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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, 2020

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

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 growth 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 Act).     Yes       No  

As of October 30, 2020, 337,543,344 shares of Class A Common Stock, par value $0.01 per share, and 257,829,747 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 Statements of Operations for the three months ended September 30, 2020 and 2019

1

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended September 30, 2020 and 2019

2

 

 

 

Consolidated Balance Sheets as of September 30, 2020 (unaudited) and June 30, 2020 (audited)

3

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and 2019

4

 

 

 

Unaudited Consolidated Statements of Equity for the three months ended September 30, 2020 and 2019

5

 

 

 

Notes to the Unaudited Consolidated Financial Statements

6

 

Item 2.

 

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

18

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

29

 

Item 4.

 

Controls and Procedures

29

Part II. Other Information

 

 

Item 1.

 

Legal Proceedings

30

 

Item 1A.

 

Risk Factors

30

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

Item 3.

 

Defaults Upon Senior Securities

31

 

Item 4.

 

Mine Safety Disclosures

31

 

Item 5.

 

Other Information

31

 

Item 6.

 

Exhibits

32

 

Signature

33

 

 


 

FOX CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

 

 

For the three months ended

September 30,

 

 

 

2020

 

 

2019

 

Revenues

 

$

2,717

 

 

$

2,667

 

Operating expenses

 

 

(1,168

)

 

 

(1,468

)

Selling, general and administrative

 

 

(388

)

 

 

(352

)

Depreciation and amortization

 

 

(68

)

 

 

(50

)

Impairment and restructuring charges

 

 

(35

)

 

 

(9

)

Interest expense

 

 

(99

)

 

 

(90

)

Interest income

 

 

1

 

 

 

17

 

Other, net

 

 

519

 

 

 

(15

)

Income before income tax expense

 

 

1,479

 

 

 

700

 

Income tax expense

 

 

(362

)

 

 

(187

)

Net income

 

 

1,117

 

 

 

513

 

Less: Net income attributable to noncontrolling interests

 

 

(11

)

 

 

(14

)

Net income attributable to Fox Corporation stockholders

 

$

1,106

 

 

$

499

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares

 

 

 

 

 

 

 

 

Basic

 

 

603

 

 

 

622

 

Diluted

 

 

605

 

 

 

624

 

 

 

 

 

 

 

 

 

 

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

 

$

1.83

 

 

$

0.80

 

 

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

1


 

FOX CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN MILLIONS)

 

 

 

For the three months ended

September 30,

 

 

 

2020

 

 

2019

 

Net income

 

$

1,117

 

 

$

513

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

Benefit plan adjustments

 

 

9

 

 

 

4

 

Other comprehensive income, net of tax

 

 

9

 

 

 

4

 

Comprehensive income

 

 

1,126

 

 

 

517

 

Less: Net income attributable to noncontrolling interests(a)

 

 

(11

)

 

 

(14

)

Comprehensive income attributable to Fox Corporation stockholders

 

$

1,115

 

 

$

503

 

 

(a)

Net income attributable to noncontrolling interests includes $4 million and $9 million for the three months ended September 30, 2020 and 2019, respectively, relating to redeemable noncontrolling interests.

 

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

2


 

FOX CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

As of

September 30,

2020

 

 

As of

June 30,

2020

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,061

 

 

$

4,645

 

Receivables, net

 

 

1,997

 

 

 

1,888

 

Inventories, net

 

 

1,271

 

 

 

856

 

Other

 

 

134

 

 

 

97

 

Total current assets

 

 

8,463

 

 

 

7,486

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

1,539

 

 

 

1,498

 

Intangible assets, net

 

 

3,183

 

 

 

3,198

 

Goodwill

 

 

3,409

 

 

 

3,409

 

Deferred tax assets

 

 

3,963

 

 

 

4,358

 

Other non-current assets

 

 

1,940

 

 

 

1,801

 

Total assets

 

$

22,497

 

 

$

21,750

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

$

2,012

 

 

$

1,906

 

Non-current liabilities

 

 

 

 

 

 

 

 

Borrowings

 

 

7,947

 

 

 

7,946

 

Other liabilities

 

 

1,422

 

 

 

1,482

 

Redeemable noncontrolling interests

 

 

310

 

 

 

305

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Class A common stock(a)

 

 

3

 

 

 

3

 

Class B common stock(b)

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

9,668

 

 

 

9,831

 

Retained earnings

 

 

1,525

 

 

 

674

 

Accumulated other comprehensive loss

 

 

(408

)

 

 

(417

)

Total Fox Corporation stockholders' equity

 

 

10,791

 

 

 

10,094

 

Noncontrolling interests

 

 

15

 

 

 

17

 

Total equity

 

 

10,806

 

 

 

10,111

 

Total liabilities and equity

 

$

22,497

 

 

$

21,750

 

 

(a)

Class A common stock, $0.01 par value per share, 2,000,000,000 shares authorized, 338,409,167 shares and 343,608,673 shares issued and outstanding at par as of September 30, 2020 and June 30, 2020, respectively.

(b)

Class B common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 258,239,386 shares and 261,078,355 shares issued and outstanding at par as of September 30, 2020 and June 30, 2020, respectively.

 

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

3


 

FOX CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

 

 

 

For the three months ended

September 30,

 

 

 

2020

 

 

2019

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

1,117

 

 

$

513

 

Adjustments to reconcile net income to cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

68

 

 

 

50

 

Amortization of cable distribution investments

 

 

5

 

 

 

9

 

Impairment and restructuring charges

 

 

35

 

 

 

9

 

Equity-based compensation

 

 

31

 

 

 

27

 

Other, net

 

 

(519

)

 

 

15

 

Deferred income taxes

 

 

391

 

 

 

165

 

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

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

(193

)

 

 

(110

)

Inventories net of program rights payable

 

 

(440

)

 

 

(358

)

Accounts payable and accrued expenses

 

 

(62

)

 

 

(113

)

Other changes, net

 

 

(166

)

 

 

(5

)

Net cash provided by operating activities

 

 

267

 

 

 

202

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(117

)

 

 

(39

)

Purchase of investments

 

 

(31

)

 

 

-

 

Other investing activities, net

 

 

(1

)

 

 

(1

)

Net cash used in investing activities

 

 

(149

)

 

 

(40

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repurchase of shares

 

 

(267

)

 

 

-

 

Non-operating cash flows from (to) The Walt Disney Company

 

 

152

 

 

 

(41

)

Settlement of Divestiture Tax prepayment

 

 

462

 

 

 

-

 

Dividends paid and distributions

 

 

(15

)

 

 

(14

)

Other financing activities, net

 

 

(34

)

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

298

 

 

 

(56

)

Net increase in cash and cash equivalents

 

 

416

 

 

 

106

 

Cash and cash equivalents, beginning of year

 

 

4,645

 

 

 

3,234

 

Cash and cash equivalents, end of period

 

$

5,061

 

 

$

3,340

 

 

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

 

 

4


 

FOX CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(IN MILLIONS)

 

 

 

Class A

 

 

Class B

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total Fox

Corporation

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interests(a)

 

 

Equity

 

Balance, June 30, 2020

 

 

344

 

 

$

3

 

 

 

261

 

 

$

3

 

 

$

9,831

 

 

$

674

 

 

$

(417

)

 

$

10,094

 

 

$

17

 

 

$

10,111

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,106

 

 

 

-

 

 

 

1,106

 

 

 

7

 

 

 

1,113

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9

 

 

 

9

 

 

 

-

 

 

 

9

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(138

)

 

 

-

 

 

 

(138

)

 

 

-

 

 

 

(138

)

Shares repurchased

 

 

(7

)

 

 

-

 

 

 

(3

)

 

 

-

 

 

 

(161

)

 

 

(109

)

 

 

-

 

 

 

(270

)

 

 

-

 

 

 

(270

)

Other

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

(8

)

 

 

-

 

 

 

(10

)

 

 

(9

)

 

 

(19

)

Balance, September 30, 2020

 

 

338

 

 

$

3

 

 

 

258

 

 

$

3

 

 

$

9,668

 

 

$

1,525

 

 

$

(408

)

 

$

10,791

 

 

$

15

 

 

$

10,806

 

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

 

 

(a)

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

 

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

 

5


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED 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 accompanying Unaudited Consolidated 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 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, 2021, due to, among other things, the impact of coronavirus disease 2019 (“COVID-19”) on the Company’s business.

The preparation of the Company’s Unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Unaudited Consolidated 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 outbreak of the COVID-19 pandemic has resulted in widespread and continuing negative impacts on the macroeconomic environment and disruption to the Company’s business. Weak economic conditions and increased volatility and disruption in the financial markets pose risks to the Company and its business partners, including advertisers whose expenditures tend to reflect overall economic conditions. The COVID-19 pandemic has caused some of the Company’s advertisers to reduce their spending, and future declines in the economic prospects of advertisers or the economy in general could negatively impact their advertising expenditures further. Depending on the duration and severity of the recession, it could lead to changes in consumer behavior, including increasing numbers of consumers canceling or foregoing subscriptions to multi-channel video programming distributor (“MVPD”) services, that adversely affect the Company’s affiliate fee and advertising revenues. In addition, the Company’s business depends on the volume and popularity of the content it distributes, particularly sports content. Following the COVID-19 outbreak, sports events to which the Company has broadcast rights have been cancelled or postponed and the production of certain entertainment content the Company distributes has been suspended. Although some of these sports events and productions have resumed, there may be additional content disruptions in the future. Depending on their duration and severity, these disruptions could materially adversely affect the Company’s future advertising revenues and, over a longer period, its future affiliate fee revenues. To the extent the pandemic further negatively impacts the Company’s ability to air sports events, particularly National Football League (“NFL”) and college sports, it could result in a significantly greater adverse effect on the Company’s business, financial condition or results of operations than the Company has experienced thus far. In addition, shifting sports schedules may negatively impact the Company’s ability to attract viewers and advertisers to its sports and entertainment programming.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the best estimates of the future impacts of COVID-19 as of September 30, 2020. The accounting matters assessed included, but were not limited to, the Company’s valuation allowances, programming rights and the carrying value of the goodwill and other long-lived assets. While there was not an impact to the Company’s consolidated financial statements as of September 30, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

These interim Unaudited Consolidated 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, 2020 as filed with the Securities and Exchange Commission on August 10, 2020 (the “2020 Form 10-K”).

6


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The Unaudited Consolidated Financial Statements include the accounts of FOX. All significant intercompany transactions and accounts within the Company’s consolidated 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 generally exists when the Company owns an interest between 20% and 50%. 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 Statements of Operations.

Pursuant to the merger agreement relating to the merger of Twenty-First Century Fox, Inc. (“21CF”) and The Walt Disney Company (“Disney”), the Company made a prepayment of approximately $700 million which represented the Company’s share of the estimated tax liabilities resulting from the anticipated divestitures by Disney of certain assets (the “Divestiture Tax”), principally the FOX Sports Regional Sports Networks (“RSNs”). As of September 30, 2020, Disney had sold the RSNs, the Company and Disney reached an agreement to settle the majority of the prepaid Divestiture Tax and the Company received $462 million from Disney as reimbursement of the Company’s prepayment based upon the sales price of the RSNs. This reimbursement was recorded in Other, net in the Statement of Operations (See Note 11Additional Financial Information under the heading “Other, net”). The balance of the prepaid Divestiture Tax is subject to adjustment in the future, but any such adjustment is not expected to have a material impact on the results of the Company.

The Company’s fiscal year ends on June 30 of each year. Certain fiscal 2020 amounts have been reclassified to conform to the fiscal 2021 presentation.

The unaudited and audited consolidated financial statements are referred to as the “Financial Statements” herein. The unaudited consolidated 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.

Recently Adopted and Recently Issued Accounting Guidance

Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), as amended. On July 1, 2020, the Company adopted ASU 2016-13 on a modified retrospective basis. The amendments in ASU 2016-13 require, among other things, financial assets measured at amortized cost basis to be presented at the net amount expected to be collected as compared to previous GAAP which delayed recognition until it was probable a loss had been incurred. The adoption of ASU 2016-13 did not have a material impact on the Company’s Financial Statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). On July 1, 2020, the Company adopted ASU 2018-15 on a prospective basis. The amendments in ASU 2018-15 require implementation costs incurred in a hosting arrangement that is a service contract to be capitalized using the same guidance for capitalizing implementation costs incurred to develop or obtain internal-use software. In addition, ASU 2018-15 provides guidance regarding the term over which capitalized implementation costs are to be amortized and requires specific financial statement presentation and disclosures. The adoption of ASU 2018-15 did not have a material impact on the Company’s Financial Statements.

In March 2019, the FASB issued ASU 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials” (“ASU 2019-02”). On July 1, 2020, the Company adopted ASU 2019-02 on a prospective basis and reclassified entertainment programming rights, with a contract duration of longer than a year, that were previously classified as the current portion of inventories, net to non-current inventories, net on the Balance Sheet. The amendments in ASU 2019-02 align the accounting treatment for production costs of episodic television series with the accounting treatment for production costs of films. In addition,

7


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

ASU 2019-02 modifies certain aspects of the amortization, impairment, presentation and disclosure requirements in ASC 926-20 and the impairment, presentation and disclosure requirements in ASC 920-350, including eliminating the balance sheet classification guidance. The adoption of ASU 2019-02 did not have a significant impact on the Company’s Financial Statements (See Note 3—Inventories, net for additional information).

NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS

The Company’s acquisitions support the Company’s strategy to strengthen its core brands and leverage its sports broadcasting rights and expand their reach beyond their traditional linear businesses. For the acquisitions in Note 3—Acquisitions, Disposals and Other Transactions in the 2020 Form 10-K under the heading “Acquisitions and Disposals,” the accounting for each business combination, including consideration transferred, is based on provisional amounts and the allocation of the consideration transferred is not final. The amounts allocated to intangibles and goodwill, the estimates of useful lives and the related amortization expense are subject to changes pending the completion of the final valuations of certain assets and liabilities. A change in the allocation of consideration transferred and any estimates of useful lives could result in a change in the value allocated to the intangible assets that could impact future amortization expense.

NOTE 3. INVENTORIES, NET

In accordance with ASC 920, “Entertainment—Broadcasters” (“ASC 920”), costs incurred in acquiring program rights or producing programs for the Cable Network Programming and Television segments, including advances, are capitalized and amortized over the license period or projected useful life of the programming. Program rights and the related liabilities are recorded at the gross amount of the liabilities when the license period has begun, the cost of the program is determinable and the program is accepted and available for airing. Effective for the Company beginning on July 1, 2020, ASC 920 permits program rights to be recorded in non-current inventories, net rather than segregated between current and non-current inventories, net. As a result, the Company reclassified entertainment programming rights, with a contract duration of longer than a year, that were previously classified as the current portion of inventories, net to non-current inventories, net on the Balance Sheet. Advances on sports events expected to be broadcast within one year and programs with an initial license period of one year or less continue to be recorded in the current portion of inventories, net. Television broadcast network entertainment programming, which includes acquired series, co-produced series, movies and other programs, are amortized primarily on an accelerated basis.

The Company has single and multi-year contracts for broadcast rights of programs and sports events. The Company evaluates the recoverability of the unamortized costs associated therewith, using total estimated advertising and other revenues attributable to the program material and considering the Company’s expectations of the usefulness of the program rights. The recoverability of entertainment programming is generally assessed on a contract basis and the recoverability of certain sports rights contracts for content broadcast on the FOX Network and the sports channels is assessed on an aggregate basis. Where an evaluation indicates that these multi-year contracts will result in an asset that is not recoverable, amortization of rights is accelerated in an amount equal to the amount by which the unamortized costs exceed fair value. The costs of multi-year sports contracts at the FOX Network and the sports channels are primarily amortized based on the ratio of each current period’s attributable revenue for each contract to the estimated total remaining attributable revenue for each contract. Estimates can change and, accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future could be material.

The Company’s inventories were comprised of the following:

 

 

 

As of

September 30,

2020

 

 

As of

June 30,

2020

 

 

 

(in millions)

 

Sports programming rights

 

$

1,098

 

 

$

674

 

Entertainment programming rights

 

 

428

 

 

 

384

 

Total inventories, net

 

 

1,526

 

 

 

1,058

 

Less: current portion of inventories, net

 

 

(1,271

)

 

 

(856

)

Total non-current inventories, net

 

$

255

 

 

$

202

 

 

8


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

For the three months ended September 30, 2020, the aggregate amortization expense related to the programming rights was approximately $670 million, which is included in Operating expenses in the Statement of Operations.

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”).

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, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in equity securities

 

$

640

 

 

$

640

(a)

 

$

-

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

(4

)

 

 

-

 

 

 

-

 

 

 

(4)

(b)

Redeemable noncontrolling interests

 

 

(310

)

 

 

-

 

 

 

-

 

 

 

(310)

(b)

Total

 

$

326

 

 

$

640

 

 

$

-

 

 

$

(314)

 

 

 

 

Fair value measurements

 

 

 

As of June 30, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in equity securities

 

$

531

 

 

$

531

(a)

 

$

-

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

(6)

(b)

Redeemable noncontrolling interests

 

 

(305

)

 

 

-

 

 

 

-

 

 

 

(305)

(b)

Total

 

$

220

 

 

$

531

 

 

$

-

 

 

$

(311)

 

 

(a)

The investment categorized as Level 1 represents an investment in equity securities of Flutter Entertainment plc (“Flutter”) with a readily determinable fair value (See Note 3—Acquisitions, Disposals and Other Transactions in the 2020 Form 10-K under the heading “Flutter” for further discussion).

(b)

The Company utilizes the market approach valuation technique for its Level 3 fair value measures. Inputs to such measures could include observable market data obtained from independent sources such as broker quotes and recent market transactions for similar assets. It is the Company’s policy to maximize the use of observable inputs in the measurement of its Level 3 fair value measurements. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the liability. Examples of utilized unobservable inputs are future cash flows and long-term growth rates.

Redeemable Noncontrolling Interests

The Company accounts for redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity,” because their exercise is outside the control of the Company. The redeemable noncontrolling interests recorded are put rights held by minority shareholders in a majority-owned sports network and in Credible Labs Inc. (“Credible”).

9


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The changes in redeemable noncontrolling interests classified as Level 3 measurements were as follows:

 

 

 

For the three months ended

September 30,

 

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Beginning of period

 

$

(305

)

 

$

(189

)

Net income

 

 

(4

)

 

 

(9

)

Distributions

 

 

6

 

 

 

8

 

Accretion

 

 

(7

)

 

 

(17

)

End of period

 

$

(310

)

 

$

(207

)

 

As of September 30, 2020, a portion of the sports network minority shareholder’s put right was exercisable. In October 2020, the sports network minority shareholder exercised its put right to sell this portion of its interest to the Company for approximately $135 million. The final put right held by the sports network minority shareholder will become exercisable in July 2021. The put right held by the Credible minority shareholder will become exercisable in fiscal 2025.

Financial Instruments

The carrying value of the Company’s financial instruments, such as cash and cash equivalents, receivables, payables and investments accounted for using the measurement alternative in accordance with ASC 321, approximates fair value.

 

 

 

As of

September 30,

2020

 

 

As of

June 30,

2020

 

 

 

(in millions)

 

Borrowings

 

 

 

 

 

 

 

 

Fair value

 

$

9,709

 

 

$

9,746

 

Carrying value

 

$

7,947

 

 

$

7,946

 

 

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).

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, 2020 or June 30, 2020. Generally, the Company does not require collateral to secure receivables. As of September 30, 2020 and June 30, 2020, the Company had no individual customers that accounted for 10% or more of the Company’s receivables.

NOTE 5. BORROWINGS

Senior Notes Issued

Borrowings include senior notes (See Note 9—Borrowings in the 2020 Form 10-K under the heading “Public Debt – Senior Notes Issued”). In addition, the Company is party to a credit agreement providing a $1.0 billion unsecured revolving credit facility with a sub-limit of $150 million available for the issuance of letters of credit and a maturity date of March 2024 (See Note 9—Borrowings in the 2020 Form 10-K under the heading “Revolving Credit Agreement”). As of September 30, 2020, there were no borrowings outstanding under the revolving credit agreement.

10


FOX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

In fiscal 2020, the Company’s Board of Directors (the “Board”) authorized a stock repurchase program providing for the repurchase of $2 billion 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”). The program has no time limit and may be modified, suspended or discontinued at any time. In August 2020, the Company entered into two accelerated share repurchase (“ASR”) agreements to repurchase $154 million of Class A Common Stock and $66 million of Class B Common Stock.

In accordance with the ASR agreements, in August 2020, the Company paid a third-party financial institution $154 million and $66 million and received initial deliveries of approximately 4.7 million and 2.0 million shares of Class A Common Stock and Class B Common Stock, respectively, representing 80% of the shares expected to be repurchased under each ASR agreement, at a price of $26.00 and $26.01 per share, which was The Nasdaq Global Select Market closing share price of the Class A Common Stock and Class B Common Stock, respectively, on August 21, 2020. Upon settlement of the ASR agreements in September 2020, the Company received final deliveries of approximately 0.9 million and 0.4 million shares of Class A Common Stock and Class B Common Stock, respectively. The final number of shares purchased under the ASR agreements was determined using a price of $27.57 and $27.67 per share (the volume-weighted average market price of the Class A Common Stock and Class B Common Stock, respectively, during the terms of the ASR agreements less a discount applicable for the Class A Common Stock). The Company accounted for each ASR agreement as two separate transactions. The initial deliveries of Class A Common Stock and Class B Common Stock were accounted for as treasury stock transactions recorded on the acquisition date. The final settlements of Class A Common Stock and Class B Common Stock were accounted for as forward contracts indexed to the Class A Common Stock or Class B Common Stock, as applicable, and qualified as equity transactions.

In addition to the shares purchased under the ASR agreements, the Company repurchased shares of Class A Common Stock and Class B Common Stock in the open market. In total, the Company repurchased approximately 10 million shares of Common Stock for $270 million during the three months ended September 30, 2020.

Repurchased shares are retired and reduce the number of shares issued and outstanding. The Company allocates the amount of the repurchase price over par value between additional paid-in capital and retained earnings.

As of September 30, 2020, the Company’s remaining stock repurchase authorization was approximately $1.1 billion. Subsequent to September 30, 2020, the Company repurchased a total of approximately 1.3 million shares of Common Stock for approximately $35 million in the open market.

Dividends

The following table summarizes the dividends declared per share on both the Company’s Class A Common Stock and Class B Common Stock:

 

 

 

For the three months ended

September 30,