FOX CORPORATION Readers should carefully review this document and the other documents filed by
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. (now known asTFCF Corporation ) ("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, 354 million and 266 million shares of the Company's Class A Common Stock, par value$0.01 per share (the "Class A Common Stock"), and Class B Common Stock, par value$0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), respectively, began trading independently on The Nasdaq Global Select Market. In connection with the Distribution, the Company entered into the Separation and Distribution Agreement, dated as ofMarch 19, 2019 (the "Separation Agreement"), with 21CF, which effected the internal restructuring (the "Separation") whereby 21CF transferred toFOX a portfolio of 21CF's news, sports and broadcast businesses, including FOX News Media (consisting ofFOX News andFOX Business ),FOX Entertainment ,FOX Sports ,FOX Television Stations , and sports cable networks FS1, FS2, FOX Deportes and Big Ten Network, and certain other assets, andFOX assumed from 21CF the liabilities associated with such businesses and certain other liabilities. The Separation and the Distribution were effected as part of a series of transactions contemplated by the Amended and Restated Merger Agreement and Plan of Merger, dated as ofJune 20, 2018 (the "21CF Disney Merger Agreement"), by and among 21CF, The Walt Disney Company ("Disney") and certain subsidiaries ofDisney , pursuant to which, among other things, 21CF became a wholly-owned subsidiary 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. 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 21-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 including, among other things, a refund of the prepayment discussed above. 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. These include the Separation Agreement, a tax matters agreement, transition services agreements, as well as agreements relating to intellectual property licenses, employee matters, commercial arrangements and the FOX Studio Lot lease. The core transition services agreements will 35 --------------------------------------------------------------------------------
terminate in accordance with their terms by
Basis of Presentation
The Company's financial statements as of and for the years endedJune 30, 2021 and 2020 are presented on a consolidated basis. The Company's consolidated financial statements for the years endedJune 30, 2021 and 2020 reflect the Company's results of operations and cash flows as a standalone company, and the Company's Consolidated Balance Sheets as ofJune 30, 2021 and 2020 consist of the Company's consolidated balances. Prior to the Distribution, which occurred onMarch 19, 2019 , the Company's combined financial statements were prepared on a standalone basis, derived from the consolidated financial statements and accounting records of 21CF. These financial statements reflect the combined historical results of operations, financial position and cash flows of 21CF's domestic news, national sports and broadcast businesses and certain other assets and liabilities associated with such businesses. The Consolidated and Combined Statements of Operations for the year endedJune 30, 2019 include, for the periods prior toMarch 19, 2019 , allocations for certain support functions that were provided on a centralized basis within 21CF prior to the Distribution and not recorded at the business unit level, such as certain expenses related to finance, legal, insurance, information technology, compliance and human resources management activities, among others. 21CF did not routinely allocate these costs to any of its business units. These expenses were allocated toFOX on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, headcount or other relevant measures. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from 21CF, are reasonable. Nevertheless, the financial statements may not include all of the actual expenses that would have been incurred byFOX and may not reflectFOX's consolidated results of operations, financial position and cash flows had it been a standalone company during the entirety of the periods presented. Actual costs that would have been incurred ifFOX had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
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 ended
early fiscal 2022 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 2021, 2020 and 2019. This analysis is
presented on both a consolidated/combined 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 2021, 2020 and 2019, as well as a
discussion of the Company's outstanding debt and commitments, both firm and
contingent, that existed as 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.
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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 principally consists of the production and
licensing of news and sports content distributed primarily through
traditional cable television systems, direct broadcast satellite operators
and telecommunication companies ("traditional MVPDs") and online
multi-channel video programming distributors ("digital MVPDs"), primarily
in the
• Television, which principally consists of the production, acquisition,
marketing and distribution of broadcast network programming and free
advertising-supported video-on-demand ("AVOD") services under the
Tubi brands, respectively, and the operation of 29 full power broadcast
television stations, including 11 duopolies, in the
18 are affiliated with the FOX Network, 10 are affiliated with
and one is an independent station.
• Other, Corporate and Eliminations, which principally consists of the
Studio Lot,
intracompany eliminations. The FOX Studio Lot, located in
office space, studio operation services and includes all operations of the
facility. Credible is a
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 2021, the Company generated revenues of$12.9 billion , of which approximately 50% was generated from affiliate fees, approximately 42% was generated from advertising, and approximately 8% was generated from other operating activities. 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 elections cycles and special events that air on the Company's networks, including theNational Football League's ("NFL")Super Bowl , which is broadcast on the FOX 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 alternative offerings, such as subscription video-on-demand ("SVOD") services, AVOD services, mobile and social media platforms. These changes in technologies and consumer behavior have contributed to declines in the number of subscribers to traditional 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 programming 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. 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" included herein. 37 --------------------------------------------------------------------------------
Impact of COVID-19
The coronavirus disease 2019 ("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. Although the COVID-19 pandemic did not cause a significant
reduction in the Company's advertisers' spending in fiscal 2021, future declines
in the economic prospects of advertisers or the economy in general could
negatively impact their advertising expenditures further. To date, the Company
has not experienced meaningful subscriber declines due to the weak economic
environment associated with the pandemic. However, there could be industry-wide
changes in consumer behavior that result from the weak economic environment or
the resumption of ordinary activities as the economy recovers, such as
increasing numbers of consumers canceling or foregoing subscriptions to MVPD
services, that could 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. As a
result of the COVID-19 pandemic, there have been cancellations or postponements
of live sports events to which the Company has broadcast rights and suspensions
of the production of certain entertainment content. These content disruptions
have adversely affected the Company's advertising and affiliate fee revenues and
there could be additional adverse impacts on its advertising or affiliate fee
revenues in the future. To the extent the COVID-19 or other pandemic further
negatively impacts the timing of or the Company's ability to air sports events,
particularly Major League Baseball ("MLB"), NFL or 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.
Other Business Developments
In March 2021 , the Company reached a new and expanded media rights agreement
with the NFL that runs through the 2033 season. The 11-year agreement extends
FOX Sports' coverage of premier NFC games, creates new and exclusive holiday
games on the FOX Network, and expands FOX's digital rights to enable future
direct-to-consumer opportunities as well as NFL programming on FOX's AVOD
service Tubi.
RESULTS OF OPERATIONS
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 June 30,
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 (395 ) (369 ) (26 ) (7 ) %
Interest income 4 35 (31 ) (89 ) %
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 to Fox Corporation
stockholders $ 2,150 $ 999 $ 1,151 **
** not meaningful
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--------------------------------------------------------------------------------Overview-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 ofTubi Inc. ("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 atFOX 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 theFOX Network due in part to COVID-19-impacted schedules in the current year. 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 the current year 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 ofNational Association of Stock Car Auto Racing ("NASCAR") races due to fewer races following the COVID-19-impacted schedule in the prior year. 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 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 (as defined in Note 1-Description of Business and Basis of Presentation to the accompanying Financial Statements under the heading "The Distribution") and the Fiscal 2020 Acquisitions.
Impairment and restructuring charges-See Note 4-Restructuring Programs to the accompanying Financial Statements.
Interest expense-Interest expense increased 7% for fiscal 2021 as compared to fiscal 2020, 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).
Interest income-Interest income decreased for fiscal 2021, as compared to fiscal 2020, primarily due to lower interest rates.
Other, net-See Note 21-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 21-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 the prior year (See Note 4-Restructuring Programs to the accompanying Financial Statements under the heading "Fiscal 2020") and higher income tax expense. 39 --------------------------------------------------------------------------------
Results of Operations-Fiscal 2020 versus Fiscal 2019
The following table sets forth the Company's operating results for fiscal 2020,
as compared to fiscal 2019:
For the years ended June 30,
2020 2019 Change % Change
(in millions, except %) Better/(Worse)
Revenues
Affiliate fee $ 5,908 $ 5,512 $ 396 7 %
Advertising 5,333 5,056 277 5 %
Other 1,062 821 241 29 %
Total revenues 12,303 11,389 914 8 %
Operating expenses (7,807 ) (7,327 ) (480 ) (7 ) %
Selling, general and administrative (1,741 ) (1,419 ) (322 ) (23 ) %
Depreciation and amortization (258 ) (212 ) (46 ) (22 ) %
Impairment and restructuring charges (451 ) (26 ) (425 ) **
Interest expense (369 ) (203 ) (166 ) (82 ) %
Interest income 35 41 (6 ) (15 ) %
Other, net (248 ) (19 ) (229 ) **
Income before income tax expense 1,464 2,224 (760 ) (34 ) %
Income tax expense (402 ) (581 ) 179 31 %
Net income 1,062 1,643 (581 ) (35 ) %
Less: Net income attributable to
noncontrolling interests (63 ) (48 ) (15 ) (31 ) %
Net income attributable to Fox Corporation
stockholders $ 999 $ 1,595 $ (596 ) (37 ) %
** not meaningful
Overview-The Company's revenues increased 8% for fiscal 2020, as compared to
fiscal 2019, due to higher affiliate fee, advertising and other revenues. The
increase in affiliate fee revenue was primarily due to higher average rates per
subscriber and higher fees received from television stations that are affiliated
with the FOX Network, partially offset by the impact of a lower average number
of subscribers. The increase in advertising revenue was primarily due to the
broadcast of the Super Bowl , higher pricing and higher digital advertising
revenue, including the impact of the consolidation of Tubi, partially offset by
the impact of COVID-19 (including a decline in the local advertising market and
the postponement of live sports events), lower political advertising revenue at
the FOX Television Stations due to the U.S. midterm elections in November 2018 ,
the effect of fewer broadcasts of FIFA World Cup events and one less NFL
Divisional playoff game. The increase in other revenues was primarily due to the
impact of the consolidation of Bento Box Entertainment, LLC ("Bento Box") and
Credible in fiscal 2020 and revenues generated from the operation of the FOX
Studio Lot for third parties.
Operating expenses increased 7% for fiscal 2020, as compared to fiscal 2019,
primarily due to higher sports programming rights amortization and production
costs at the Television segment, including Super Bowl costs, the impact of the
Fiscal 2020 Acquisitions, the recognition of a write-down of approximately $95
million related to programming rights as compared to approximately $55 million
in the prior year (See Note 5-Inventories, net to the accompanying Financial
Statements) and higher broadcast costs related to operating as a standalone
public company. Partially offsetting the increase in operating expenses was the
broadcast of fewer sports events as a result of COVID-19, fewer broadcasts of
FIFA World Cup events and one less NFL Divisional playoff game.
Selling, general and administrative expenses increased 23% for fiscal 2020, as
compared to fiscal 2019, primarily due to higher costs in fiscal 2020 related to
operating as a standalone public company as compared to a partial year of
allocated costs in fiscal 2019 (See Note 1-Description of Business and Basis of
Presentation to the accompanying Financial Statements under the heading "Basis
of Presentation" for additional information), a full year of costs of operating
the FOX Studio Lot for third parties, increased bad debt expense and the impact
of the consolidation of Bento Box and Credible. Also contributing to the
increase in selling, general and administrative expenses in fiscal 2020 were
incremental equity-based compensation costs of approximately $40 million related
to the grant of restricted stock units and stock options in connection with the
Distribution under the Fox Corporation 2019 Shareholder Alignment Plan (See Note
12-Equity-Based Compensation to the accompanying Financial Statements).
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Depreciation and amortization-Depreciation and amortization expense increased
22% for fiscal 2020, as compared to fiscal 2019, primarily due to higher costs
in fiscal 2020 related to operating as a standalone public company following the
Distribution as compared to a partial year of allocated costs in fiscal 2019 and
the impact of the Fiscal 2020 Acquisitions.
Impairment and restructuring charges-See Note 4-Restructuring Programs to the accompanying Financial Statements.
Interest expense-Interest expense increased 82% for fiscal 2020, as compared to fiscal 2019, primarily due to the issuance of$6.8 billion of senior notes inJanuary 2019 and$1.2 billion of senior notes inApril 2020 , partially offset by the effect of the bridge credit agreement commitment letter which was entered into inDecember 2017 , including the write-off of unamortized costs as a result of the termination of the bridge credit agreement inMarch 2019 (See Note 9-Borrowings to the accompanying Financial Statements).
Other, net-See Note 21-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 2020 was higher than the statutory rate of 21% primarily due to state taxes and other permanent items. The Company's tax provision and related effective tax rate of 26% for fiscal 2019 was higher than the statutory rate of 21% primarily due to the impact of state taxes. See Note 16-Income Taxes to the accompanying Financial Statements. Net income-Net income decreased 35% for fiscal 2020, as compared to fiscal 2019, primarily due to restructuring charges at the Cable Network Programming and Television segments reflecting contract termination costs related to a programming rights agreement with the USGA, higher costs in fiscal 2020 related to operating as a standalone public company, including interest expense, and lower net gains on investments in equity securities (See Note 21-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net"). Partially offsetting these decreases was higher Segment EBITDA at the Cable Network Programming segment and lower 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, Interest income, 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.
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 %
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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.
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 digital 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 of NASCAR 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.
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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 operated television stations.
The increase in other revenues was primarily due to higher content revenue at
Bento Box and FOX Entertainment . The decrease in advertising revenue was
primarily due to the comparative effect of the broadcast of the Super Bowl in
fiscal 2020 and lower ratings at the FOX Network due in part to
COVID-19-impacted schedules partially offset by the impact of the consolidation
of Tubi, higher political advertising revenue at the FOX 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 the Super Bowl in
the current year, 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 partially offset by lower bad debt expense and lower
marketing costs associated with the absence of the Super Bowl in the current
year.
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.
43
--------------------------------------------------------------------------------Fiscal 2020 versus Fiscal 2019
The following tables set forth the Company's Revenues and Segment EBITDA for fiscal 2020, as compared to fiscal 2019:
For the years ended June 30,
2020 2019 Change % Change
(in millions, except %) Better/(Worse)
Revenues
Cable Network Programming $ 5,492 $ 5,381 $ 111 2 %
Television 6,661 5,979 682 11 %
Other, Corporate and Eliminations 150 29 121 **
Total revenues $ 12,303 $ 11,389 $ 914 8 %
** not meaningful
For the years ended June 30,
2020 2019 Change % Change
(in millions, except %) Better/(Worse)
Segment EBITDA
Cable Network Programming $ 2,706 $ 2,495 $ 211 8 %
Television 430 470 (40 ) (9 ) %
Other, Corporate and Eliminations (357 ) (284 ) (73 ) (26 ) %
Adjusted EBITDA(a) $ 2,779 $ 2,681 $ 98 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 (45% and 47% of the Company's revenues in fiscal 2020
and 2019, respectively)
For the years ended June 30,
2020 2019 Change % Change
(in millions, except %) Better/(Worse)
Revenues
Affiliate fee $ 3,870 $ 3,804 $ 66 2 %
Advertising 1,164 1,184 (20 ) (2 ) %
Other 458 393 65 17 %
Total revenues 5,492 5,381 111 2 %
Operating expenses (2,316 ) (2,477 ) 161 6 %
Selling, general and administrative (494 ) (447 ) (47 ) (11 ) %
Amortization of cable distribution investments 24 38 (14 ) (37 ) %
Segment EBITDA $ 2,706 $ 2,495 $ 211 8 %
Revenues at the Cable Network Programming segment increased for fiscal 2020, as
compared to fiscal 2019, due to higher affiliate fee and other revenues,
partially offset by lower advertising revenue. The increase in affiliate fee
revenue was primarily attributable to higher average rates per subscriber, led
by contractual rate increases on existing affiliate agreements and from
affiliate agreement renewals, partially offset by the impact of a lower average
number of subscribers. The decrease in the average number of subscribers was due
to a reduction in subscribers to traditional MVPDs, partially offset by an
increase in digital MVPD subscribers. The decrease in advertising revenue was
primarily due to the broadcast of fewer sports events, including NASCAR , MLB and
Major League Soccer , and studio shows as a result of COVID-19, the effect of
fewer broadcasts of FIFA World Cup events and the absence of Ultimate Fighting
Championship ("UFC") content, partially offset by higher digital advertising
revenue at FOX News Media. The increase in other revenues was primarily
attributable to higher sports sublicensing revenue and increased revenues
generated from PBC pay-per-view events at FOX Sports and higher revenues at FOX
News Media.
44
-------------------------------------------------------------------------------- Cable Network Programming Segment EBITDA increased for fiscal 2020, as compared to fiscal 2019, due to the revenue increases noted above and lower expenses. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs driven by the postponement of live sports events as a result of COVID-19, the absence of UFC content and fewer broadcasts of FIFA World Cup events. Partially offsetting these decreases in operating expenses were higher sports programming rights amortization for content in the first half of fiscal 2020, includingNASCAR and college football, higher costs at FOX News Media, including costs relating to newsgathering, FOX Nation and talent, and the recognition of a write-down of approximately$50 million related to sports programming rights. Selling, general and administrative expenses increased primarily due to higher costs related to operating as a standalone public company and increased bad debt expense. Television (54% and 52% of the Company's revenues in fiscal 2020 and 2019, respectively) For the years ended June 30, 2020 2019 Change % Change (in millions, except %) Better/(Worse) Revenues Advertising$ 4,169 $ 3,872 $ 297 8 % Affiliate fee 2,038 1,708 330 19 % Other 454 399 55 14 % Total revenues 6,661 5,979 682 11 % Operating expenses (5,437 ) (4,847 ) (590 ) (12 ) % Selling, general and administrative (794 ) (662 ) (132 ) (20 ) % Segment EBITDA$ 430 $ 470 $ (40 ) (9 ) % Revenues at the Television segment increased for fiscal 2020, as compared to fiscal 2019, due to higher advertising, affiliate fee and other revenues. The increase in advertising revenue was primarily due to revenues resulting from the broadcast of theSuper Bowl of approximately$500 million , including the post-game broadcast of The Masked Singer, higher pricing at the FOX Network, increased digital advertising revenue, including the impact of the consolidation of Tubi, and the broadcast of two additional MLB World Series games. Partially offsetting the increase in advertising revenue was the impact of COVID-19, including a decline in the local advertising market and the postponement of live sports events, lower political advertising revenue at theFOX Television Stations due to theU.S. midterm elections inNovember 2018 , lower ratings at the FOX Network, fewer broadcasts of FIFA World Cup events and one less NFL Divisional playoff game. 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 impact of the consolidation of Bento Box, partially offset by lower digital content licensing revenue at the FOX Network. Television Segment EBITDA decreased for fiscal 2020, as compared to fiscal 2019, due to higher expenses, partially offset by the revenue increases noted above. Operating expenses increased primarily due to higher sports programming rights amortization and production costs, includingSuper Bowl costs, the impact of the consolidation of Bento Box and Tubi, higher costs related to investments in scripted original programming and co-production arrangements with third party studios and costs related to the launch of WWE FridayNight SmackDown , partially offset by the postponement of live sports events and fewer hours of scripted original programming as a result of COVID-19, the effect of fewer broadcasts of FIFA World Cup events and the absence of one NFL Divisional playoff game. Selling, general and administrative expenses increased primarily due to higher costs related to operating as a standalone public company and increased bad debt expense. 45
--------------------------------------------------------------------------------
Other, Corporate and Eliminations (1% of the Company's revenues in fiscal 2020
and 2019, respectively)
For the years ended June 30,
2020 2019 Change % Change
(in millions, except %) Better/(Worse)
Revenues $ 150 $ 29 $ 121 **
Operating expenses (54 ) (3 ) (51 ) **
Selling, general and administrative (453 ) (310 ) (143 ) (46 ) %
Segment EBITDA $ (357 ) $ (284 ) $ (73 ) (26 ) %
** not meaningful
Revenues at the Other, Corporate and Eliminations segment increased for fiscal
2020, as compared to fiscal 2019, primarily due to a full year of revenues
generated from the operation of the FOX Studio Lot for third parties and the
impact of the consolidation of Credible. Operating expenses increased primarily
due to the consolidation of Credible and a full year of costs of operating the
FOX Studio Lot for third parties. Selling, general and administrative expenses
increased primarily due to higher costs related to operating as a standalone
public company, a full year of costs of operating the FOX Studio Lot for third
parties and the consolidation of Credible.
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, Interest income, Other, net and Income tax (expense) benefit. 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 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. 46 --------------------------------------------------------------------------------
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 June 30,
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 395 369 Interest income (4 ) (35 ) Other, net (579 ) 248 Income tax expense 717 402 Adjusted EBITDA$ 3,087 $ 2,779
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 Fiscal 2020 versus Fiscal 2019
The following table reconciles Net income to Adjusted EBITDA for fiscal 2020, as
compared to fiscal 2019:
For the years ended June 30,
2020 2019
(in millions)
Net income $ 1,062 $ 1,643
Add
Amortization of cable distribution investments 24 38
Depreciation and amortization 258
212
Impairment and restructuring charges 451 26 Interest expense 369 203 Interest income (35 ) (41 ) Other, net 248 19 Income tax expense 402 581 Adjusted EBITDA$ 2,779 $ 2,681
The following table sets forth the computation of Adjusted EBITDA for fiscal 2020, as compared to fiscal 2019:
For the years ended June 30,
2020 2019
(in millions)
Revenues $ 12,303 $ 11,389
Operating expenses (7,807 ) (7,327 )
Selling, general and administrative (1,741 ) (1,419 )
Amortization of cable distribution investments 24 38
Adjusted EBITDA $ 2,779 $ 2,681
47
--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
The Company's principal source of liquidity is internally generated funds which are highly dependent upon the continuation of affiliate agreements and the state of the advertising markets. To date, the Company has not experienced meaningful subscriber declines due to the pandemic. However, there could be industry-wide changes in consumer behavior due to the pandemic, such as increasing numbers of consumers canceling or foregoing subscriptions to MVPD services, that could adversely affect the Company's affiliate fee and advertising revenues. As a result of the COVID-19 pandemic, there have been cancellations or postponements of live sports events to which the Company has broadcast rights and suspensions of the production of certain entertainment content. These content disruptions have adversely affected the Company's advertising and affiliate fee revenues and there could be additional adverse impacts on its advertising or affiliate fee revenues in the future. To the extent the COVID-19 or other pandemic further negatively impacts the timing of or the Company's ability to air sports events, particularly MLB, NFL or 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. The magnitude of the impact of the COVID-19 pandemic on the Company remains uncertain and subject to change and will depend on evolving factors the Company may not be able to control or accurately predict. These include the duration and scope of the pandemic (including the extent of future surges, mutations or strains of the disease and the efficacy of vaccination and other efforts to contain the virus or treat its impact); the duration and extent of the pandemic's impact on global and regional economies and economic activity, the pace of economic recovery and the economic and operating conditions facing the Company and others in the pandemic's aftermath; the effect of governmental actions that have been and may continue to be imposed in response to the pandemic; the impact of the pandemic on the health, well-being and productivity of the Company's employees and the Company's ability to conduct its operations; and potential changes in consumer behavior. The Company has approximately$5.9 billion of cash and cash equivalents as ofJune 30, 2021 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 which could be impacted by COVID-19. As ofJune 30, 2021 , 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 along with the continued investment in the Company's broadcast technical facilities following the Distribution; employee and facility costs; capital expenditures; acquisitions; interest and dividend payments; debt repayments; and stock repurchases. In addition to the acquisitions, sales and possible acquisitions disclosed elsewhere, 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 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
48
--------------------------------------------------------------------------------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. Stock Repurchase Program
See Note 11-Stockholders' Equity to the accompanying Financial Statements under the heading "Stock Repurchase Program."
Dividends
Dividends paid in fiscal 2021 totaled$0.46 per share of Class A Common Stock and Class B Common Stock. Subsequent toJune 30, 2021 , the Company increased its semi-annual dividend and declared a semi-annual dividend of$0.24 per share on both the Class A Common Stock and the Class B Common Stock. The dividend declared is payable onSeptember 29, 2021 with a record date for determining dividend entitlements ofSeptember 1, 2021 .
Based on the number of shares outstanding as of
Sources and Uses of Cash-Fiscal 2020 vs. Fiscal 2019
Net cash provided by operating activities for fiscal 2020 and 2019 was as follows (in millions):
For the years ended June 30, 2020 2019
Net cash provided by operating activities
The decrease in net cash provided by operating activities during fiscal 2020, as compared to fiscal 2019, was primarily due to a payment to the USGA for contract termination costs related to the associated programming rights, higher cash paid for interest as a result of theJanuary 2019 issuance of$6.8 billion of senior notes and cash paid for income taxes as a result of operating as a standalone public company, partially offset by higher cash receipts at the Television segment.
Net cash used in investing activities for fiscal 2020 and 2019 was as follows (in millions):
For the years ended June 30, 2020 2019
Net cash used in investing activities
The increase in net cash used in investing activities during fiscal 2020, as compared to fiscal 2019, was primarily due to the acquisitions of Tubi, three television stations and Credible and the investment in Flutter, partially offset by the cash proceeds from the sale of the Company's investment in Roku during fiscal 2020 as compared to the investments in The Stars Group,Caffeine, Inc. andCaffeine Studio, LLC during fiscal 2019 (See Note 3-Acquisitions, Disposals and Other Transactions to the accompanying Financial Statements). Net cash provided by (used in) financing activities for fiscal 2020 and 2019 was as follows (in millions): For the years ended June 30, 2020 2019
Net cash provided by (used in) financing activities
49
-------------------------------------------------------------------------------- The change in net cash provided by (used in) financing activities during fiscal 2020, as compared to fiscal 2019, 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 to the Company's stockholders during fiscal 2020 as compared to the Net transfers to Twenty-First Century Fox, Inc. of$1.2 billion , the Dividend of$8.5 billion paid to 21CF net of the$2 billion cash payment received fromDisney and the semi-annual cash dividend paid to the Company's stockholders inJune 2019 , partially offset by the proceeds from theJanuary 2019 issuance of$6.8 billion of senior notes during fiscal 2019. The nature of activities included in Net transfers (to) from Twenty-First Century Fox, Inc. includes financing activities, capital transfers, cash sweeps, other treasury services and corporate expenses.
Debt Instruments
The following table summarizes cash from borrowings for fiscal 2021, 2020 and
2019:
For the years ended June 30,
2021 2020 2019
(in millions)
Borrowings
Notes due 2025 and 2030(a) $ - $ 1,191 $ -
Notes due 2022, 2024, 2029, 2039 and 2049(a) - - 6,750
Total borrowings $ - $ 1,191 $ 6,750 (a) See Note 9-Borrowings to the accompanying Financial Statements under the
heading "Public Debt - Senior Notes Issued."
Ratings of the Senior Notes
The following table summarizes the Company's credit ratings as ofJune 30, 2021 : 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. The following table summarizes the Company's material firm
commitments as of June 30, 2021 :
As of June 30, 2021
Payments due by period
Total 1 year 2 - 3 years 4 - 5 years After 5 years
(in millions)
Operating leases $ 589 $ 103 $ 201 $ 140 $ 145
Borrowings 8,000 750 1,250 600 5,400
Sports programming rights 36,905 4,371 8,219 7,447 16,868
Entertainment programming
rights 1,122 787 319 16 -
Other commitments and
contractual obligations 587 280 249 58 -
Total commitments,
borrowings and contractual
obligations $ 47,203 $ 6,291 $ 10,238 $ 8,261 $ 22,413 For additional details on commitments see Note 14-Commitments and Contingencies to the accompanying Financial Statements under the headings "Operating leases," "Sports programming rights" and "Other commitments and contractual obligations." 50 --------------------------------------------------------------------------------
Pension and other postretirement benefits and uncertain tax benefits
The table above excludes the Company's pension, 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 $63 million and $30 million to its
direct pension plans in fiscal 2021 and 2020, 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 2022
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 2022 (See Note 15-Pension and Other Postretirement Benefits to the
accompanying Financial Statements for further discussion of the Company's
pension and OPEB plans).
Contingencies
See Note 14-Commitments and Contingencies to the accompanying Financial Statements under the heading "Contingencies."
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 broadcast advertising time 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 affiliate agreements with
traditional and digital 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 digital 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
51
--------------------------------------------------------------------------------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
against affiliate fee revenue in accordance with Accounting Standards
Codification ("ASC") 606-10-32-25 through 27, "Revenue Recognition-Consideration
Payable to a Customer." The Company defers the cable distribution investments
and amortizes the amounts on a straight-line basis over the contract period.
Programming
Costs incurred in acquiring program rights or producing programs are accounted for in accordance with ASC 920, "Entertainment-Broadcasters." 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. Television broadcast network entertainment programming, which includes acquired series, co-produced series, movies and other programs, are amortized primarily on an accelerated basis. Management regularly reviews, and revises when necessary, its total revenue estimates on a contract basis, which may result in a change in the rate of amortization and/or a write-down of the asset to fair value. As a result of the evaluation of the recoverability of the unamortized costs associated with the Company's programming rights, the Company recognized write-downs of approximately nil,$95 million and$55 million in fiscal 2021, 2020 and 2019, respectively, related to sports, entertainment and syndicated programming rights at the Cable Network Programming and Television segments, which were recorded in Operating expenses in the Consolidated Statements of Operations. The Company has single and multi-year contracts for broadcast rights of programs and sports events. The costs of multi-year national sports contracts at theFOX Network and the Company's sports channels are primarily charged to expense and allocated to segments 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 recoverability of certain sports rights contracts for content broadcast on the FOX Network and the Company's sports channels is assessed on an aggregate basis.
The Company's intangible assets include goodwill,FCC licenses, MVPD affiliate agreements and relationships and trademarks and other copyrighted products. Intangible assets acquired in business combinations are recorded at their estimated fair value 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. 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 accounts for its business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the consideration transferred over the estimated fair values of the tangible net assets acquired is recorded as intangibles, including goodwill. Amounts recorded as goodwill are assigned to one or more reporting units. 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 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 in accordance with ASC 350 "Intangibles-Goodwill and Other." The Company's impairment review is based on, among other methods, a discounted cash flow 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 change or competitive activities, 52 --------------------------------------------------------------------------------
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 2021, the Company determined that the goodwill and indefinite-lived intangible assets included in the accompanying Consolidated Balance Sheet as ofJune 30, 2021 , were not impaired. The Company determined there are no reporting units with goodwill considered to be at risk and will continue to monitor its goodwill and intangible assets for possible future impairment.
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 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 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.
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. Prior to the Separation and the Distribution,
certain of the Company's employees participated in defined benefit pension and
postretirement plans sponsored by 21CF ("Shared Plans"), which include
participants of other 21CF subsidiaries. Shared Plans were accounted for as
multiemployer benefit plans. Therefore, no asset or liability was recorded to
recognize the funded status. In contemplation of the Separation and the
Distribution, the pension and other postretirement benefit assets and
liabilities of the Shared Plans allocable to the Company's employees were
transferred to the Company in fiscal 2019 (See Note 15-Pension and Other
Postretirement Benefits to the accompanying Financial Statements).
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 40% equity securities,
48% fixed income securities and 12% in other investments, and applying expected
future returns for the various asset classes and correlations amongst the asset
classes. A portion of the other 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 of June 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
53
--------------------------------------------------------------------------------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.
The key assumptions used in developing the Company's fiscal 2021, 2020 and 2019 net periodic pension expense for its plans consist of the following:
2021 2020 2019
(in millions, except %)
Discount rate for service cost 2.9 % 3.7 % 4.6 %
Discount rate for interest cost 2.2 % 3.2 % 4.1 %
Assets
Expected rate of return 6.5 % 7.0 % 7.0 %
Actual return $ 195 $ 24 $ 50
Expected return 50 55 30
Actuarial gain (loss) $ 145 $ (31 ) $ 20
One year actual return 26.1 % 3.4 % N/A
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 2.8% and 2.1% in calculating the fiscal 2022 service cost and
interest cost, respectively, for its plans. The Company will use an expected
long-term rate of return of 5.1% for fiscal 2022 based principally on the future
return expectation of the plans' asset mix. The accumulated net pre-tax losses
on the Company's pension and postretirement benefit plans as of June 30, 2021
were $424 million which decreased from $556 million as of June 30, 2020 . This
decrease of $132 million was primarily due to asset gains and the recognition of
deferred losses related to amortization partially offset by the change in
discount rate assumption utilized in measuring plan obligations and other
changes. The overall accumulated pre-tax net losses as of June 30, 2021 were
primarily the result of changes in discount rates. Lower discount rates increase
present values of benefit obligations and increase the Company's deferred losses
and also increase subsequent-year pension expense. Higher discount rates
decrease the present values of benefit obligations and reduces the Company's
accumulated net loss and also decrease 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 $63 million , $30 million and $83 million to
its pension plans in fiscal 2021, 2020 and 2019, 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 2022 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 $4 million Increase $44 million
0.25 percentage point increase in discount rate Decrease$4 million Decrease$42
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 -
Fiscal 2022 net periodic pension expense for the Company's pension plans is
expected to decrease to approximately
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--------------------------------------------------------------------------------Recent Accounting Pronouncements
See Note 2-Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading "Recently Adopted and Recently Issued Accounting Guidance and the CARES Act."
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:
• 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 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;
• 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 traditional MVPDs;
• declines in advertising expenditures due to various factors such as theeconomic prospects of advertisers or the economy, major sports events and
elections cycles, evolving technologies and distribution platforms and
related changes in consumer behavior and shifts in advertisers'
expenditures, the evolving market for AVOD advertising campaigns, andaudience measurement methodologies' ability to accurately reflect actual
viewership levels;
• further declines in the number of subscribers to traditional 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 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;
• 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 one of the Company's
reporting units, indefinite-lived intangible assets, investments or
long-lived assets;
55
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• 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
renewal or grant of station licenses, waivers and other matters;
• 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 achieve the benefits it expects to achieve as a
standalone, publicly traded company;
• increased costs in connection with the Company operating as a standalone,
publicly traded company following the Distribution and the loss of
synergies the Company enjoyed from operating as part of 21CF;
• 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 Separation
and the Distribution; 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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