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 December 31, 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 (Address of Principal Executive Offices) |
10036 (Zip Code) |
Registrant’s telephone number, including area code (212) 852-7111
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of February 12, 2003, 352,436,375 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.
FOX ENTERTAINMENT GROUP, INC.
FORM 10-Q
| Page | ||||
| Part I. Financial Information |
||||
| Item 1. |
Financial Statements |
|||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| Notes to the Unaudited Consolidated Condensed Financial Statements |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||
| Item 3. |
39 | |||
| Item 4. |
40 | |||
| Part II. Other Information |
||||
| Item 1. |
40 | |||
| Item 2. |
40 | |||
| Item 3. |
40 | |||
| Item 4. |
40 | |||
| Item 5. |
41 | |||
| Item 6. |
41 | |||
| 41 | ||||
2
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in millions except share and per share amounts)
| For the three months ended December 31, |
For the six months ended December 31, |
|||||||||||||||
| 2002 |
2001 |
2002 |
2001 |
|||||||||||||
| Revenues |
$ |
3,150 |
|
$ |
2,741 |
|
$ |
5,494 |
|
$ |
4,806 |
| ||||
| Expenses: |
||||||||||||||||
| Operating |
|
2,296 |
|
|
2,123 |
|
|
3,882 |
|
|
3,638 |
| ||||
| Selling, general and administrative |
|
309 |
|
|
304 |
|
|
631 |
|
|
609 |
| ||||
| Depreciation and amortization |
|
45 |
|
|
100 |
|
|
92 |
|
|
203 |
| ||||
| Other operating charge |
|
— |
|
|
909 |
|
|
— |
|
|
909 |
| ||||
| Operating income (loss) |
|
500 |
|
|
(695 |
) |
|
889 |
|
|
(553 |
) | ||||
| Other income (expense): |
||||||||||||||||
| Interest expense, net |
|
(49 |
) |
|
(66 |
) |
|
(95 |
) |
|
(138 |
) | ||||
| Equity earnings (losses) of affiliates |
|
(12 |
) |
|
(58 |
) |
|
(10 |
) |
|
(109 |
) | ||||
| Minority interest in subsidiaries |
|
(7 |
) |
|
(11 |
) |
|
(16 |
) |
|
(22 |
) | ||||
| Other, net |
|
— |
|
|
1,585 |
|
|
— |
|
|
1,585 |
| ||||
| Income before provision for income tax expense and cumulative effect of accounting change |
|
432 |
|
|
755 |
|
|
768 |
|
|
763 |
| ||||
| Provision for income tax expense on a stand-alone basis |
|
(149 |
) |
|
(300 |
) |
|
(271 |
) |
|
(304 |
) | ||||
| Income before cumulative effect of accounting change |
|
283 |
|
|
455 |
|
|
497 |
|
|
459 |
| ||||
| Cumulative effect of accounting change, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
(26 |
) | ||||
| Net income |
$ |
283 |
|
$ |
455 |
|
$ |
497 |
|
$ |
433 |
| ||||
| Basic and diluted earnings per share before cumulative effect of accounting change |
$ |
0.32 |
|
$ |
0.54 |
|
$ |
0.58 |
|
$ |
0.56 |
| ||||
| Basic and diluted cumulative effect of accounting change, net of tax, per share |
|
— |
|
|
— |
|
|
— |
|
|
(0.04 |
) | ||||
| Basic and diluted earnings per share |
$ |
0.32 |
|
$ |
0.54 |
|
$ |
0.58 |
|
$ |
0.52 |
| ||||
| Basic and diluted weighted average number of common equivalent shares outstanding |
|
874 |
|
|
847 |
|
|
862 |
|
|
827 |
| ||||
The accompany notes are an integral part of these unaudited consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions except share and per share amounts)
| As of December 31, 2002 |
As of June 30, 2002 | |||||
| (unaudited) |
(audited) | |||||
| Assets: |
||||||
| Cash and cash equivalents |
$ |
70 |
$ |
56 | ||
| Accounts receivable, net |
|
3,626 |
|
2,577 | ||
| Filmed entertainment and television programming costs, net |
|
3,197 |
|
3,062 | ||
| Investments in equity affiliates |
|
1,508 |
|
1,424 | ||
| Property and equipment, net |
|
1,476 |
|
1,501 | ||
| Intangible assets, net |
|
8,665 |
|
8,076 | ||
| Goodwill, net |
|
4,821 |
|
5,093 | ||
| Other assets and investments |
|
958 |
|
1,087 | ||
| Total assets |
$ |
24,321 |
$ |
22,876 | ||
| Liabilities and Shareholders’ Equity: |
||||||
| Liabilities: |
||||||
| Accounts payable and accrued liabilities |
$ |
1,850 |
$ |
1,844 | ||
| Participations, residuals and royalties payable |
|
1,524 |
|
1,129 | ||
| Television programming rights payable |
|
1,533 |
|
1,428 | ||
| Deferred revenue |
|
493 |
|
500 | ||
| Borrowings |
|
95 |
|
942 | ||
| Deferred income taxes |
|
2,070 |
|
1,912 | ||
| Other liabilities |
|
579 |
|
735 | ||
|
|
8,144 |
|
8,490 | |||
| Due to affiliates of News Corporation |
|
1,590 |
|
1,413 | ||
| Total liabilities |
|
9,734 |
|
9,903 | ||
| Minority interest in subsidiaries (Note 12) |
|
781 |
|
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 December 31 and June 30, 2002 |
|
— |
|
— | ||
| Class A Common stock, $.01 par value per share; 1,000,000,000 authorized; 352,436,375 and 302,436,375 issued and outstanding as of December 31 and June 30, 2002, respectively |
|
4 |
|
3 | ||
| Class B Common stock, $.01 par value per share; 650,000,000 authorized; 547,500,000 issued and outstanding as of December 31 and June 30, 2002 |
|
6 |
|
6 | ||
| Additional paid-in capital |
|
12,780 |
|
11,569 | ||
| Retained earnings and accumulated other comprehensive income |
|
1,016 |
|
517 | ||
| Total shareholders’ equity |
|
13,806 |
|
12,095 | ||
| Total liabilities and shareholders’ equity |
$ |
24,321 |
$ |
22,876 | ||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
4
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
| For the six months ended December 31, |
||||||||
| 2002 |
2001 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ |
497 |
|
$ |
433 |
| ||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
|
92 |
|
|
203 |
| ||
| Amortization of cable distribution investments |
|
63 |
|
|
54 |
| ||
| Other operating charge |
|
— |
|
|
909 |
| ||