Back to GetFilings.com



Table of Contents
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
(Mark One)
 
x    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2002
 
or
 
¨    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                  to                 
 
Commission file number 1-14595
 
 
FOX ENTERTAINMENT GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
  
95-4066193
(State or Other Jurisdiction of Incorporation or Organization)
  
(I.R.S. Employer Identification No.)
1211 Avenue of the Americas, New York, New York
  
10036
(Address of Principal Executive Offices)
  
(Zip Code)
 
(212) 852-7111
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
As of November 1, 2002, 302,436,375 shares of Class A Common Stock, par value $.01 per share, and 547,500,000 shares of Class B Common Stock, par value $.01 per share, were outstanding.
 

Table of Contents
 
FOX ENTERTAINMENT GROUP, INC.
 
FORM 10-Q
 
TABLE OF CONTENTS
 
    
Page
Part I.    Financial Information
     
Item 1.       Financial Statements
     
  
3
  
4
  
5
  
6
  
16
  
27
  
28
Part II.    Other Information
     
  
28
  
28
  
28
 

2

Table of Contents
FOX ENTERTAINMENT GROUP, INC.
 
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
 
    
For the three months ended
September 30,
  
    
2002
     
2001
  
Revenues
   
$
2,344
 
   
$
2,065
 
Expenses:
                  
Operating
   
 
1,586
 
   
 
1,515
 
Selling, general and administrative
   
 
322
 
   
 
305
 
Depreciation and amortization
   
 
47
 
   
 
103
 
    
  
Operating income
   
 
389
 
   
 
142
 
Other (expense) income:
                  
Interest expense, net
   
 
(46
)
   
 
(72
)
Equity earnings (losses) of affiliates
   
 
2
 
   
 
(51
)
Minority interest in subsidiaries
   
 
(9
)
   
 
(11
)
    
  
Income before provision for income taxes and cumulative effect of accounting change
   
 
336
 
   
 
8
 
Provision for income tax expense on a stand-alone basis
   
 
(122
)
   
 
(4
)
    
  
Income before cumulative effect of accounting change
   
 
214
 
   
 
4
 
Cumulative effect of accounting change, net of tax
   
 
—  
 
   
 
(26
)
    
  
Net income (loss)
   
$
214
 
   
$
(22
)
    
  
Basic and diluted earnings per share before cumulative effect of accounting change
   
$
0.25
 
   
$
0.01
 
Basic and diluted cumulative effect of accounting change, net of tax, per share
   
 
—  
 
   
 
(0.04
)
    
  
Basic and diluted earnings (loss) per share
   
$
0.25
 
   
$
(0.03
)
    
  
Basic and diluted weighted average number of common equivalent shares outstanding
   
 
850
 
   
 
806
 
    
  
 
 
 
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

3

Table of Contents
 
FOX ENTERTAINMENT GROUP, INC.
 
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions except share and per share amounts)
 
      
As of September 30, 2002
   
As of June 30, 2002
      
(unaudited)
   
(audited)
Assets:
                
Cash and cash equivalents
     
$
76
   
$
56
Accounts receivable, net
     
 
2,632
   
 
2,577
Filmed entertainment and television programming costs, net
     
 
3,277
   
 
3,062
Investments in equity affiliates
     
 
1,487
   
 
1,424
Property and equipment, net
     
 
1,479
   
 
1,501
Intangible assets, net
     
 
8,663
   
 
8,076
Goodwill, net
     
 
4,978
   
 
5,093
Other assets and investments
     
 
991
   
 
1,087
      
  
Total assets
     
$
23,583
   
$
22,876
      
  
Liabilities and Shareholders’ Equity:
                
Liabilities:
                
Accounts payable and accrued liabilities
     
$
1,602
   
$
1,844
Participations, residuals and royalties payable
     
 
1,206
   
 
1,129
Television programming rights payable
     
 
1,561
   
 
1,428
Deferred revenue
     
 
468
   
 
500
Borrowings
     
 
—  
   
 
942
Deferred income taxes
     
 
2,138
   
 
1,912
Other liabilities
     
 
682
   
 
735
      
  
      
 
7,657
   
 
8,490
Due to affiliates of News Corporation
     
 
2,818
   
 
1,413
      
  
Total liabilities
     
 
10,475
   
 
9,903
      
  
Minority interest in subsidiaries (Note 10)
     
 
805
   
 
878
Commitments and contingencies
                
Shareholders’ Equity:
                
Preferred stock, $.01 par value per share; 100,000,000 shares authorized; 0 shares issued and outstanding as of September 30 and June 30, 2002
     
 
—  
   
 
—  
Class A Common stock, $.01 par value per share; 1,000,000,000 authorized; 302,436,375 issued and outstanding as of September 30 and June 30, 2002
     
 
3
   
 
3
Class B Common stock, $.01 par value per share; 650,000,000 authorized; 547,500,000 issued and outstanding as of September 30 and June 30, 2002
     
 
6
   
 
6
Additional paid-in capital
     
 
11,569
   
 
11,569
Retained earnings and accumulated other comprehensive income
     
 
725
   
 
517
      
  
Total shareholders’ equity
     
 
12,303
   
 
12,095
      
  
Total liabilities and shareholders’ equity
     
$
23,583
   
$
22,876
      
  
 
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

4

Table of Contents
FOX ENTERTAINMENT GROUP, INC.
 
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
 
    
For the three months ended
September 30,
  
    
2002
     
2001
  
Operating activities:
                  
Net income (loss)
   
$
214
 
   
$
(22
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
47
 
   
 
103
 
Amortization of cable distribution investments
   
 
31
 
   
 
26
 
Cumulative effect of accounting change, net of tax
   
 
—  
 
   
 
26
 
Equity (earnings) losses of affiliates and distributions
   
 
(1
)
   
 
59
 
Minority interest in subsidiaries
   
 
6
 
   
 
—  
 
Change in operating assets and liabilities, net of acquisitions:
                  
Accounts receivable and other assets
   
 
18
 
   
 
(12
)
Filmed entertainment and television programming costs, net
   
 
(260
)
   
 
(253
)
Accounts payable and accrued liabilities
   
 
3
 
   
 
67
 
Participations, residuals and royalties payable and other liabilities
   
 
77
 
   
 
103
 
    
  
Net cash provided by operating activities
   
 
135
 
   
 
97
 
    
  
Investing activities:
                  
Acquisitions, net of cash acquired
   
 
(427
)
   
 
(381
)
Investments in equity affiliates
   
 
(51
)
   
 
(7
)
Other investments
   
 
(2
)
   
 
(15
)
Purchases of property and equipment
   
 
(26
)
   
 
(20
)
Disposals of property and equipment
   
 
9
 
   
 
10
 
    
  
Net cash used in investing activities
   
 
(497
)
   
 
(413
)
    
  
Financing activities:
                  
Borrowings (repayments)
   
 
(947
)
   
 
(93
)
Increase (decrease) in Preferred Interests
   
 
(76
)
   
 
12
 
Advances from affiliates of News Corporation, net
   
 
1,405
 
   
 
451
 
    
  
Net cash provided by financing activities
   
 
382
 
   
 
370
 
    
  
Net increase in cash and cash equivalents
   
 
20
 
   
 
54
 
Cash and cash equivalents, beginning of year
   
 
56
 
   
 
66
 
    
  
Cash and cash equivalents, end of year
   
$
76
 
   
$
120
 
    
  
 
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

5

Table of Contents

FOX ENTERTAINMENT GROUP, INC.
 
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation
 
Fox Entertainment Group, Inc. (the “Company”) is principally engaged in the development, production and worldwide distribution of feature films and television programs, television broadcasting and cable network programming. The Company is a majority-owned subsidiary of The News Corporation Limited (“News Corporation”), which, as of September 30, 2002, held equity and voting interests in the Company of 85.32% and 97.84%, respectively.
 
The accompanying unaudited consolidated condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“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) considered necessary for a fair presentation have been reflected in these unaudited consolidated condensed financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2003.
 
These interim unaudited consolidated condensed financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on September 20, 2002.
 
The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.
 
During the quarter ended September 30, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In accordance with SFAS No. 142, goodwill, indefinite-lived intangible assets and excess cost over the Company’s share of equity investees’ assets will no longer be amortized, resulting in a reduction of Depreciation and amortization expense and an improvement in Equity earnings of affiliates. (See Note 3) In addition, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The adoption of SFAS Nos. 143 and 144 did not have a material impact on the Company’s financial statements.
 
In November 2001, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues Task Force No. (“EITF”) 01-09, “Accounting for the Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products,” which was effective for the Company as of January 1, 2002. This EITF, among other things, codified the issues and examples of EITF No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products.” EITF No. 00-25 states that customer incentives, which consist of the amortization of cable distribution investments (capitalized fees paid to a cable or DBS operator to facilitate the launch of a cable network), should be presented as a reduction in revenue in the consolidated condensed statements of operations. As required, the Company has reclassified the amortization of cable distribution investments against revenues for all periods presented. The amortization of cable distribution investments had previously been included in Depreciation and amortization. Operating income, Net income and Earnings per share are not affected by this reclassification. This reclassification affects the Company’s and the Cable Network Programming segment’s revenues. The effect of the reclassification on the Company’s revenues is as follows:
 
    
For the three months
ended September 30,
  
    
2002
     
2001
  
    
(in millions)
  
Gross Revenues
   
$
2,375
 
   
$
2,091
 
Amortization of cable distribution investments
   
 
(31
)
   
 
(26
)
    
  
Revenues
   
$
2,344
 
   
$
2,065
 
    
  

6

Table of Contents

FOX ENTERTAINMENT GROUP, INC.
 
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation – continued
 
Fox Family Worldwide, Inc. (“FFW”), formerly an equity affiliate of the Company until it was sold in October 2001, adopted Statement of Position No. 00-2, “Accounting by Producers or Distributors of Films” on July 1, 2001, at which time it recorded a one-time, non-cash charge of approximately $53 million as a cumulative effect of accounting change. The Company’s share, approximately $26 million, has been accounted for as a cumulative effect of accounting change in the accompanying unaudited consolidated condensed statement of operations for the three months ended September 30, 2001.
 
Certain prior year amounts have been reclassified to conform to the fiscal 2003 presentation.
 
Note 2 – Comprehensive Income (Loss)
 
Comprehensive income (loss) is as follows:
 
    
For the three months ended September 30,
  
    
2002
       
2001
  
    
(in millions)
  
Net income (loss)
   
$
214
 
     
$
(22
)
Other comprehensive income (loss):
                    
Foreign currency translation adjustments
   
 
(6
)
     
 
3
 
    
    
Total comprehensive income (loss)
   
$
208
 
     
$
(19
)