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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2019

or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from             to             

Commission file number 001-38776

 

FOX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

83-1825597

(State or Other Jurisdiction
of Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

1211 Avenue of the Americas, New York, New York

 

10036

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code (212852-7000

 

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class

Trading Symbols

Name of Each Exchange
on Which Registered

Class A Common Stock, par value $0.01 per share

FOXA

The Nasdaq Global Select Market

Class B Common Stock, par value $0.01 per share

FOX

The Nasdaq Global Select Market

Rights to Purchase Series A Junior Participating Preferred Stock

N/A

The Nasdaq Global Select Market

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes       No  

As of November 4, 2019, 354,511,048 shares of Class A Common Stock, par value $0.01 per share, and 266,173,651 shares of Class B Common Stock, par value $0.01 per share, were outstanding.

 

 


FOX CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page

Part I. Financial Information

 

 

Item 1.

 

Financial Statements

 

 

 

Unaudited Consolidated and Combined Statements of Operations for the three months ended September 30, 2019 and 2018 

1

 

 

 

Unaudited Consolidated and Combined Statements of Comprehensive Income for the three months ended September 30, 2019 and 2018

2

 

 

 

Consolidated Balance Sheets as of September 30, 2019 (unaudited) and June 30, 2019 (audited)

3

 

 

 

Unaudited Consolidated and Combined Statements of Cash Flows for the three months ended September 30, 2019 and 2018

4

 

 

 

Unaudited Consolidated and Combined Statements of Equity for the three months ended September 30, 2019 and 2018

5

 

 

 

Notes to the Unaudited Consolidated and Combined Financial Statements

6

 

Item 2.

 

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

21

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

31

 

Item 4.

 

Controls and Procedures

31

Part II. Other Information

 

 

Item 1.

 

Legal Proceedings

32

 

Item 1A.

 

Risk Factors

33

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

Item 3.

 

Defaults Upon Senior Securities

35

 

Item 4.

 

Mine Safety Disclosures

35

 

Item 5.

 

Other Information

35

 

Item 6.

 

Exhibits

36

 

Signature

37

 

 


 

FOX CORPORATION

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

 

 

For the three months ended September 30,

 

 

 

2019

 

 

2018

 

Revenues

 

$

2,667

 

 

$

2,541

 

Operating expenses

 

 

(1,468

)

 

 

(1,491

)

Selling, general and administrative

 

 

(352

)

 

 

(299

)

Depreciation and amortization

 

 

(50

)

 

 

(43

)

Impairment and restructuring charges

 

 

(9

)

 

 

-

 

Interest expense

 

 

(90

)

 

 

(16

)

Interest income

 

 

17

 

 

 

-

 

Other, net

 

 

(15

)

 

 

139

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

 

700

 

 

 

831

 

Income tax expense

 

 

(187

)

 

 

(216

)

 

 

 

 

 

 

 

 

 

Net income

 

 

513

 

 

 

615

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests

 

 

(14

)

 

 

(11

)

 

 

 

 

 

 

 

 

 

Net income attributable to Fox Corporation stockholders

 

$

499

 

 

$

604

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares

 

 

 

 

 

 

 

 

Basic

 

 

622

 

 

 

621

 

Diluted

 

 

624

 

 

 

621

 

 

 

 

 

 

 

 

 

 

Net income attributable to Fox Corporation stockholders per share - basic and diluted

 

$

0.80

 

 

$

0.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Unaudited Consolidated and Combined Financial Statements.

1


 

FOX CORPORATION

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(IN MILLIONS)

 

 

 

For the three months ended September 30,

 

 

 

2019

 

 

2018

 

Net income

 

$

513

 

 

$

615

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

Benefit plan adjustments

 

 

4

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

4

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

517

 

 

 

616

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests(a)

 

 

(14

)

 

 

(11

)

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Fox Corporation stockholders

 

$

503

 

 

$

605

 

 

(a)

Net income attributable to noncontrolling interests includes $9 million and $11 million for the three months ended September 30, 2019 and 2018, respectively, relating to redeemable noncontrolling interests.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Unaudited Consolidated and Combined Financial Statements. 

2


 

FOX CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

As of

September 30,

2019

 

 

As of

June 30,

2019

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,340

 

 

$

3,234

 

Receivables, net

 

 

2,108

 

 

 

1,967

 

Inventories, net

 

 

1,463

 

 

 

1,129

 

Other

 

 

138

 

 

 

148

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

7,049

 

 

 

6,478

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

1,314

 

 

 

1,313

 

Intangible assets, net

 

 

2,848

 

 

 

2,851

 

Goodwill

 

 

2,707

 

 

 

2,691

 

Deferred tax assets

 

 

4,485

 

 

 

4,651

 

Other non-current assets

 

 

2,131

 

 

 

1,525

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

20,534

 

 

$

19,509

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

$

1,890

 

 

$

1,712

 

 

 

 

-

 

 

 

 

 

Total current liabilities

 

 

1,890

 

 

 

1,712

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Borrowings

 

 

6,752

 

 

 

6,751

 

Other liabilities

 

 

1,355

 

 

 

899

 

Redeemable noncontrolling interests

 

 

207

 

 

 

189

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Class A common stock(a)

 

 

4

 

 

 

4

 

Class B common stock(b)

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

9,921

 

 

 

9,891

 

Retained earnings

 

 

696

 

 

 

357

 

Accumulated other comprehensive loss

 

 

(304

)

 

 

(308

)

 

 

 

-

 

 

 

 

 

Total Fox Corporation stockholders' equity

 

 

10,320

 

 

 

9,947

 

Noncontrolling interests

 

 

10

 

 

 

11

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

10,330

 

 

 

9,958

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

20,534

 

 

$

19,509

 

 

(a)

Class A common stock, $0.01 par value per share, 2,000,000,000 shares authorized, 354,475,255 shares and 354,422,419 shares issued and outstanding at par as of September 30, 2019 and June 30, 2019, respectively.

(b)

Class B common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 266,173,651 shares issued and outstanding at par as of September 30, 2019 and June 30, 2019.

 

 

 

 

 

The accompanying notes are an integral part of these Unaudited Consolidated and Combined Financial Statements.

3


 

FOX CORPORATION

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

 

 

 

For the three months ended

September 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

513

 

 

$

615

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

50

 

 

 

43

 

Amortization of cable distribution investments

 

 

9

 

 

 

10

 

Impairment and restructuring charges

 

 

9

 

 

 

-

 

Equity-based compensation

 

 

27

 

 

 

-

 

Other, net

 

 

15

 

 

 

(139

)

Deferred income taxes

 

 

165

 

 

 

72

 

Change in operating assets and liabilities, net of acquisitions and dispositions

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

(79

)

 

 

(100

)

Inventories net of program rights payable

 

 

(358

)

 

 

(202

)

Accounts payable and other liabilities

 

 

(149

)

 

 

(52

)

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

202

 

 

 

247

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(39

)

 

 

(42

)

Purchase of investments

 

 

-

 

 

 

(100

)

Other investing activities, net

 

 

(1

)

 

 

(65

)

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(40

)

 

 

(207

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net transfers from Twenty-First Century Fox, Inc.

 

 

-

 

 

 

229

 

Other financing activities, net

 

 

(56

)

 

 

(13

)

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(56

)

 

 

216

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

106

 

 

 

256

 

Cash and cash equivalents, beginning of year

 

 

3,234

 

 

 

2,500

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

3,340

 

 

$

2,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Unaudited Consolidated and Combined Financial Statements.

 

 

4


 

FOX CORPORATION

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(IN MILLIONS)

 

 

 

Class A

 

 

Class B

 

 

Twenty-First Century

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total Fox Corporation

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock

 

 

Fox, Inc.

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Investment

 

 

Capital

 

 

Earnings

 

 

(Loss) Income

 

 

Equity

 

 

Interests(a)

 

 

Equity

 

Balance, June 30, 2019

 

 

354

 

 

$

4

 

 

 

266

 

 

$

3

 

 

$

-

 

 

$

9,891

 

 

$

357

 

 

$

(308

)

 

$

9,947

 

 

$

11

 

 

$

9,958

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

499

 

 

 

-

 

 

 

499

 

 

 

5

 

 

 

504

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

4

 

 

 

-

 

 

 

4

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(143

)

 

 

-

 

 

 

(143

)

 

 

-

 

 

 

(143

)

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30

 

 

 

(17

)

 

 

-

 

 

 

13

 

 

 

(6

)

 

 

7

 

Balance, September 30, 2019

 

 

354

 

 

$

4

 

 

 

266

 

 

$

3

 

 

$

-

 

 

$

9,921

 

 

$

696

 

 

$

(304

)

 

$

10,320

 

 

$

10

 

 

$

10,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

9,513

 

 

$

-

 

 

$

-

 

 

$

81

 

 

$

9,594

 

 

$

-

 

 

$

9,594

 

Adoption of new accounting standards(b)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

143

 

 

 

-

 

 

 

-

 

 

 

(143

)

 

 

-

 

 

 

-

 

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

604

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

604

 

 

 

-

 

 

 

604

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

 

 

-

 

 

 

1

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

181

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

181

 

 

 

9

 

 

 

190

 

Net increase in Twenty-First Century Fox, Inc. investment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

665

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

665

 

 

 

-

 

 

 

665

 

Balance, September 30, 2018

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

11,106

 

 

$

-

 

 

$

-

 

 

$

(61

)

 

$

11,045

 

 

$

9

 

 

$

11,054

 

 

 

(a)

Excludes Redeemable noncontrolling interests which are reflected in temporary equity (See Note 4—Fair Value under the heading “Redeemable Noncontrolling Interests”).

(b)

Reflects the adoption of ASU 2016-01 and ASU 2018-02 as defined in Note 2—Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 as filed with the Securities and Exchange Commission on August 9, 2019 under the heading “Recently Adopted and Recently Issued Accounting Guidance and U.S. Tax Reform”.

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Unaudited Consolidated and Combined Financial Statements.

 

5


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Fox Corporation, a Delaware corporation (“FOX” or the “Company”), is a news, sports and entertainment company, which manages and reports its businesses in the following segments: Cable Network Programming, Television and Other, Corporate and Eliminations.

The Distribution

On March 19, 2019, the Company became a standalone publicly traded company through the pro rata distribution by Twenty-First Century Fox, Inc. (now known as TFCF Corporation) (“21CF”) of all of the issued and outstanding common stock of FOX to 21CF stockholders (other than holders that were subsidiaries of 21CF) (the “Distribution”) in accordance with the Amended and Restated Distribution Agreement and Plan of Merger, dated as of June 20, 2018, by and between 21CF and 21CF Distribution Merger Sub, Inc. Following the Distribution, 354 million and 266 million shares of the Company’s Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), and Class B Common Stock, par value $0.01 per share (the “Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”), respectively, began trading independently on The Nasdaq Global Select Market. In connection with the Distribution, the Company entered into the Separation and Distribution Agreement, dated as of March 19, 2019 (the “Separation Agreement”), with 21CF, which effected the internal restructuring (the “Separation”) whereby 21CF transferred to FOX a portfolio of 21CF’s news, sports and broadcast businesses, including FOX News Media (consisting of FOX News and FOX Business), FOX Entertainment, FOX Sports, FOX Television Stations, and sports cable networks FS1, FS2, FOX Deportes and Big Ten Network, and certain other assets, and FOX assumed from 21CF the liabilities associated with such businesses and certain other liabilities. The Separation and the Distribution were effected as part of a series of transactions contemplated by the Amended and Restated Merger Agreement and Plan of Merger, dated as of June 20, 2018, by and among 21CF, The Walt Disney Company (“Disney”) and certain subsidiaries of Disney, pursuant to which, among other things, 21CF became a wholly-owned subsidiary of Disney.

In connection with the Separation, the Company entered into several agreements that govern certain aspects of the Company’s relationship with 21CF and Disney following the Separation. These include the Separation Agreement, a tax matters agreement, a transition services agreement, as well as agreements relating to intellectual property licenses, employee matters, commercial arrangements and a studio lot lease (See Note 1—Description of Business and Basis of Presentation in the 2019 Form 10-K, as defined below, for further discussion).

Basis of Presentation

The Unaudited Consolidated and Combined Financial Statements of 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 and Combined 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, 2020.

These interim Unaudited Consolidated and Combined Financial Statements and notes thereto should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2019 (the “2019 Form 10-K”).

The Company became a separate consolidated group as a result of the Distribution, and the Company’s financial statements for the three months ended September 30, 2019 and as of September 30, 2019 and June 30, 2019 are presented on a consolidated basis. Prior to the Distribution, the Company’s Unaudited Combined Financial Statements were derived from the unaudited consolidated financial statements and accounting records of 21CF. The Company’s financial statements for the three months ended September 30, 2018 are presented on a combined basis as the Company was not a separate consolidated group prior to the Distribution. These financial statements reflect the combined historical results of operations and cash flows of 21CF’s domestic news, national sports and broadcast businesses and certain other assets and liabilities associated with such businesses.

6


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

The Unaudited Combined Statement of Operations for the three months ended September 30, 2018 includes allocations for certain support functions that were provided on a centralized basis within 21CF prior to the Distribution and not recorded at the business unit level, such as certain expenses related to finance, legal, insurance, information technology, compliance and human resources management activities, among others. 21CF did not routinely allocate these costs to any of its business units. These expenses have been allocated to FOX on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, headcount or other relevant measures. Management believes the assumptions underlying the Unaudited Combined Financial Statements, including the assumptions regarding allocating general corporate expenses from 21CF, are reasonable. Nevertheless, the Unaudited Combined Financial Statements may not include all of the actual expenses that would have been incurred by FOX and may not reflect FOX’s consolidated results of operations and cash flows had it been a standalone company during the period presented. Actual costs that would have been incurred if FOX had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

For purposes of the Company’s financial statements for the period prior to the Distribution, the income tax provision in the Unaudited Combined Statement of Operations was calculated as if FOX filed a separate tax return and was operating as a standalone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of FOX’s actual tax balances prior to or subsequent to the Distribution. Prior to the Distribution, the Company’s operating results were included in 21CF’s consolidated U.S. federal and state income tax returns.

Intercompany transactions with 21CF or its affiliates and the Company are reflected in the historical Unaudited Combined Financial Statements for the period prior to the Distribution. All significant intracompany transactions and accounts within the Company’s consolidated and combined businesses have been eliminated. Investments in and advances to entities or joint ventures in which the Company has significant influence, but less than a controlling financial 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. In accordance with Accounting Standards Codification (“ASC”) 321 “Investments—Equity Securities” (“ASC 321”), equity securities in which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative which is 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. All gains and losses on investments in equity securities are recognized in the Unaudited Consolidated and Combined Statements of Operations.

The preparation of the Company’s Unaudited Consolidated and Combined Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Unaudited Consolidated and Combined Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.

The Company’s fiscal year ends on June 30 of each year. Certain fiscal 2019 amounts have been reclassified to conform to the fiscal 2020 presentation.

The unaudited and audited consolidated and combined financial statements are referred to as the “Financial Statements” herein. The unaudited consolidated and combined statements of operations are referred to as the “Statements of Operations” herein. The unaudited and audited consolidated balance sheets are referred to as the “Balance Sheets” herein.

7


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Recently Adopted and Recently Issued Accounting Guidance

Adopted

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, “Leases (Topic 842)” (“Topic 842”), as amended. Topic 842 requires recognition of lease liabilities and right-of-use (“ROU”) assets on the balance sheet and disclosure of key information about leasing arrangements. On July 1, 2019, the Company adopted Topic 842 on a modified retrospective basis and recorded operating lease liabilities and ROU assets of approximately $635 million and $585 million, respectively, at the date of adoption (See Note 6—Leases). The difference between the Company’s initial recognition of operating lease liabilities and ROU assets, at the date of adoption, was primarily a result of the reclassification of the deferred rent liability. The adoption of Topic 842 did not have a significant impact on the Statements of Operations. In accordance with the guidance in Topic 842, the Company elected not to reassess (i) whether any existing contracts are or contain leases, (ii) lease classification for existing leases or (iii) capitalization of initial direct costs for existing leases.

NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS

The Stars Group

In May 2019, the Company and The Stars Group Inc. (“The Stars Group”) announced plans to launch FOX Bet, a national media and sports wagering partnership in the U.S., which was launched in the first quarter of fiscal 2020. FOX Sports and The Stars Group have entered into a long-term commercial arrangement through which FOX Sports provides The Stars Group with an exclusive license to use certain FOX Sports trademarks. Prior to the tenth anniversary of the commercial agreement, and subject to certain conditions and applicable gaming regulatory approvals, FOX Sports has an option to acquire up to 50% of the equity in The Stars Group’s U.S. business. In addition, the Company invested $236 million to acquire a 4.99% equity interest in The Stars Group. The common shares issued to the Company are subject to certain transfer restrictions for a period ending in May 2021, subject to customary exceptions. The Company accounts for the investment in The Stars Group at fair value (See Note 4—Fair Value).

Caffeine and Caffeine Studios

In 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 using the measurement alternative in accordance with ASC 321 and Caffeine Studios using the equity method.

NOTE 3. INVENTORIES, NET

The Company’s inventories were comprised of the following:

 

 

As of

September 30,

2019

 

 

As of

June 30,

2019

 

 

 

(in millions)

 

Sports programming rights

 

$

1,258

 

 

$

954

 

Entertainment programming rights

 

 

413

 

 

 

380

 

 

 

 

 

 

 

 

 

 

Total inventories, net

 

 

1,671

 

 

 

1,334

 

Less: current portion of inventories, net

 

 

(1,463

)

 

 

(1,129

)

 

 

 

 

 

 

 

 

 

Total non-current inventories, net

 

$

208

 

 

$

205

 

 

NOTE 4. 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”).

8


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED AND COMBINED 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, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments(a)

 

$

804

 

 

$

613

 

 

$

191

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(b)

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

(6

)

Redeemable noncontrolling interests(b)

 

 

(207

)

 

 

-

 

 

 

-

 

 

 

(207

)