21st Century Fox Reports First Quarter Income from Continuing Operations before Income Tax Expense of $1.30 Billion and Total Segment Operating Income before Depreciation and Amortization of $1.79 Bil

Nov 08, 2017 04:03 pm
NEW YORK -- 

Twenty-First Century Fox, Inc. (“21st Century Fox” or the “Company” -- NASDAQ: FOXA, FOX) today reported financial results for the three months ended September 30, 2017.

The Company reported quarterly income from continuing operations attributable to 21st Century Fox stockholders of $839 million ($0.45 per share), as compared to $827 million ($0.44 per share) reported in the prior year quarter. Excluding the net income effects of Impairment and restructuring charges, Other, net and adjustments to Equity earnings of affiliates1 adjusted quarterly earnings per share from continuing operations attributable to 21st Century Fox stockholders2 was $0.49 compared to the adjusted result of $0.51 for the same quarter of the prior year.

The Company reported total quarterly revenues of $7.00 billion, a $496 million, or 8%, increase from the $6.51 billion of revenues reported in the prior year quarter. This increase reflects revenue growth reported across all operating segments, led by higher affiliate revenues at both the Cable Network Programming and Television segments and higher content revenues at the Filmed Entertainment segment.

Quarterly income from continuing operations before income tax expense of $1.30 billion increased 5% over the $1.24 billion reported in the prior year quarter. Quarterly total segment operating income before depreciation and amortization (“OIBDA”)3 of $1.79 billion was equal to the amount reported in the prior year quarter. Higher contributions from the Cable Network Programming segment were offset by lower contributions from the Company’s Television and Filmed Entertainment segments.

Commenting on the results, Executive Chairmen Rupert and Lachlan Murdoch said:

“The Company’s double-digit gains in affiliate revenues demonstrate our strength in the dynamic global market for distinctive video brands and content, across both established distributors and new entrants. We delivered top-line growth at all of our businesses, backed by stand-out storytelling, sports and news, as well as a product focus that will drive greater consumption and compelling opportunities for financial returns on our content investment. Our solid first quarter performance puts us on track to achieve our overall financial and operational objectives for this fiscal year.”

_________________________________
1   See footnote (a) on page 12 for a description of the adjustments to Equity earnings from affiliates.
2 See page 12 for a reconciliation of reported income and earnings per share from continuing operations attributable to 21st Century Fox stockholders to adjusted income and adjusted earnings per share from continuing operations attributable to 21st Century Fox stockholders, which may be considered non-GAAP financial measures.
3 Total segment OIBDA may be considered a non-GAAP financial measure. See page 10 for a description of total segment OIBDA and for a reconciliation from income from continuing operations before income tax expense to total segment OIBDA.
 

REVIEW OF SEGMENT OPERATING RESULTS

 

Three Months Ended

September 30,

2017   2016
US $ Millions
Revenues:    
 
Cable Network Programming $ 4,196 $ 3,810
Television 1,065 1,038
Filmed Entertainment 1,963 1,907
Other, Corporate and Eliminations     (222 )     (249 )
Total revenues $   7,002 $   6,506
 
Segment OIBDA:
 
Cable Network Programming $ 1,511 $ 1,384
Television 122 191
Filmed Entertainment 256 311
Other, Corporate and Eliminations     (98 )     (95 )
Total Segment OIBDA(a) $   1,791 $   1,791
     

(a)

 

Total segment OIBDA may be considered a non-GAAP financial measure. See page 10 for a description of total segment OIBDA and for a reconciliation from income from continuing operations before income tax expense to total segment OIBDA.

 

CABLE NETWORK PROGRAMMING

Cable Network Programming quarterly segment OIBDA increased 9% to $1.51 billion, driven by a 10% revenue increase on higher affiliate and advertising revenues partially offset by an 11% increase in expenses. The increase in expenses was primarily due to higher global sports programming costs reflecting the inaugural broadcasts of Big Ten college football at FS1 and Argentine Football Association matches at Fox Networks Group International (“FNG International”) as well as contractual rights increases for Major League Baseball at the domestic sports channels and higher CONMEBOL soccer rights at FNG International.

Domestic affiliate revenue increased 11% driven by contractual rate increases across all of our domestic brands. Domestic advertising revenue increased 3% over the prior year period led by growth at the domestic sports channels. Domestic OIBDA contributions increased 11% over the prior year quarter driven by higher contributions from Fox News, FX Networks and the regional sports networks.

International affiliate revenue increased 11% driven by rate and subscriber growth at both FNG International and STAR India. International advertising revenue increased 10% led by double digit growth at STAR India and continued growth at FNG International. International OIBDA contributions were similar to the prior year quarter as higher contributions at STAR India were offset by lower contributions at FNG International where higher entertainment and sports programming costs more than offset the higher reported revenues.

TELEVISION

Television reported quarterly segment OIBDA of $122 million, a decrease of 36% compared to the prior year quarter. Quarterly segment revenues were 3% higher than the corresponding period in the prior year due to higher retransmission consent revenue and higher FOX Broadcast Network sports advertising revenues being partially offset by lower cyclical political advertising revenues at the TV stations. The decrease in segment OIBDA was primarily driven by higher contractual sports programming costs at the FOX Broadcast Network, including a higher volume of college football and National Football League games broadcast in the current year quarter, that more than offset the higher revenues.

FILMED ENTERTAINMENT

Filmed Entertainment generated quarterly segment OIBDA of $256 million, a $55 million decrease from the $311 million reported in the prior year quarter. The OIBDA decrease in the current quarter was driven by lower film studio results primarily due to lower worldwide TV contributions reflecting last year’s pay TV licensing of X-Men: Days of Future Past and the free TV licensing of The Martian with no comparable titles licensed in the current quarter. The film studio decline more than offset higher television production contributions from higher domestic syndication revenues that include the licensing of Futurama. Quarterly segment revenues increased $56 million to $1.96 billion, primarily reflecting higher syndication revenue from television productions partially offset by lower film studio pay and free tv licensing revenues.

REVIEW OF EQUITY EARNINGS OF AFFILIATES’ RESULTS

 

The Company’s share of equity earnings of affiliates is as follows:

 
       

Three Months Ended

September 30,

% Owned 2017   2016
US $ Millions
       
Sky 39%(1) $ 110 $ 97
Hulu 30% (62 ) (39 )
Other equity affiliates Various(2)       12       (23 )
Total equity earnings of affiliates $     60 $     35
     

(1)

 

Please refer to Sky plc’s (“Sky”) earnings releases for detailed information.

(2)

Primarily comprised of Endemol Shine Group and Tata Sky.

 

Quarterly equity earnings of affiliates were $60 million as compared to $35 million reported in the same period a year-ago. The $25 million increase primarily reflects improved results reported at Endemol Shine Group and higher equity earnings reported at Sky partially offset by higher equity losses at Hulu.

OTHER ITEMS

Pending Acquisition of the Remaining Shares of Sky

The Company’s pending acquisition of the public shares of Sky has been cleared on public interest and plurality grounds in all of the markets in which Sky operates except the UK, including Austria, Germany, Italy and the Republic of Ireland. The acquisition has also received unconditional clearance by all relevant competition authorities. The transaction is subject to certain other customary closing conditions and the requisite approval of Sky shareholders unaffiliated with the Company. On September 20, 2017, the U.K. Secretary of State referred the proposed transaction to the Competition and Market Authority (CMA) for a second phase review on grounds of media plurality and broadcasting standards. Absent further delays, the transaction is expected to close by June 30, 2018.

To access a copy of this press release through the Internet, access 21st Century Fox’s corporate Web site located at http://www.21cf.com.

Audio from 21st Century Fox’s conference call with analysts on the first quarter results can be heard live on the Internet at 4:30 p.m. Eastern Standard Time today. To listen to the call, visit http://www.21cf.com.

Cautionary Statement Concerning Forward-Looking Statements

This document contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from these expectations due to changes in global economic, business, competitive market and regulatory factors. More detailed information about these and other factors that could affect future results is contained in our filings with the Securities and Exchange Commission. The “forward-looking statements” included in this document are made only as of the date of this document and we do not have any obligation to publicly update any “forward-looking statements” to reflect subsequent events or circumstances, except as required by law.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

Three Months Ended

September 30,

2017   2016

US $ Millions, except

per share amounts

   
Revenues $ 7,002 $ 6,506
 
Operating expenses (4,381 ) (3,915 )
Selling, general and administrative (848 ) (815 )
Depreciation and amortization (142 ) (135 )
Impairment and restructuring charges (21 ) (137 )
Equity earnings of affiliates 60 35
Interest expense, net (313 ) (300 )
Interest income 10 9
Other, net     (72 )     (11 )
Income from continuing operations before income tax expense 1,295 1,237
Income tax expense     (391 )     (343 )
Income from continuing operations 904 894
Income (loss) from discontinued operations, net of tax     16     (6 )
Net income     920   888
Less: Net income attributable to noncontrolling interests     (65 )     (67 )
Net income attributable to Twenty-First Century Fox, Inc. stockholders $   855 $   821
 
 
Weighted average shares: 1,853 1,863
 
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders per share: $ 0.45 $ 0.44
 
Net income attributable to Twenty-First Century Fox, Inc. stockholders per share: $ 0.46 $ 0.44
 

CONSOLIDATED BALANCE SHEETS

 

September 30,

 

June 30,

2017

2017

Assets: US $ Millions
Current assets:    
Cash and cash equivalents $ 6,901 $ 6,163
Receivables, net 6,619 6,477
Inventories, net 2,856 3,101
Other     622     545
Total current assets     16,998     16,286
 
Non-current assets:
Receivables, net 684 543
Investments 4,066 3,902
Inventories, net 8,019 7,452
Property, plant and equipment, net 1,779 1,781
Intangible assets, net 6,289 6,574
Goodwill 12,779 12,792
Other non-current assets     1,414     1,394
Total assets $   52,028 $   50,724
 
Liabilities and Equity:
Current liabilities:
Borrowings $ 707 $ 457
Accounts payable, accrued expenses and other current liabilities 3,966 3,451
Participations, residuals and royalties payable 1,604 1,657
Program rights payable 1,228 1,093
Deferred revenue     671     580
Total current liabilities     8,176     7,238
 
Non-current liabilities:
Borrowings 19,142 19,456
Other liabilities 3,654 3,616
Deferred income taxes 2,801 2,782
Redeemable noncontrolling interests 699 694
Commitments and contingencies
Equity:
Class A common stock, $0.01 par value 11 11
Class B common stock, $0.01 par value 8 8
Additional paid-in capital 12,345 12,406
Retained earnings 5,816 5,315
Accumulated other comprehensive loss     (1,876 )     (2,018 )
Total Twenty-First Century Fox, Inc. stockholders' equity 16,304 15,722
Noncontrolling interests     1,252     1,216
Total equity     17,556     16,938
Total liabilities and equity $   52,028 $   50,724
 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Three Months Ended

September 30,

2017   2016
US $ Millions
Operating activities:    
Net income $ 920 $ 888
Less: Income (loss) from discontinued operations, net of tax     16     (6 )
Income from continuing operations 904 894
Adjustments to reconcile income from continuing operations to cash provided by operating activities
Depreciation and amortization 142 135
Amortization of cable distribution investments 18 15
Impairment and restructuring charges 21 137
Equity-based compensation 27 42
Equity earnings of affiliates (60 ) (35 )
Cash distributions received from affiliates 5 2
Other, net 72 11
Deferred income taxes and other taxes (11 ) (12 )
Change in operating assets and liabilities, net of acquisitions and dispositions
Receivables (287 ) 86
Inventories net of program rights payable (183 ) (294 )
Accounts payable and accrued expenses (100 ) (22 )
Other changes, net     200     31
Net cash provided by operating activities from continuing operations     748     990
 
Investing activities:
Property, plant and equipment (81 ) (53 )
Investments in equity affiliates (101 ) (6 )
Proceeds from dispositions, net 362 1
Other investments     (29 )     (64 )
Net cash provided by (used in) investing activities from continuing operations     151     (122 )
 
Financing activities:
Borrowings - 37
Repayment of borrowings (67 ) (105 )
Repurchase of Shares - (467 )
Dividends paid and distributions (67 ) (54 )
Other financing activities, net     (32 )     (29 )
Net cash used in financing activities from continuing operations     (166 )     (618 )
 
Net decrease in cash and cash equivalents from discontinued operations (9 ) (6 )
 
Net increase in cash and cash equivalents 724 244
Cash and cash equivalents, beginning of year 6,163 4,424
Exchange movement on cash balances     14     13
Cash and cash equivalents, end of period $   6,901 $   4,681
 

SEGMENT INFORMATION

 

Three Months Ended

September 30,

2017   2016
US $ Millions
Revenues:
 
Cable Network Programming $   4,196 $   3,810
Television 1,065 1,038
Filmed Entertainment 1,963 1,907
Other, Corporate and Eliminations     (222 )     (249 )
Total revenues $   7,002 $   6,506
 
Segment OIBDA:
 
Cable Network Programming $ 1,511 $ 1,384
Television 122 191
Filmed Entertainment 256 311
Other, Corporate and Eliminations     (98 )     (95 )
Total Segment OIBDA(a) $   1,791 $   1,791
 
Depreciation and amortization:
 
Cable Network Programming $ 85 $ 82
Television 27 29
Filmed Entertainment 23 20
Other, Corporate and Eliminations     7     4
Total depreciation and amortization $   142 $   135
 
 

CONSOLIDATED REVENUES BY COMPONENT

 
Affiliate fee $ 3,236 $ 2,923
Advertising 1,623 1,591
Content 2,019 1,869
Other     124     123
Total revenues $   7,002 $   6,506
     

(a)

 

Total segment OIBDA may be considered a non-GAAP financial measure. See page 10 for a description of total segment OIBDA and for a reconciliation from income from continuing operations before income tax expense to total segment OIBDA.

 

NOTE 1 – TOTAL SEGMENT OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

The Company evaluates the performance of its operating segments based on segment operating income before depreciation and amortization (“OIBDA”), and management uses total segment OIBDA as a measure of the performance of operating businesses separate from non-operating factors. 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. This measure excludes items, such as depreciation and amortization as well as impairment charges, that are significant components in assessing the Company’s financial performance.

Management believes that total segment OIBDA is an appropriate measure for evaluating the operating performance of the Company’s business and provides investors and equity analysts a measure to analyze operating performance of the Company’s business and enterprise value against historical data and competitors’ data. Segment OIBDA is the primary measure used by our chief operating decision maker to evaluate the performance of and allocate resources to the Company’s business segments.

Segment OIBDA does not include depreciation and amortization and the amortization of cable distribution investments and eliminates the variable effect across all business segments of depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and, as such, it is excluded from segment operating income before depreciation and amortization.

In addition, total segment OIBDA does not include: Income (loss) from discontinued operations, net of tax, Impairment and restructuring charges, Equity earnings of affiliates, Interest expense, net, Interest income, Other, net, Income tax expense and Net income attributable to noncontrolling interests.

The following table reconciles income from continuing operations before income tax expense to total segment OIBDA:

 

Three Months Ended

September 30,

2017   2016
US $ Millions
Income from continuing operations before income tax expense $   1,295 $   1,237
Add:
Amortization of cable distribution investments 18 15
Depreciation and amortization 142 135
Impairment and restructuring charges 21 137
Equity earnings of affiliates (60 ) (35 )
Interest expense, net 313 300
Interest income (10 ) (9 )
Other, net     72     11
Total Segment OIBDA $   1,791 $   1,791
 
  Three Months Ended September 30, 2017
US $ Millions
   

Add:

 

Operating and

Amortization

Selling, general

of cable

and administrative

distribution

Revenues

expenses

investments

Segment OIBDA
Cable Network Programming $   4,196 $   (2,703 ) $   18 $   1,511
Television 1,065 (943 ) - 122
Filmed Entertainment 1,963 (1,707 ) - 256
Other, Corporate and Eliminations     (222 )     124     -     (98 )
Consolidated Total $   7,002 $   (5,229 ) $   18 $   1,791
 
Three Months Ended September 30, 2016
US $ Millions

Add:

Operating and

Amortization

Selling, general

of cable

and administrative

distribution

Revenues

expenses

investments

Segment OIBDA
Cable Network Programming $ 3,810 $ (2,441 ) $ 15 $ 1,384
Television 1,038 (847 ) - 191
Filmed Entertainment 1,907 (1,596 ) - 311
Other, Corporate and Eliminations     (249 )     154     -     (95 )
Consolidated Total $   6,506 $   (4,730 ) $   15 $   1,791
 

NOTE 2 – ADJUSTED NET INCOME AND ADJUSTED EPS FROM CONTINUING OPERATIONS

The calculation of income and earnings per share (“EPS”) from continuing operations attributable to 21st Century Fox stockholders excluding the net income effects of Impairment and restructuring charges, Equity affiliate adjustments and Other, net and tax provision effects (“adjusted income and diluted EPS from continuing operations attributable to 21st Century Fox stockholders”) may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment. Adjusted income and diluted EPS from continuing operations attributable to 21st Century Fox stockholders are not measures of performance under generally accepted accounting principles and should not be construed as substitutes for consolidated net income and EPS as determined under GAAP as a measure of performance. However, management uses these measures in comparing the Company’s historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of our performance relative to prior periods and our competitors.

The Company uses adjusted income and diluted EPS from continuing operations attributable to 21st Century Fox stockholders to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period.

The following table reconciles reported income and reported diluted EPS from continuing operations attributable to 21st Century Fox stockholders to adjusted income and diluted EPS from continuing operations attributable to 21st Century Fox stockholders for the three months ended September 30, 2017 and 2016.

  Three Months Ended
September 30, 2017   September 30, 2016
Income   EPS Income   EPS
US $ Millions, except per share data
Income from continuing operations $   904   $   894  
Less: Net income attributable to noncontrolling interests     (65 )     (67 )
Income from continuing operations attributable to Twenty-First Century Fox, Inc. stockholders $ 839 $ 0.45 $ 827 $ 0.44
 
Impairment and restructuring charges 21 0.01 137 0.07
 
Equity affiliate adjustments(a) 19 0.01 41 0.02
 
Other, net 72 0.04 11 0.01
 
Tax provision (43 ) (0.02 ) (74 ) (0.04 )
 
Rounding - - - 0.01
                       
As adjusted $   908 $   0.49 $   942 $   0.51
     

(a)

 

Equity earnings of affiliates for the three months ended September 30, 2017 and 2016 were adjusted to remove from Sky’s results 21st Century Fox’s share of both Sky’s purchase price amortization related to its acquisition of the Direct Broadcast Satellite businesses from the Company and restructuring costs and to remove from Endemol Shine Group’s results 21st Century Fox’s share of both Endemol Shine Group’s debt revaluation costs and restructuring costs.

Twenty-First Century Fox, Inc.
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