies
FOX News Channel
The Company and certain of its current and former employees have been subject to allegations of sexual harassment and discrimination and racial discrimination relating to alleged misconduct at the Company’s FOX News business. The Company has resolved many of these claims and is contesting other claims in litigation. The Company has also received regulatory and investigative inquiries relating to these matters. To date, none of the amounts paid in settlements or reserved for pending or future claims, is individually or in the aggregate, material to the Company. The amount of liability, if any, that may result from these or related matters cannot be estimated at this time. However, the Company does not currently anticipate that the ultimate resolution of any such pending matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
U.K. Newspaper Matters Indemnity
In connection with the News Corp Separation (as defined in Note 4 – Discontinued Operations in the 2018 Form 10-K under the heading “Separation of News Corp”), the Company and News Corporation (“News Corp”) agreed in the News Corp Separation and Distribution Agreement that the Company will indemnify News Corp, on an after-tax basis, for payments made after the News Corp Separation arising out of civil claims and investigations relating to phone hacking, illegal data access and inappropriate payments to public officials that occurred at subsidiaries of News Corp, as well as legal and professional fees and expenses paid in connection with the related criminal matters, other than fees, expenses and costs relating to employees who are not (i) directors, officers or certain designated employees or (ii) with respect to civil matters, co-defendants with News Corp (the “Indemnity”). The liability related to the Indemnity, recorded in the Consolidated Balance Sheets, was approximately $45 million and $50 million as of September 30, 2018 and June 30, 2018, respectively.
Other
Equity purchase arrangements that are exercisable by the counterparty to the agreement, and that are outside the sole control of the Company, are accounted for in accordance with ASC 480-10-S99-3A and are classified as Redeemable noncontrolling interests in the Consolidated Balance Sheets. Other than the arrangements classified as Redeemable noncontrolling interests, the Company is also a party to several other purchase and sale arrangements which become exercisable at various points in time. However, these arrangements are currently either not exercisable in the next twelve months or are not material.
The Company establishes an accrued liability for legal claims when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could affect the Company’s results of operations and financial condition. For the contingencies disclosed above for which there is at least a reasonable possibility that a loss may be incurred, other than the accrual provided, the Company was unable to estimate the amount of loss or range of loss.
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
19
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SEGMENT INFORMATION
The Company is a diversified global media and entertainment company, which manages and reports its businesses in the following four segments:
|
•
|
Cable Network Programming
, which principally consists of the production and licensing of programming distributed primarily through cable television systems, direct broadcast satellite operators, telecommunication companies and online video distributors (collectively, multi-channel video programming distributors) (“MVPDs”) primarily in the U.S. and internationally.
|
|
•
|
Television
, which principally consists of the acquisition, marketing and distribution of network programming in the U.S. and the operation of 28 full power broadcast television stations, including 11 duopolies, in the U.S. (of these stations, 17 are affiliated with the FOX Network, nine are affiliated with MyNetworkTV, one is affiliated with both The CW Television Network and MyNetworkTV and one is an independent station).
|
|
•
|
Filmed Entertainment
, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide.
|
|
•
|
Other, Corporate and Eliminations
, which principally consists of corporate overhead costs and intercompany eliminations.
|
The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is Segment OIBDA. Due to the integrated nature of these operating segments, estimates and judgments are made in allocating certain assets, revenues and expenses.
Segment OIBDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Segment OIBDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Equity earnings of affiliates, Interest expense, net, Interest income, Other, net, Income tax expense, (Loss) income from discontinued operations, net of tax and Net income attributable to noncontrolling interests. Management believes that Segment OIBDA is an appropriate measure for evaluating the operating performance of the Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the performance of and allocate resources to the Company’s businesses.
Management believes that information about Total Segment OIBDA assists all users of the Company’s Unaudited Consolidated Financial Statements by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing insight into both operations and the other factors that affect reported results. Total Segment OIBDA provides management, investors and equity analysts a measure to analyze the operating performance of the Company’s business and its enterprise value against historical data and competitors’ data, although historical results, including Segment OIBDA and Total Segment OIBDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).
Total Segment OIBDA may be considered a non-GAAP measure and should be considered in addition to, not as a substitute for, net income, cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment charges, which are significant components in assessing the Company’s financial performance.
20
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles Income from continuing operations before income tax expense
to Total Segment OIBDA for the three months ended September 30, 2018 and 201
7
:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Income from continuing operations before income tax expense
|
|
$
|
1,484
|
|
|
$
|
1,295
|
|
Add
|
|
|
|
|
|
|
|
|
Amortization of cable distribution investments
|
|
|
10
|
|
|
|
18
|
|
Depreciation and amortization
|
|
|
158
|
|
|
|
142
|
|
Impairment and restructuring charges
|
|
|
16
|
|
|
|
21
|
|
Equity earnings of affiliates
|
|
|
(35
|
)
|
|
|
(60
|
)
|
Interest expense, net
|
|
|
300
|
|
|
|
313
|
|
Interest income
|
|
|
(8
|
)
|
|
|
(10
|
)
|
Other, net
|
|
|
(52
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total Segment OIBDA
|
|
$
|
1,873
|
|
|
$
|
1,791
|
|
The following tables set forth the Company’s Revenues and Segment OIBDA for the three months ended September 30, 2018 and 2017:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Revenues
|
|
|
|
|
|
|
|
|
Cable Network Programming
|
|
$
|
4,347
|
|
|
$
|
4,196
|
|
Television
|
|
|
1,276
|
|
|
|
1,065
|
|
Filmed Entertainment
|
|
|
1,816
|
|
|
|
1,963
|
|
Other, Corporate and Eliminations
|
|
|
(262
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,177
|
|
|
$
|
7,002
|
|
Segment OIBDA
|
|
|
|
|
|
|
|
|
Cable Network Programming
|
|
$
|
1,537
|
|
|
$
|
1,511
|
|
Television
|
|
|
168
|
|
|
|
122
|
|
Filmed Entertainment
|
|
|
277
|
|
|
|
256
|
|
Other, Corporate and Eliminations
|
|
|
(109
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
Total Segment OIBDA
|
|
$
|
1,873
|
|
|
$
|
1,791
|
|
Intersegment revenues, generated by the Filmed Entertainment segment, of $245 million and $195 million for the three months ended September 30, 2018 and 2017, respectively, have been eliminated within the Other, Corporate and Eliminations segment. The balance of intersegment revenues is primarily related to the Cable Network Programming segment.
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Cable Network Programming
|
|
$
|
97
|
|
|
$
|
85
|
|
Television
|
|
|
26
|
|
|
|
27
|
|
Filmed Entertainment
|
|
|
25
|
|
|
|
23
|
|
Other, Corporate and Eliminations
|
|
|
10
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
158
|
|
|
$
|
142
|
|
21
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization
includes the amortization of definite lived intangible assets of $
64
million and $
65
million
for t
he three months ended September 30, 2018 and
2017
, respectively.
|
|
As of
September 30,
2018
|
|
|
As of
June 30,
2018
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cable Network Programming
|
|
$
|
25,278
|
|
|
$
|
25,756
|
|
Television
|
|
|
7,124
|
|
|
|
6,779
|
|
Filmed Entertainment
|
|
|
11,484
|
|
|
|
10,646
|
|
Other, Corporate and Eliminations
|
|
|
5,986
|
|
|
|
6,538
|
|
Investments
|
|
|
4,640
|
|
|
|
4,112
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
54,512
|
|
|
$
|
53,831
|
|
Revenues by Component
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Revenues
|
|
|
|
|
|
|
|
|
Affiliate fee
|
|
$
|
3,495
|
|
|
$
|
3,236
|
|
Advertising
|
|
|
1,772
|
|
|
|
1,623
|
|
Content
|
|
|
1,771
|
|
|
|
2,019
|
|
Other
|
|
|
139
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,177
|
|
|
$
|
7,002
|
|
NOTE 11. REVENUES
Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.
Cable Network Programming and Television
The Company generates affiliate fee revenue from affiliate agreements with MVPDs for cable network programming and for the broadcast of the Company’s owned and operated television stations. In addition, the Company generates affiliate fee revenue from affiliate agreements with independently-owned television stations that are affiliated with the FOX Network and receives retransmission consent fees from MVPDs for their signals. Affiliate fee revenue is recognized at a point in time when the network programming is made available to the customer. For contracts with affiliate fees based on the number of the affiliate’s subscribers, revenues are recognized based on the contractual rate multiplied by the estimated number of subscribers each period. For contracts with fixed affiliate fees, revenues are recognized based on the relative standalone selling price of the network programming provided over the contract term. Affiliate contracts are generally multi-year contracts with payments due monthly.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to MVPDs to facilitate carriage of a cable network) against affiliate fee revenue in accordance with ASC 606-10-32-25 through 27, “Revenue Recognition—Consideration Payable to a Customer.” The Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the contract period.
22
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company generates advertising revenue from sales of commercial time within the Company’s
network programming to be aired by television networks and cable channels, and from sales of broadcast advertising time on the Company’s owned television stations and various digital properties. Advertising revenue is recognized as the commercials are air
ed, net of agency commissions. Certain of the Company’s advertising contracts have guarantees of a certain number of targeted audience views, referred to as impressions. Revenues
are not recognized
for any audience deficiencies until the guaranteed number
of impressions
are
met, by providing additional advertisements. Advertising contracts, which are generally short-term, are billed monthly for the spots aired during the month, with payments due shortly after the invoice date.
Filmed Entertainment
The Company’s Filmed Entertainment segment generates revenue from the licensing of motion pictures and television content produced or acquired for distribution by the Company. In general, motion pictures are exhibited in U.S. and foreign theaters, followed by home entertainment, including sales and rentals of DVDs and Blu-rays, licensing through digital distribution platforms, premium subscription television, network television and basic cable and syndicated television exploitation. Television series initially produced for the networks and first-run syndication are generally licensed to domestic and international markets, concurrently and subsequently made available via digital distribution platforms and released in seasonal DVDs and Blu-ray box sets.
Content revenues from the licensing of motion pictures and television series are recognized when the content is made available to the licensee for exhibition at the beginning of the license period. If an existing licensing agreement is renewed or extended, the Company recognizes revenue at the later of when the content is available or when the renewal or extension period commences. For contracts that include variable fees in the form of sales-based or usage-based royalties, revenue is recognized when the underlying sales or usage occurs. Payment terms and duration of content licensing contracts vary by contract, typically with payments due over the license term. Revenues from the theatrical distribution of motion pictures are recognized as the licensee exhibits or exploits them. Revenues from home entertainment sales, net of a reserve for estimated returns, are recognized on the date that DVD and Blu-ray units are made widely available for sale by retailers or when made available for viewing via digital distribution platforms and all Company-imposed restrictions on the sale or availability have expired. Revenues from digital distribution platforms are generally recognized when the underlying sales occur.
License agreements for the broadcast of motion pictures and television series in the broadcast network, syndicated television and cable television markets are routinely entered in advance of their availability date for broadcast. Cash received and amounts billed in connection with such contractual rights, for which revenue is not yet recognizable, are classified as deferred revenue. Because deferred revenue generally relates to contracts for the licensing of motion pictures and television series which have already been produced, the recognition of revenue for such completed product is principally dependent upon the commencement of the availability period for broadcast under the terms of the related licensing agreement.
The Company earns and recognizes revenues as a distributor on behalf of third parties. In such cases, determining whether revenue should be reported on a gross or net basis is based on management’s assessment of whether the Company obtains control of the content before licensing it to the customer. To the extent the Company obtains control and thereby acts as the principal in a transaction, revenues are reported on a gross basis. Determining whether the Company acts as principal or agent in a transaction involves judgment and is based on an evaluation of whether the Company has the ability to direct the use of and obtain substantially all of the remaining benefits from the third-party content.
23
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table
set
s
forth the Company’s Revenues by
S
egment by
Component
for the three months ended September 30, 2018 and 2017:
|
|
For the three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in millions)
|
|
Cable Network Programming
|
|
|
|
|
|
|
|
|
Affiliate fee
|
|
$
|
3,097
|
|
|
$
|
2,902
|
|
Advertising, content and other
|
|
|
1,250
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
Total Cable Network Programming revenues
|
|
|
4,347
|
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
799
|
|
|
|
655
|
|
Affiliate fee, content and other
|
|
|
477
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
Total Television revenues
|
|
|
1,276
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
Filmed Entertainment
|
|
|
|
|
|
|
|
|
Content
|
|
|
1,725
|
|
|
|
1,891
|
|
Advertising and other
|
|
|
91
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total Filmed Entertainment revenues
|
|
|
1,816
|
|
|
|
1,963
|
|
|
|
|
|
|
|
|
|
|
Other, Corporate and Eliminations
|
|
|
(262
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,177
|
|
|
$
|
7,002
|
|
Future Performance Obligations
As of September 30, 2018, approximately $7 billion of revenues are expected to be recognized primarily over the next three years. The Company’s most significant remaining performance obligations relate to affiliate contracts and sports rights sublicensing contracts with fixed fees. The amount disclosed does not include (i) revenues related to performance obligations that are part of a contract that have an original expected duration of one year or less, (ii) revenues related to performance obligations for which the Company recognizes revenues in the amount it has a right to invoice, (iii) revenues that are in the form of sales-based or usage-based royalties promised in exchange for licenses of intellectual property and (iv) revenues that have variable consideration which is allocated entirely to an unsatisfied performance obligation or an unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.
Receivables
Receivables, net as of September 30, 2018 and July 1, 2018 consist of:
|
|
As of
September 30, 2018
|
|
|
As of
July 1, 2018
|
|
|
|
(in millions)
|
|
Total receivables
|
|
$
|
8,381
|
|
|
$
|
8,553
|
|
Allowances for doubtful accounts
|
|
|
(163
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Total receivables, net
|
|
|
8,218
|
|
|
|
8,384
|
|
Less: current receivables, net
|
|
|
(7,326
|
)
|
|
|
(7,625
|
)
|
|
|
|
|
|
|
|
|
|
Non-current receivables, net
|
|
$
|
892
|
|
|
$
|
759
|
|
Deferred Revenue
Deferred revenue consists of cash payments received or due in advance of the Company’s performance primarily under license agreements for the broadcast of motion pictures and television series as well as advertising agreements where revenues have been deferred due to audience deficiency.
24
TWENTY-FIRST CENTURY FOX, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the
D
eferred revenue balances as of September 30, 2018 and July 1, 2018:
|
|
As of
September 30, 2018
|
|
|
As of
July 1, 2018
|
|
|
|
(in millions)
|
|
Current deferred revenue
|
|
$
|
764
|
|
|
$
|
791
|
|
Noncurrent deferred revenue
|
|
$
|
275
|
|
|
$
|
291
|
|