Readers should carefully review this document and the other documents filed by
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together with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The consolidated financial statements are referred to as the "Financial Statements" herein.
INTRODUCTION
The Distribution
OnMarch 19, 2019 , the Company became a standalone publicly traded company through the pro rata distribution by Twenty-First Century Fox, Inc. ("21CF") of all of the issued and outstanding common stock ofFOX 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 ofJune 20, 2018 , by and between 21CF and 21CFDistribution Merger Sub, Inc. Following the Distribution, the Company's Class A Common Stock, par value$0.01 per share (the "Class A Common Stock"), and ClassB Common Stock, par value$0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock") 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 ofMarch 19, 2019 (the "Separation Agreement"), with 21CF, which effected the internal restructuring (the "Separation") whereby The Walt Disney Company ("Disney") acquired the remaining 21CF assets and 21CF became a wholly-owned subsidiary ofDisney . 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 ofJune 20, 2018 (the "21CF Disney Merger Agreement"), by and among 21CF,Disney and certain subsidiaries ofDisney . Pursuant to the 21CF Disney Merger Agreement, immediately prior to the Distribution, the Company paid to 21CF a dividend in the amount of$8.5 billion (the "Dividend"). The final determination of the taxes in respect of the Separation and the Distribution for which the Company is responsible pursuant to the 21CF Disney Merger Agreement and a prepayment of the estimated taxes in respect of divestitures (collectively, the "Transaction Tax") was$6.5 billion . Following the Distribution, onMarch 20, 2019 the Company received a cash payment in the amount of$2.0 billion fromDisney , which had the net effect of reducing the Dividend the Company paid to 21CF. The Transaction Tax included a prepayment of the Company's share of the estimated tax liabilities resulting from the anticipated divestitures byDisney of certain assets, principally theFOX Sports Regional Sports Networks ("RSNs"), which were sold byDisney during calendar year 2019 ("Divestiture Tax"). This prepayment was in the amount of approximately$700 million and is subject to adjustment in the future, when the actual amounts of all such tax liabilities are reported on the federal income tax returns ofDisney or a subsidiary ofDisney . Any such adjustment is not expected to have a material impact on the results of the Company. During the first quarter of fiscal 2021, the Company andDisney reached an agreement to settle the majority of the prepaid Divestiture Tax and the Company received$462 million fromDisney 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 20-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net"). As a result of the Separation and the Distribution, which was a taxable transaction for which the estimated tax liability of$5.8 billion was included in the Transaction Tax paid by the Company,FOX obtained a tax basis in its assets equal to their respective fair market values. This resulted in estimated annual tax deductions of approximately$1.5 billion , principally over the next several years related to the amortization of the additional tax basis. This amortization is estimated to reduce the Company's annual cash tax liability by$370 million per year at the current combined federal and state applicable tax rate of approximately 25%. Such estimates are subject to revisions, which could be material, based upon the occurrence of future events. In connection with the Separation, the Company entered into several agreements that govern certain aspects of the Company's relationship with 21CF andDisney following the Separation, including the Separation Agreement and a tax matters agreement. The core transition services agreements entered into in connection with the Separation terminated in accordance with their terms in fiscal 2022.
Basis of Presentation
The Company's financial statements are presented on a consolidated basis.
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Management's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company's financial condition, changes in financial condition and results of operations. This discussion is organized as follows:
•Overview of the Company's Business-This section provides a general description of the Company's businesses, as well as developments that occurred either during the fiscal year endedJune 30 , ("fiscal") 2022 or early fiscal 2023 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends. •Results of Operations-This section provides an analysis of the Company's results of operations for fiscal 2022, 2021 and 2020. This analysis is presented on both a consolidated and a segment basis. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed. •Liquidity and Capital Resources-This section provides an analysis of the Company's cash flows for fiscal 2022, 2021 and 2020, as well as a discussion of the Company's outstanding debt and commitments, both firm and contingent, that existed as ofJune 30, 2022 . Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the Company's future commitments and obligations, as well as a discussion of other financing arrangements. •Critical Accounting Policies-This section discusses accounting policies considered important to the Company's financial condition and results of operations, and which require significant judgment and estimates on the part of management in application. In addition, Note 2-Summary of Significant Accounting Policies to the accompanying Financial Statements summarizes the Company's significant accounting policies, including the critical accounting policy discussion found in this section. •Caution Concerning Forward-Looking Statements-This section provides a description of the use of forward-looking information appearing in this Annual Report on Form 10-K, including in Management's Discussion and Analysis of Financial Condition and Results of Operations. Such information is based on management's current expectations about future events which are subject to change and to inherent risks and uncertainties. Refer to Item 1A. "Risk Factors" in this Annual Report for a discussion of the risk factors applicable to the Company.
OVERVIEW OF THE COMPANY'S BUSINESS
The Company is a news, sports and entertainment company, which manages and reports its businesses in the following segments:
•Cable Network Programming, which produces and licenses news and sports content distributed through traditional cable television systems, direct broadcast satellite operators and telecommunication companies ("traditional MVPDs"), virtual multi-channel video programming distributors ("virtual MVPDs") and other digital platforms, primarily in theU.S. •Television, which produces, acquires, markets and distributes programming through theFOX broadcast network, advertising-supported video-on-demand ("AVOD") service TUBI, 29 full power broadcast television stations, including 11 duopolies, and other digital platforms, primarily in theU.S. Eighteen of the broadcast television stations are affiliated with the FOX Network, 10 are affiliated withMyNetworkTV and one is an independent station. •Other, Corporate and Eliminations, which principally consists of theFOX Studio Lot,Credible Labs Inc. ("Credible"), corporate overhead costs and intracompany eliminations. The FOX Studio Lot, located inLos Angeles, California , provides television and film production services along with office space, studio operation services and includes all operations of the facility. Credible is aU.S. consumer finance marketplace. The Company's Cable Network Programming and Television segments derive the majority of their revenues from affiliate fees for the transmission of content and advertising sales. For fiscal 2022, the Company generated revenues of$14.0 billion , of which approximately 49% was generated from affiliate fees, approximately 42% was generated from advertising, and approximately 9% was generated from other operating activities. 36 -------------------------------------------------------------------------------- Affiliate fees primarily include (i) monthly subscriber-based license and retransmission consent fees paid by programming distributors that carry our cable networks and our owned and operated television stations and (ii) fees received from non-owned and operated television stations that are affiliated with the FOX Network.U.S. law governing retransmission consent provides a mechanism for the television stations owned by the Company to seek and obtain payment from traditional MVPDs that carry the Company's broadcast signals. The Company's revenues are impacted by rate changes, changes in the number of subscribers to the Company's content and changes in the expenditures by advertisers. In addition, advertising revenues are subject to seasonality and cyclicality as a result of the impact of state, congressional and presidential election cycles and special events that air on the Company's networks, including theNational Football League's ("NFL")Super Bowl , which is broadcast on theFOX Network on a rotating basis with other networks, and the Fédération Internationale deFootball Association ("FIFA")World Cup , which occurs every four years (for each of women and men), and other regular and post-season sports events, including one NFL Divisional playoff game that is aired on a rotating annual basis with another network. The cable network programming and television industries continue to evolve rapidly, with changes in technology leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior as consumers seek more control over when, where and how they consume content. Consumer preferences have evolved toward alternatives, including direct-to-consumer offerings. These changes in technologies and consumer behavior have contributed to declines in the number of subscribers to MVPD services, and these declines are expected to continue and possibly accelerate in the future. At the same time, technological changes have affected advertisers' options for reaching their target audiences. There has been a substantial increase in the availability of content with reduced advertising or without advertising at all. As consumers switch to digital consumption of video content, there is still to be developed a consistent, broadly accepted measure of multiplatform audiences across the industry. Furthermore, the pricing and volume of advertising may be affected by shifts in spending from more traditional media and toward digital and mobile offerings, which can deliver targeted advertising more promptly, or toward newer ways of purchasing advertising. In addition, the market for AVOD advertising campaigns is relatively new and evolving. The Company operates in a highly competitive industry and its performance is dependent, to a large extent, on the impact of changes in consumer behavior as a result of new technologies, the sale of advertising, the maintenance, renewal and terms of its carriage, affiliation and content agreements and programming rights, the popularity of its content, general economic conditions (including financial market conditions), the Company's ability to manage its businesses effectively, and its relative strength and leverage in the industry. For more information, see Item 1. "Business" and Item 1A. "Risk Factors." 37 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Results of Operations-Fiscal 2022 versus Fiscal 2021
The following table sets forth the Company's operating results for fiscal 2022, as compared to fiscal 2021: For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %)
Better/(Worse) Revenues Affiliate fee$ 6,878 $ 6,435 $ 443 7 % Advertising 5,900 5,431 469 9 % Other 1,196 1,043 153 15 % Total revenues 13,974 12,909 1,065 8 % Operating expenses (9,117) (8,037) (1,080) (13) % Selling, general and administrative (1,920) (1,807) (113) (6) % Depreciation and amortization (363) (300) (63) (21) % Impairment and restructuring charges - (35) 35 100 % Interest expense, net (371) (391) 20 5 % Other, net (509) 579 (1,088) ** Income before income tax expense 1,694 2,918 (1,224) (42) % Income tax expense (461) (717) 256 36 % Net income 1,233 2,201 (968) (44) % Less: Net income attributable to noncontrolling interests (28) (51) 23 45 % Net income attributable toFox Corporation stockholders$ 1,205 $ 2,150 $ (945) (44) % ** not meaningfulOverview-The Company's revenues increased 8% for fiscal 2022, as compared to fiscal 2021, due to higher affiliate fee, advertising and other revenues. The increase in affiliate fee revenue was primarily due to higher average rates per subscriber, led by contractual rate increases on existing affiliate agreements and from affiliate agreement renewals, partially offset by a lower average number of subscribers. Also impacting the increase was the absence of prior year affiliate fee credits as a result of the coronavirus disease 2019 ("COVID-19") related under-delivery of college football games. The increase in advertising revenue was primarily due to higher pricing atFOX Sports and FOX News Media, growth at TUBI, and a higher number of live events atFOX Sports due to the impact of COVID-19 in fiscal 2021. Partially offsetting this increase was lower political advertising revenue due to the absence of the 2020 presidential and congressional elections. The increase in other revenues was primarily due to higher sports sublicensing revenues which were impacted by COVID-19 in fiscal 2021, the impact of acquisitions of entertainment production companies in fiscal 2022 (See Note 3-Acquisitions, Disposals and Other Transactions to the accompanying Financial Statements) and higher FOX Nation subscription revenues, partially offset by the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021. Operating expenses increased 13% for fiscal 2022, as compared to fiscal 2021, primarily due to higher sports programming rights amortization and production costs related to NFL, MajorLeague Baseball ("MLB") and college football content, including a higher number of live events due to the impact of COVID-19 in fiscal 2021. Also impacting the increase was increased digital investment at TUBI and FOX News Media, costs associated with the launch of theUnited States Football League ("USFL") and higher entertainment programming rights amortization due to more hours of original scripted programming as compared to fiscal 2021 which was impacted by COVID-19. This increase was partially offset by the absence of events that were shifted into fiscal 2021 from fiscal 2020 as a result of COVID-19 rescheduling, includingNational Association of Stock Car Auto Racing ("NASCAR") Cup Series races and additional MLB regular season games, and the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021. 38 -------------------------------------------------------------------------------- Selling, general and administrative expenses increased 6% for fiscal 2022, as compared to fiscal 2021, primarily due to higher technology costs related to the Company's digital initiatives and higher marketing expenses at FOX News Media, partially offset by the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021. Depreciation and amortization-Depreciation and amortization expense increased 21% for fiscal 2022, as compared to fiscal 2021, primarily due to assets placed into service during the fourth quarter of fiscal 2021 for the Company's standalone broadcast technical facilities and the impact of acquisitions of entertainment production companies in fiscal 2022.
Impairment and restructuring charges-See Note 4-Restructuring Programs to the accompanying Financial Statements.
Interest expense, net-Interest expense, net decreased 5% for fiscal 2022, as
compared to fiscal 2021, primarily due to the repayment of
Other, net-See Note 20-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net."
Income tax expense-The Company's tax provision and related effective tax rate of 27% for fiscal 2022 was higher than the statutory rate of 21% primarily due to state taxes and a remeasurement of the Company's net deferred tax assets associated with changes in the mix of jurisdictional earnings. The Company's tax provision and related effective tax rate of 25% for fiscal 2021 was higher than the statutory rate of 21% primarily due to state taxes, partially offset by a benefit from the reduction of uncertain tax positions for state tax audits. Net income-Net income decreased 44% for fiscal 2022, as compared to fiscal 2021, primarily due the change in fair value of the Company's investment inFlutter Entertainment plc and the absence of the reimbursement fromDisney of$462 million related to the substantial settlement of the Company's prepayment of its share of the Divestiture Tax, which occurred during fiscal 2021 (See Note 20-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net"). 39 --------------------------------------------------------------------------------
Results of Operations-Fiscal 2021 versus Fiscal 2020
The following table sets forth the Company's operating results for fiscal 2021, as compared to fiscal 2020:
For the years ended
2021 2020 $ Change % Change (in millions, except %) Better/(Worse) Revenues Affiliate fee$ 6,435 $ 5,908 $ 527 9 % Advertising 5,431 5,333 98 2 % Other 1,043 1,062 (19) (2) % Total revenues 12,909 12,303 606 5 % Operating expenses (8,037) (7,807) (230) (3) % Selling, general and administrative (1,807) (1,741) (66) (4) % Depreciation and amortization (300) (258) (42) (16) % Impairment and restructuring charges (35) (451) 416 92 % Interest expense, net (391) (334) (57) (17) % Other, net 579 (248) 827 ** Income before income tax expense 2,918 1,464 1,454 99 % Income tax expense (717) (402) (315) (78) % Net income 2,201 1,062 1,139 ** Less: Net income attributable to noncontrolling interests (51) (63) 12 19 % Net income attributable toFox Corporation stockholders$ 2,150 $ 999 $ 1,151 ** ** not meaningfulOverview-The Company's revenues increased 5% for fiscal 2021, as compared to fiscal 2020, as higher affiliate fee and advertising revenues were partially offset by lower other revenue. The increase in affiliate fee revenue was primarily attributable to higher average rates due to rate increases from affiliate agreement renewals and contractual rate increases on existing affiliate agreements, partially offset by the impact of a lower average number of subscribers and estimated affiliate fee credits provided as a result of cancelled live college football games due to COVID-19. The increase in advertising revenue was primarily due to the impact of the consolidation of TUBI, which experienced record viewership and record advertising revenue, higher political advertising revenue at theFOX Television Stations related to the 2020 presidential and congressional elections, higher linear and digital advertising revenue from the 2020 presidential election coverage at FOX News Media, and the rotating broadcast of one additional NFL Divisional playoff game, partially offset by the comparative effect of the broadcast of theNFL's Super Bowl LIV inFebruary 2020 (the "Super Bowl") and lower ratings at the FOX Network due in part to COVID-19-impacted schedules in fiscal 2021. Operating expenses increased 3% for fiscal 2021, as compared to fiscal 2020, primarily due to the impact of the consolidation of TUBI, partially offset by lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper Bowl in fiscal 2021 and the cancellation of live college football games, and lower entertainment programming rights amortization due to fewer hours of original scripted programming as a result of COVID-19. Partially offsetting lower sports programming rights amortization and production costs were contractual rate increases for NFL, MLB and college football content, the rotating broadcast of one additional NFL Divisional playoff game and a higher volume ofNASCAR races due to fewer races following the COVID-19-impacted schedule in fiscal 2020. Selling, general and administrative expenses increased 4% for fiscal 2021, as compared to fiscal 2020, primarily due to higher legal and marketing expenses and the impact of acquisitions that occurred in fiscal 2020 (the "Fiscal 2020 Acquisitions") (See Note 3-Acquisitions, Disposals and Other Transactions to the 40 -------------------------------------------------------------------------------- accompanying Financial Statements), partially offset by lower professional fees, lower bad debt expense and lower marketing costs associated with the absence of theSuper Bowl in the current year. Depreciation and amortization-Depreciation and amortization expense increased 16% for fiscal 2021, as compared to fiscal 2020, primarily due to assets placed into service as the Company transitioned from service agreements in connection with the Separation and the Fiscal 2020 Acquisitions.
Impairment and restructuring charges-See Note 4-Restructuring Programs to the accompanying Financial Statements.
Interest expense, net-Interest expense, net increased 17% million for fiscal 2021, as compared to fiscal 2020, due to lower interest income primarily due to lower interest rates and higher interest expense primarily due to the issuance of$1.2 billion of senior notes inApril 2020 (See Note 9-Borrowings to the accompanying Financial Statements under the heading "Public Debt - Senior Notes Issued" for additional information).
Other, net-See Note 20-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net."
Income tax expense-The Company's tax provision and related effective tax rate of 25% for fiscal 2021 was higher than the statutory rate of 21% primarily due to state taxes, partially offset by a benefit from the reduction of uncertain tax positions for state tax audits. The Company's tax provision and related effective tax rate of 27% for fiscal 2020 was higher than the statutory rate of 21% primarily due to state taxes and other permanent items. See Note 16-Income Taxes to the accompanying Financial Statements. Net income-Net income increased$1.1 billion for fiscal 2021 as compared to fiscal 2020, primarily due the receipt of the$462 million reimbursement fromDisney related to the Divestiture Tax (See Note 1-Description of Business and Basis of Presentation to the accompanying Financial Statements), higher Segment EBITDA (as defined below) at the Cable Network Programming and Television segments and higher net gains on investments in equity securities (See Note 20-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net"), partially offset by lower restructuring charges due to the contract termination costs related to a programming rights agreement with theUnited States Golf Association ("USGA") in fiscal 2020 (See Note 4-Restructuring Programs to the accompanying Financial Statements under the heading "Fiscal 2020") and higher income tax expense.
Segment Analysis
The Company's operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment operating income before depreciation and amortization, or Segment EBITDA. Due to the integrated nature of these operating segments, estimates and judgments are made in allocating certain assets, revenues and expenses. Segment EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Segment EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, net, Other, net and Income tax (expense) benefit. Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company's business segments because it is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources to the Company's businesses. 41 --------------------------------------------------------------------------------
Fiscal 2022 versus Fiscal 2021
The following tables set forth the Company's Revenues and Segment EBITDA for fiscal 2022, as compared to fiscal 2021:
For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %) Better/(Worse) Revenues Cable Network Programming$ 6,097 $ 5,683 $ 414 7 % Television 7,685 7,048 637 9 % Other, Corporate and Eliminations 192 178 14 8 % Total revenues$ 13,974 $ 12,909 $ 1,065 8 % For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %) Better/(Worse) Segment EBITDA Cable Network Programming$ 2,934 $ 2,876 $ 58 2 % Television 347 555 (208) (37) % Other, Corporate and Eliminations (326) (344) 18 5 % Adjusted EBITDA(a)$ 2,955 $ 3,087 $ (132) (4) %
(a) For a discussion of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA,
see "Non-GAAP Financial Measures" below.
Cable Network Programming (44% of the Company's revenues in fiscal 2022 and 2021) For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %)
Better/(Worse) Revenues Affiliate fee$ 4,205 $ 3,995 $ 210 5 % Advertising 1,462 1,337 125 9 % Other 430 351 79 23 % Total revenues 6,097 5,683 414 7 % Operating expenses (2,595) (2,289) (306) (13) % Selling, general and administrative (586) (540) (46) (9) % Amortization of cable distribution investments 18 22 (4) (18) % Segment EBITDA$ 2,934 $ 2,876 $ 58 2 % Revenues at the Cable Network Programming segment increased for fiscal 2022, as compared to fiscal 2021, due to higher affiliate fee, advertising and other revenues. The increase in affiliate fee revenue was primarily due to contractual rate increases on existing affiliate agreements and from affiliate agreement renewals, partially offset by a lower average number of subscribers. Also impacting the increase was the absence of fiscal 2021 affiliate fee credits as a result of the COVID-19 related under-delivery of college football games. The decrease in the average number of subscribers was due to a reduction in traditional MVPD subscribers, partially offset by an increase in virtual MVPD subscribers. The increase in advertising revenue was primarily due to higher pricing at FOX News Media and higher pricing and an increase in the number of live events at the national sports networks, primarily the result of additional MLB postseason games and the return of a full college football schedule that was shortened due to COVID-19 in fiscal 2021. This increase was partially offset by lower political advertising revenue due to the absence of the 2020 presidential elections. The increase in other revenues was primarily due to higher sports sublicensing revenues, which were impacted by COVID-19 42 -------------------------------------------------------------------------------- in fiscal 2021, and higher FOX Nation subscription revenues, partially offset by the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021. Cable Network Programming Segment EBITDA increased for fiscal 2022, as compared to fiscal 2021, primarily due to the revenue increases noted above, partially offset by higher expenses. Operating expenses increased due to higher sports programming rights amortization and production costs primarily related to the return of a full college football and basketball season as a result of the impact of COVID-19 in fiscal 2021, increased investment in digital growth initiatives at FOX News Media and costs associated with the launch of USFL. This increase was partially offset by the absence of events that were shifted into fiscal 2021 from fiscal 2020 as a result of COVID-19 rescheduling, including NASCAR Cup Series races and additional MLB regular season games, and the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021. Selling, general and administrative expenses increased principally due to higher marketing expenses at FOX News Media, partially offset by the impact of the divestiture of the Company's sports marketing businesses in fiscal 2021.
Television (55% of the Company's revenues in fiscal 2022 and 2021)
For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %) Better/(Worse) Revenues Advertising$ 4,440 $ 4,094 $ 346 8 % Affiliate fee 2,673 2,440 233 10 % Other 572 514 58 11 % Total revenues 7,685 7,048 637 9 % Operating expenses (6,431) (5,662) (769) (14) % Selling, general and administrative (907) (831) (76) (9) % Segment EBITDA$ 347 $ 555 $ (208) (37) % Revenues at the Television segment increased for fiscal 2022, as compared to fiscal 2021, due to higher advertising, affiliate fee and other revenues. The increase in advertising revenue was primarily attributable to higher pricing as well as the return of a full schedule of college football in fiscal 2022 atFOX Sports and continued growth at TUBI, partially offset by lower political advertising revenue at theFOX Television Stations due to the absence of the 2020 presidential and congressional elections. The increase in affiliate fee revenue was primarily due to higher fees received from television stations that are affiliated with the FOX Network, and higher average rates per subscriber partially offset by a lower average number of subscribers at the Company's owned and operated television stations. The increase in other revenues was primarily due to the current year impact of acquisitions of entertainment production companies. Television Segment EBITDA decreased for fiscal 2022, as compared to fiscal 2021, as the revenue increases noted above were more than offset by higher expenses. Operating expenses increased primarily due to higher sports programming rights amortization and production costs related to NFL, MLB and college football content, including a higher number of college football games as compared to the COVID-19 impacted fiscal 2021, increased digital investment at TUBI and higher entertainment programming rights amortization due to more hours of original scripted programming as compared to fiscal 2021, which was impacted by COVID-19. Selling, general and administrative expenses increased primarily due to higher technology costs related to the Company's digital initiatives. 43 -------------------------------------------------------------------------------- Other, Corporate and Eliminations (1% of the Company's revenues for fiscal 2022 and 2021) For the years ended June 30, 2022 2021 $ Change % Change (in millions, except %)
Better/(Worse) Revenues$ 192 $ 178 $ 14 8 % Operating expenses (91) (86) (5) (6) % Selling, general and administrative (427) (436) 9 2 % Segment EBITDA$ (326) $ (344) $ 18 5 % Revenues at the Other, Corporate and Eliminations segment for fiscal 2022 and 2021 include revenues generated by Credible and the operation of theFOX Studios lot for third parties. Operating expenses for fiscal 2022 and 2021 include advertising and promotional expenses at Credible and the costs of operating theFOX Studios lot. Selling, general and administrative expenses for fiscal 2022 and 2021 primarily relate to employee costs and professional fees and the costs of operating theFOX Studios lot.
Fiscal 2021 versus Fiscal 2020
The following tables set forth the Company's Revenues and Segment EBITDA for fiscal 2021, as compared to fiscal 2020:
For the years ended June 30, 2021 2020 $ Change % Change (in millions, except %) Better/(Worse) Revenues Cable Network Programming$ 5,683 $ 5,492 $ 191 3 % Television 7,048 6,661 387 6 % Other, Corporate and Eliminations 178 150 28 19 % Total revenues$ 12,909 $ 12,303 $ 606 5 % For the years ended June 30, 2021 2020 $ Change % Change (in millions, except %) Better/(Worse) Segment EBITDA Cable Network Programming$ 2,876 $ 2,706 $ 170 6 % Television 555 430 125 29 % Other, Corporate and Eliminations (344) (357) 13 4 % Adjusted EBITDA(a)$ 3,087 $ 2,779 $ 308 11 %
(a) For a discussion of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA,
see "Non-GAAP Financial Measures" below. 44
-------------------------------------------------------------------------------- Cable Network Programming (44% and 45% of the Company's revenues in fiscal 2021 and 2020, respectively) For the years ended June 30, 2021 2020 $ Change % Change (in millions, except %)
Better/(Worse) Revenues Affiliate fee$ 3,995 $ 3,870 $ 125 3 % Advertising 1,337 1,164 173 15 % Other 351 458 (107) (23) % Total revenues 5,683 5,492 191 3 % Operating expenses (2,289) (2,316) 27 1 % Selling, general and administrative (540) (494) (46) (9) % Amortization of cable distribution investments 22 24 (2) (8) % Segment EBITDA$ 2,876 $ 2,706 $ 170 6 % Revenues at the Cable Network Programming segment increased for fiscal 2021 as compared to fiscal 2020 as the increases in advertising and affiliate fee revenues were partially offset by lower other revenue. The increase in advertising revenue was primarily due to higher linear and digital advertising revenue from the 2020 presidential election coverage at FOX News Media. The increase in affiliate fee revenue was primarily due to rate increases from affiliate agreement renewals and contractual rate increases on existing affiliate agreements, partially offset by a lower average number of subscribers and estimated affiliate fee credits provided as a result of the cancellation of live college football games due to COVID-19. The decrease in the average number of subscribers was due to a reduction in traditional MVPD subscribers, partially offset by an increase in virtual MVPD subscribers. The decrease in other revenues was primarily attributable to lower sports sublicensing revenues and lower revenues generated from Premier Boxing Champions ("PBC") pay-per-view events due in part to COVID-19. Cable Network Programming Segment EBITDA increased for fiscal 2021 as compared to fiscal 2020 primarily due to the revenue increases noted above, partially offset by higher expenses. Selling, general and administrative expenses increased primarily due to higher legal and marketing expenses, including promotional expenses associated with FOX Nation. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs driven by cancelled live games in the first half of fiscal 2021, partially offset by the shift ofNASCAR races and MLB regular season games into fiscal 2021 as a result of COVID-19 and contractual rate increases for MLB and college football content. Television (55% and 54% of the Company's revenues in fiscal 2021 and 2020, respectively) For the years ended June 30, 2021 2020 $ Change % Change (in millions, except %) Better/(Worse) Revenues Advertising$ 4,094 $ 4,169 $ (75) (2) % Affiliate fee 2,440 2,038 402 20 % Other 514 454 60 13 % Total revenues 7,048 6,661 387 6 % Operating expenses (5,662) (5,437) (225) (4) % Selling, general and administrative (831) (794) (37) (5) % Segment EBITDA$ 555 $ 430 $ 125 29 % Revenues at the Television segment increased for fiscal 2021, as compared to fiscal 2020, due to higher affiliate fee and other revenues partially offset by lower advertising revenue. The increase in affiliate fee revenue was primarily due to higher fees received from television stations that are affiliated with the FOX Network and higher average rates partially offset by a lower average number of subscribers at the Company's owned and 45 -------------------------------------------------------------------------------- operated television stations. The increase in other revenues was primarily due to higher revenues at the Company's entertainment production companies. The decrease in advertising revenue was primarily due to the comparative effect of the broadcast of theSuper Bowl in fiscal 2020 and lower ratings at theFOX Network due in part to COVID-19-impacted schedules partially offset by the impact of the consolidation of TUBI, higher political advertising revenue at theFOX Television Stations related to the 2020 presidential and congressional elections and the rotating broadcast of one additional NFL Divisional playoff game. Television Segment EBITDA increased for fiscal 2021, as compared to fiscal 2020, due to the revenue increases noted above partially offset by higher expenses. Operating expenses increased primarily due to the impact of the consolidation of TUBI partially offset by lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper Bowl in fiscal 2021, and lower entertainment programming rights amortization due to fewer hours of original scripted programming as a result of COVID-19. Partially offsetting the decrease in sports programming rights amortization and production costs were contractual rate increases for NFL, MLB and college football content and the rotating broadcast of one additional NFL Divisional playoff game. Selling, general and administrative expenses increased primarily due to the Fiscal 2020 Acquisitions (See Note 3- Acquisitions, Disposals and Other Transactions to the accompanying Financial Statements) partially offset by lower bad debt expense and lower marketing costs associated with the absence of theSuper Bowl in fiscal 2021. Other, Corporate and Eliminations (1% of the Company's revenues for fiscal 2021 and 2020) For the years ended June 30, 2021 2020 $ Change % Change (in millions, except %)
Better/(Worse) Revenues$ 178 $ 150 $ 28 19 % Operating expenses (86) (54) (32) (59) % Selling, general and administrative (436) (453) 17 4 % Segment EBITDA$ (344) $ (357) $ 13 4 % Revenues at the Other, Corporate and Eliminations segment increased for fiscal 2021, as compared to fiscal 2020, primarily due to the impact of the consolidation of Credible in the second quarter of fiscal 2020 and growth at Credible. Operating expenses increased primarily due to the impact of the consolidation of Credible and growth at Credible. Selling, general and administrative expenses decreased primarily due to lower professional fees.
Non-GAAP Financial Measures
Adjusted EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Adjusted EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, net, Other, net and Income tax expense.
Management believes that information about Adjusted EBITDA assists all users of the Company's Financial Statements by allowing them to evaluate changes in the operating results of the Company's portfolio of businesses separate from non-operational factors that affect Net income, thus providing insight into both operations and the other factors that affect reported results. Adjusted EBITDA provides management, investors and equity analysts a measure to analyze the operating performance of the Company's business and its enterprise value against historical data and competitors' data, although historical results, including Adjusted EBITDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences and the impact of COVID-19 and other widespread health emergencies or pandemics and measures to contain their spread). Adjusted EBITDA is considered a non-GAAP financial 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 withU.S. generally accepted accounting principles ("GAAP"). In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and 46 -------------------------------------------------------------------------------- impairment charges, which are significant components in assessing the Company's financial performance. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
Fiscal 2022 versus Fiscal 2021
The following table reconciles Net income to Adjusted EBITDA for fiscal 2022, as compared to fiscal 2021:
For the years ended
2022 2021 (in millions) Net income$ 1,233 $ 2,201 Add Amortization of cable distribution investments 18 22 Depreciation and amortization 363 300 Impairment and restructuring charges - 35 Interest expense, net 371 391 Other, net 509 (579) Income tax expense 461 717 Adjusted EBITDA$ 2,955 $ 3,087
The following table sets forth the computation of Adjusted EBITDA for fiscal 2022, as compared to fiscal 2021:
For the years ended June 30, 2022 2021 (in millions) Revenues$ 13,974 $ 12,909 Operating expenses (9,117) (8,037) Selling, general and administrative (1,920) (1,807) Amortization of cable distribution investments 18 22 Adjusted EBITDA $ 2,955$ 3,087
Fiscal 2021 versus Fiscal 2020
The following table reconciles Net income to Adjusted EBITDA for fiscal 2021, as compared to fiscal 2020:
For the years ended
2021 2020 (in millions) Net income$ 2,201 $ 1,062 Add Amortization of cable distribution investments 22 24 Depreciation and amortization 300 258 Impairment and restructuring charges 35 451 Interest expense, net 391 334 Other, net (579) 248 Income tax expense 717 402 Adjusted EBITDA$ 3,087 $ 2,779 47
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The following table sets forth the computation of Adjusted EBITDA for fiscal 2021, as compared to fiscal 2020:
For the years ended June 30, 2021 2020 (in millions) Revenues$ 12,909 $ 12,303 Operating expenses (8,037) (7,807) Selling, general and administrative (1,807) (1,741) Amortization of cable distribution investments 22 24 Adjusted EBITDA $ 3,087$ 2,779
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
The Company has approximately$5.2 billion of cash and cash equivalents as ofJune 30, 2022 and an unused five-year$1.0 billion unsecured revolving credit facility (See Note 9-Borrowings to the accompanying Financial Statements). The Company also has access to the worldwide capital markets, subject to market conditions. As ofJune 30, 2022 , the Company was in compliance with all of the covenants under its revolving credit facility, and it does not anticipate any noncompliance with such covenants. The principal uses of cash that affect the Company's liquidity position include the following: the acquisition of rights and related payments for entertainment and sports programming; operational expenditures including production costs; marketing and promotional expenses; expenses related to broadcasting the Company's programming; employee and facility costs; capital expenditures; acquisitions; interest and dividend payments; debt repayments; and stock repurchases. In addition to the acquisitions and dispositions disclosed within Note 3-Acquisitions, Disposals, and Other Transactions to the accompanying Financial Statements, the Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses and assets. Such transactions may be material and may involve cash, the Company's securities or the assumption of additional indebtedness.
Sources and Uses of Cash-Fiscal 2022 vs. Fiscal 2021
Net cash provided by operating activities for fiscal 2022 and 2021 was as follows (in millions):
For the years ended June 30, 2022 2021
Net cash provided by operating activities
The decrease in net cash provided by operating activities during fiscal 2022, as compared to fiscal 2021, was primarily due to higher sports payments and entertainment production spending as well as lower Adjusted EBITDA.
Net cash used in investing activities for fiscal 2022 and 2021 was as follows (in millions):
For the years ended June 30, 2022 2021
Net cash used in investing activities
The decrease in net cash used in investing activities during fiscal 2022, as compared to fiscal 2021, was primarily due to lower capital expenditures in connection with establishing the Company's standalone broadcast technical facilities placed into service in fiscal 2021, partially offset by higher fiscal 2022 acquisitions (See Note 3-Acquisitions, Disposals, and Other Transactions to the accompanying Financial Statements). 48 --------------------------------------------------------------------------------
Net cash used in financing activities for fiscal 2022 and 2021 was as follows (in millions):
For the years ended June 30, 2022 2021
Net cash used in financing activities
The increase in net cash used in financing activities during fiscal 2022, as compared to fiscal 2021, was primarily due to the$750 million repayment of senior notes that matured inJanuary 2022 (See Note 9-Borrowings to the accompanying Financial Statements) and the absence of cash received fromDisney in fiscal 2021, including the$462 million reimbursement related to the Divestiture Tax.
Stock Repurchase Program
See Note 11-Stockholders' Equity to the accompanying Financial Statements under the heading "Stock Repurchase Program."
Dividends
Dividends paid in fiscal 2022 totaled$0.48 per share of Class A Common Stock and Class B Common Stock. Subsequent toJune 30, 2022 , the Company increased its semi-annual dividend and declared a semi-annual dividend of$0.25 per share on both the Class A Common Stock and the Class B Common Stock. The dividend declared is payable onSeptember 28, 2022 with a record date for determining dividend entitlements ofAugust 31, 2022 . Based on the number of shares outstanding as ofJune 30, 2022 , and the new annual dividend rate stated above, the total aggregate cash dividends expected to be paid to stockholders in fiscal 2023 is approximately$275 million , which is consistent with fiscal 2022.
Sources and Uses of Cash-Fiscal 2021 vs. Fiscal 2020
Net cash provided by operating activities for fiscal 2021 and 2020 was as follows (in millions):
For the years ended June 30, 2021 2020
Net cash provided by operating activities
The increase in net cash provided by operating activities during fiscal 2021, as compared to fiscal 2020, was comprised of higher Segment EBITDA and higher programming amortization over cash payments at the Television segment partially offset by higher advertising and affiliate billings along with higher tax payments.
Net cash used in investing activities for fiscal 2021 and 2020 was as follows (in millions):
For the years ended June 30, 2021 2020
Net cash used in investing activities
Net cash used in investing activities during fiscal 2021 was primarily comprised of payments related to investments made in connection with establishing the Company's standalone broadcast technical facilities as compared to the acquisitions of TUBI, three television stations and Credible during fiscal 2020.
Net cash (used in) provided by financing activities for fiscal 2021 and 2020 was as follows (in millions):
For the years ended June 30, 2021 2020
Net cash (used in) provided by financing activities
Net cash used in financing activities during fiscal 2021 was primarily comprised of repurchases of shares of the Company's Common Stock and dividends paid to stockholders of$1.3 billion partially offset by the$462 million reimbursement fromDisney related to the Divestiture Tax. The net cash provided by financing activities during fiscal 2020 was primarily due to theApril 2020 issuance of$1.2 billion of senior notes, partially offset by repurchases of shares of the Company's Common Stock and dividends paid of$935 million to stockholders during fiscal 2020. 49 --------------------------------------------------------------------------------
Debt Instruments
The following table summarizes cash from borrowings and cash (used in) repayment of borrowings for fiscal 2022, 2021 and 2020:
For the years ended June 30, 2022 2021 2020 (in millions) Borrowings Notes due 2025 and 2030(a) $ - $ -$ 1,191 Notes due 2022, 2024, 2029, 2039 and 2049(b) (750) - - Total borrowings$ (750) $ -$ 1,191
(a) See Note 9-Borrowings to the accompanying Financial Statements under the heading
"Public Debt - Senior Notes Issued."
(b) In
(See Note 9-Borrowings to the accompanying Financial Statements).
Ratings of the Senior Notes
The following table summarizes the Company's credit ratings as ofJune 30, 2022 : Rating Agency Senior Debt Outlook Moody's Baa2 Stable Standard & Poor's BBB Stable Revolving Credit Agreement
The Company has an unused five-year
Commitments and Contingencies
The Company has commitments under certain firm contractual arrangements ("firm commitments") to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. For additional details on commitments and contingencies see Note 14-Commitments and Contingencies to the accompanying Financial Statements under the headings "Operating leases," "Licensed Programming," "Other commitments and contractual obligations" and "Contingencies."
Pension and other postretirement benefits and uncertain tax benefits
The table in Note 14-Commitments and Contingencies to the accompanying Financial Statements excludes the Company's pension and other postretirement benefits ("OPEB") obligations and the gross unrecognized tax benefits for uncertain tax positions as the Company is unable to reasonably predict the ultimate amount and timing. The Company made contributions of$59 million and$63 million to its pension plans in fiscal 2022 and 2021, respectively. The majority of these contributions were voluntarily made to improve the funded status of the plans. Future plan contributions are dependent upon actual plan asset returns, interest rates and statutory requirements. Assuming that actual plan asset returns are consistent with the Company's expected plan returns in fiscal 2023 and beyond and that interest rates remain constant, the Company would not be required to make any material contributions to its pension plans for the immediate future. Required pension plan contributions for the next fiscal year are not expected to be material but the Company may make voluntary contributions in future periods. Payments due to participants under the Company's pension plans are primarily paid out of underlying trusts. Payments due under the Company's OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under the Company's OPEB plans. The Company does not expect its net OPEB payments to be material in fiscal 2023 (See Note 15-Pension and Other Postretirement Benefits to the accompanying Financial Statements for further discussion of the Company's pension and OPEB plans). 50 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to the Company's financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management of the Company and the related disclosures have been reviewed with the Audit Committee of the Company's Board of Directors. For the Company's summary of significant accounting policies, see Note 2-Summary of Significant Accounting Policies to the accompanying Financial Statements.
Use of Estimates
See Note 2-Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading "Use of Estimates."
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company considers the terms of each arrangement to determine the appropriate accounting treatment. The Company generates advertising revenue from sales of commercial time within the Company's network programming to be aired by television networks and cable channels, and from sales of advertising on the Company's owned and operated television stations and various digital properties. Advertising revenue from customers, primarily advertising agencies, is recognized as the commercials are aired. Certain of the Company's advertising contracts have guarantees of a certain number of targeted audience views, referred to as impressions. Revenues for any audience deficiencies are deferred until the guaranteed number of impressions is met, by providing additional advertisements. Advertising contracts, which are generally short-term, are billed monthly for the spots aired during the month, with payments due shortly after the invoice date. The Company generates affiliate fee revenue from agreements with traditional and virtual MVPDs for cable network programming and for the broadcast of the Company's owned and operated television stations. In addition, the Company generates affiliate fee revenue from agreements with independently owned television stations that are affiliated with the FOX Network and receives retransmission consent fees from traditional and virtual MVPDs for their signals. Affiliate fee revenue is recognized at a point in time when the network programming is made available to the customer. For contracts with affiliate fees based on the number of the affiliate's subscribers, revenues are recognized based on the contractual rate multiplied by the estimated number of subscribers each period. For contracts with fixed affiliate fees, revenues are recognized based on the relative standalone selling price of the network programming provided over the contract term, which generally reflects the invoiced amount. Affiliate contracts are generally multi-year contracts with payments due monthly.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to traditional MVPDs to facilitate carriage of a cable network) against affiliate fee revenue. The Company amortizes the cable distribution investments on a straight-line basis over the contract period.
Inventories
The Company incurs costs to license programming rights and to produce owned programming. Licensed programming includes costs incurred by the Company for access to content owned by third parties. The Company has single and multi-year contracts for sports and non-sports programming. Licensed programming is recorded at the earlier of payment or when the license period has begun, the cost of the program is known or reasonably determinable and the program is accepted and available for airing. Licensed programming is predominately amortized as the associated programs are broadcast. The costs of multi-year sports contracts are primarily amortized based on the ratio of each contract's current period attributable revenue to the estimated total remaining attributable revenue. Estimates can change and, accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future could be material. Owned programming includes content internally developed and produced as well as co-produced content. Capitalized costs for owned programming are predominately amortized using the individual-film-forecast-computation method, which is based on the ratio of current period revenue to estimated total future remaining revenue, and related costs to be incurred throughout the life of the respective program. When production 51 --------------------------------------------------------------------------------
partners distribute owned programming on the Company's behalf, the net participation in profits is recorded as content license revenue.
Inventories are evaluated for recoverability when an event or circumstance occurs that indicates that fair value may be less than unamortized costs. The Company will determine if there is an impairment by evaluating the fair value of the inventories, which are primarily supported by internal forecasts as compared to unamortized costs. Where an evaluation indicates unamortized costs, including advances on multi-year sports rights contracts, are not recoverable, amortization of rights is accelerated in an amount equal to the amount by which the unamortized costs exceed fair value. Owned programming is monetized and tested for impairment on an individual basis. Licensed programming is predominately monetized as a group and tested for impairment on a channel, network, or daypart basis. The recoverability of certain sports rights is assessed on an aggregate basis. The Company recognized impairments of approximately$50 million , nil, and$95 million in fiscal 2022, 2021 and 2020, respectively, related to licensed and owned programming at the Cable Network Programming and Television segments, which were recorded in Operating expenses in the Consolidated Statements of Operations.
The Company's intangible assets include goodwill,
The Company accounts for its business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying net assets acquired, based on their respective estimated fair values at the date of acquisition.Goodwill is recorded as the difference between the consideration transferred to acquire entities and the estimated fair values assigned to their tangible and identifiable intangible net assets and is assigned to one or more reporting units for purposes of testing for impairment. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill to them requires judgment involving the aggregation of business units with similar economic characteristics and the identification of existing business units that benefit from the acquired goodwill. The judgments made in determining the estimated fair value assigned to each class of intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact net income. The Company allocates goodwill to disposed businesses using the relative fair value method. Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company's impairment review is based on a discounted cash flow analysis and market-based valuation approach that requires significant management judgment. The Company uses its judgment in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired and require the Company to perform an interim impairment test. The Company uses direct valuation methods to value identifiable intangibles for acquisition accounting and impairment testing. The direct valuation method used forFCC licenses requires, among other inputs, the use of published industry data that are based on subjective judgments about future advertising revenues in the markets where the Company owns television stations. This method also involves the use of management's judgment in estimating an appropriate discount rate reflecting the risk of a market participant in theU.S. broadcast industry. The resulting fair values forFCC licenses are sensitive to these long-term assumptions and any variations to such assumptions could result in an impairment to existing carrying values in future periods and such impairment could be material. During fiscal 2022, the Company determined that the goodwill and indefinite-lived intangible assets included in the accompanying Consolidated Balance Sheet as ofJune 30, 2022 , were not impaired based on the Company's annual assessment. While the Company believes its judgments represent reasonably possible outcomes based on available facts and circumstances, adverse changes to the assumptions, including those related to macroeconomic factors, comparable public company trading values and prevailing conditions in the capital markets, could lead to future declines in the fair value of a reporting unit in the Other, Corporate and Eliminations segment and a potential non-cash goodwill impairment charge. The estimated fair value of this 52 -------------------------------------------------------------------------------- reporting unit was determined using a combination of the income approach, which incorporates the use of a discounted cash flow analysis, and the market approach, which incorporates the use of revenue multiples based on market data. Fair value exceeded the carrying value of this reporting unit by less than 20% as ofJune 30, 2022 . Further adverse changes in market conditions may result in a partial or full impairment of the approximately$250 million of goodwill in this reporting unit as ofJune 30, 2022 . The Company determined that there are no other reporting units at risk of impairment as ofJune 30, 2022 , and will continue to monitor its goodwill and indefinite-lived intangible assets for any possible future non-cash impairment charges.
See Note 2-Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading "Annual Impairment Review" for further discussion.
Income Taxes The Company is subject to income tax primarily in various domestic jurisdictions. The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company's tax expense and in evaluating its tax positions, including evaluating uncertainties under ASC 740, "Income Taxes." The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
Employee Costs
The Company participates in and/or sponsors various pension, savings and postretirement benefit plans. Pension plans and postretirement benefit plans are closed to new participants with the exception of a small group covered by collective bargaining agreements. The measurement and recognition of costs of the Company's pension and OPEB plans require the use of significant management judgments, including discount rates, expected return on plan assets and other actuarial assumptions. For financial reporting purposes, net periodic pension expense is calculated based upon a number of actuarial assumptions, including a discount rate, an expected rate of return on plan assets and mortality. The Company considers current market conditions, including changes in investment returns and interest rates, in making these assumptions. The expected long-term rate of return is determined using the current target asset allocation of 35% equity securities, 55% fixed income securities and 10% in other investments, and applying expected future returns for the various asset classes and correlations amongst the asset classes. A portion of the fixed income investments is allocated to cash to pay near-term benefits. The discount rate reflects the market rate for high-quality fixed income investments on the Company's annual measurement date ofJune 30 and is subject to change each fiscal year. The discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined by matching the Company's expected benefit payments for the plans to a hypothetical yield curve developed using a portfolio of several hundred high-quality non-callable corporate bonds. 53 --------------------------------------------------------------------------------
The key assumptions used in developing the Company's fiscal 2022, 2021 and 2020 net periodic pension expense for its plans consist of the following:
2022 2021 2020 (in millions, except %) Discount rate for service cost 2.8 % 2.9 % 3.7 % Discount rate for interest cost 2.1 % 2.2 % 3.2 % Assets Expected rate of return 5.1 % 6.5 % 7.0 % Actual return$ (152) $ 195 $ 24 Expected return 50 50 55 Actuarial (loss) gain$ (202) $ 145 $ (31) One year actual return (15.8) % 26.1 % 3.4 % Discount rates are volatile from year to year because they are determined based upon the prevailing rates as of the measurement date. The Company will utilize discount rates of 4.8% and 4.5% in calculating the fiscal 2023 service cost and interest cost, respectively, for its plans. The Company will use an expected long-term rate of return of 5.0% for fiscal 2023 based principally on the future return expectation of the plans' asset mix. The accumulated pre-tax net losses on the Company's pension and postretirement benefit plans as ofJune 30, 2022 were$292 million which decreased from$424 million as ofJune 30, 2021 . This decrease of$132 million was primarily due to the change in the discount rate assumption utilized in measuring plan obligations, updates to other valuation assumptions and the recognition of deferred losses related to amortization partially offset by asset losses. The overall accumulated pre-tax net losses as ofJune 30, 2022 were primarily the result of changes in discount rates. Higher discount rates decrease the present value of benefit obligations and reduce the Company's accumulated net loss, which decreases the amortization component of subsequent-year pension expense. Lower discount rates increase the present value of benefit obligations and increase the Company's accumulated net loss, which increases the amortization component of subsequent-year pension expense. These deferred losses are being systematically recognized in future net periodic pension expense in accordance with ASC 715, "Compensation-Retirement Benefits." Unrecognized losses in excess of 10% of the greater of the market-related value of plan assets or the plans' projected benefit obligation ("PBO") are recognized over the average future service of the plan participants or average future life of the plan participants. The Company made contributions of$59 million ,$63 million and$30 million to its pension plans in fiscal 2022, 2021 and 2020, respectively. The majority of these contributions were voluntarily made to improve the funding status of the plans which were impacted by the economic conditions noted above. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements. Assuming that actual plan returns are consistent with the Company's expected plan returns in fiscal 2023 and beyond and that interest rates remain constant, the Company would not be required to make any material statutory contributions to its pension plans for the immediate future. The Company will continue to make voluntary contributions as necessary to improve funded status. Changes in net periodic pension expense may occur in the future due to changes in the Company's expected rate of return on plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company's pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant: Impact on
Annual
Changes in Assumption Pension Expense Impact on PBO 0.25 percentage point decrease in discount rate Increase$3 million Increase$32 million 0.25 percentage point increase in discount rate Decrease$3 million Decrease$30 million
0.25 percentage point decrease in expected rate of return on assets
Increase$2 million - 0.25 percentage point increase in expected rate of return on assets Decrease$2 million - 54
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Fiscal 2023 net periodic pension expense for the Company's pension plans is
expected to increase to approximately
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical or current fact are "forward-looking statements" for purposes of federal and state securities laws, including any statements regarding (i) future earnings, revenues or other measures of the Company's financial performance; (ii) the Company's plans, strategies and objectives for future operations; (iii) proposed new programming or other offerings; (iv) future economic conditions or performance; and (v) assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words "may," "will," "should," "likely," "anticipates," "expects," "intends," "plans," "projects," "believes," "estimates," "outlook" or any other similar words. Although the Company's management believes that the expectations reflected in any of the Company's forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with theSEC . Important factors that could cause the Company's actual results, performance and achievements to differ materially from those estimates or projections contained in the Company's forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions and the following factors:
•evolving technologies and distribution platforms and changes in consumer behavior as consumers seek more control over when, where and how they consume content, and related impacts on advertisers and MVPDs;
•declines in advertising expenditures due to various factors such as the economic prospects of advertisers or the economy, major sports events and election cycles, evolving technologies and distribution platforms and related changes in consumer behavior and shifts in advertisers' expenditures, the evolving market for AVOD advertising campaigns, and audience measurement methodologies' ability to accurately reflect actual viewership levels;
•further declines in the number of subscribers to MVPD services;
•the failure to enter into or renew on favorable terms, or at all, affiliation or carriage agreements or arrangements through which the Company makes its content available for viewing through online video platforms;
•the impact of COVID-19 and other widespread health emergencies or pandemics and measures to contain their spread and related weak macroeconomic conditions and increased market volatility; •the impact of COVID-19 and other widespread health emergencies or pandemics specifically on the Company, including content disruptions that negatively affect the timing, volume or popularity of the Company's programming, particularly sports programming, and potential non-cash impairment charges resulting from significant declines in the Company's estimated revenues or the expected popularity of the Company's programming;
•the highly competitive nature of the industry in which the Company's businesses operate;
•the popularity of the Company's content, including special sports events; and the continued popularity of the sports franchises, leagues and teams for which the Company has acquired programming rights;
•the Company's ability to renew programming rights, particularly sports programming rights, on sufficiently favorable terms, or at all;
•damage to the Company's brands or reputation;
•the inability to realize the anticipated benefits of the Company's strategic investments and acquisitions;
55 --------------------------------------------------------------------------------
•the loss of key personnel;
•labor disputes, including labor disputes involving professional sports leagues whose games or events the Company has the right to broadcast;
•lower than expected valuations associated with the Company's reporting units, indefinite-lived intangible assets, investments or long-lived assets;
•a degradation, failure or misuse of the Company's network and information systems and other technology relied on by the Company that causes a disruption of services or improper disclosure of personal data or other confidential information;
•content piracy and signal theft and the Company's ability to protect its intellectual property rights;
•the failure to comply with laws, regulations, rules, industry standards or contractual obligations relating to privacy and personal data protection;
•changes in tax, federal communications or other laws, regulations, practices or the interpretations thereof (including changes in legislation currently being considered);
•the impact of any investigations or fines from governmental authorities,
including
•the failure or destruction of satellites or transmitter facilities the Company depends on to distribute its programming;
•unfavorable litigation or investigation results that require the Company to pay significant amounts or lead to onerous operating procedures;
•changes in GAAP or other applicable accounting standards and policies;
•the Company's ability to secure additional capital on acceptable terms;
•the impact of any payments the Company is required to make or liabilities it is required to assume under the Separation Agreement and the indemnification arrangements entered into in connection with the Transaction; and
•the other risks and uncertainties detailed in Item 1A. "Risk Factors" in this Annual Report.
Forward-looking statements in this Annual Report speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference hereto speak only as of the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement made herein or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or to conform such statements to actual results or changes in our expectations, except as required by law.
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