FOX CORPORATION Readers should carefully review this document and the other documents filed byFox Corporation ("FOX" or the "Company") with theSecurities and Exchange Commission (the "SEC"). This section should be read together with the unaudited interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the fiscal year endedJune 30, 2020 as filed with theSEC onAugust 10, 2020 (the "2020 Form 10-K"). The unaudited consolidated financial statements are referred to as the "Financial Statements" herein.
INTRODUCTION
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 during the three and nine months ended March 31, 2021 and 2020
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 the three and nine months ended
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 the nine months ended
well as a discussion of the Company's outstanding debt and commitments,
both firm and contingent, that existed as of
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.
• Caution Concerning Forward-Looking Statements-This section provides a
description of the use of forward-looking information appearing in this
Quarterly Report on Form 10-Q, including in Management's Discussion andAnalysis 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 Part
I., Item 1A, "Risk Factors" in the 2020 Form 10-K 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 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 acquisition, marketing and
distribution of broadcast network programming nationally under the
brand and the operation of 29 full power broadcast television stations,
including 11 duopolies, in the
with the FOX Network, 10 are affiliated with
independent station. The Television segment also includes
("Tubi"), a free advertising-supported video-on-demand ("AVOD") service.
• 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 U.S. consumer finance marketplace.
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Other Business Developments
The outbreak of 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. The COVID-19 pandemic has caused some of the
Company's advertisers to reduce their spending, and future declines in the
economic prospects of advertisers or the economy in general could negatively
impact their advertising expenditures further. Depending on the duration and
severity of the weak economic environment, it could lead to changes in consumer
behavior, including increasing numbers of consumers canceling or foregoing
subscriptions to multi-channel video programming distributor ("MVPD") services,
that adversely affect the Company's affiliate fee and advertising revenues. In
addition, the Company's business depends on the volume and popularity of the
content it distributes, particularly sports content. Following the COVID-19
outbreak, sports events to which the Company has broadcast rights were cancelled
or postponed and the production of certain entertainment content the
Company distributes was suspended. In particular, the college football 2020
season was impacted by COVID-19, and as a result had an abridged schedule that
included games that were shifted from the first quarter to the second quarter of
fiscal 2021, but had fewer live games overall due to cancellations. As a result
of an under-delivery of college football games, the Company recorded affiliate
fee credits for the second quarter of fiscal 2021 to reflect the Company's
estimate of the potential obligation to MVPDs under these agreements. The actual
credit amount will be determined at a later date based on the affiliate fees
paid by MVPDs and the number of games delivered in upcoming seasons. Although
most sports events and productions have resumed, there may be additional content
disruptions in the future, and depending on their duration and severity, these
disruptions could materially adversely affect the Company's future advertising
revenues and, over a longer period, its future affiliate fee revenues. To the
extent the pandemic further negatively impacts the Company's ability to air
sports events, it could result in a significantly greater adverse effect on the
Company's business, financial condition or results of operations than the
Company has experienced thus far. In addition, shifting sports schedules may
negatively impact the Company's ability to attract viewers and advertisers to
its sports and entertainment programming.
Pursuant to the merger agreement relating to the merger of Twenty-First Century
Fox, Inc. ("21CF") and The Walt Disney Company ("Disney"), the Company made a
prepayment of approximately $700 million which represented the Company's share
of the estimated tax liabilities resulting from the anticipated divestitures by
Disney of certain assets (the "Divestiture Tax"), principally the FOX Sports
Regional Sports Networks ("RSNs"). During the first quarter of fiscal 2021, the
Company and Disney reached an agreement to settle the majority of the prepaid
Divestiture Tax and the Company received $462 million from Disney as
reimbursement of the Company's prepayment based upon the sales price of the
RSNs. This reimbursement was recorded in Other, net in the Statement of
Operations. See Note 11-Additional Financial Information to the accompanying
Financial Statements under the heading "Other, net."
In 2019, the United States Court of Appeals for the Third Circuit
decided Prometheus Radio Project v. FCC , which reinstated the Federal
Communications Commission's ("FCC ") newspaper/broadcast cross-ownership rule
prohibiting common ownership of broadcast stations and daily newspapers in the
same designated market area. The Company owns two television stations in the New
York area and an attributable interest in The New York Post due to the Murdoch
Family Trust's ownership interests in both the Company and News Corporation. In
April 2021 , the Supreme Court reversed the Third Circuit in a unanimous
decision. As a result, common ownership of broadcast stations and daily
newspapers is no longer prohibited. For more information, see Part I. Item 1.
"Business - Government Regulation" in the 2020 Form 10-K.
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--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Results of Operations-For the three and nine months ended
The following table sets forth the Company's operating results for the three and nine months endedMarch 31, 2021 , as compared to the three and nine months endedMarch 31, 2020 : For the three months ended March 31, For the nine months ended March 31, 2021 2020 Change %
Change 2021 2020 Change % Change (in millions, except %)
Better/(Worse) Better/(Worse)
Revenues
Affiliate fee$ 1,719 $ 1,559 $ 160 10 %$ 4,770 $ 4,389 $ 381 9 % Advertising 1,198 1,570 (372 )
(24 ) % 4,449 4,621 (172 ) (4 ) % Other
298 311 (13 ) (4 ) % 800 875 (75 ) (9 ) %
Total revenues 3,215 3,440 (225 ) (7 ) % 10,019 9,885 134 1 %
Operating expenses (1,885 ) (2,061 ) 176 9 % (6,399 ) (6,620 ) 221 3 %
Selling, general and
administrative (437 ) (464 ) 27 6 % (1,267 ) (1,247 ) (20 ) (2 ) %
Depreciation and
amortization (78 ) (57 ) (21 ) (37 ) % (216 ) (164 ) (52 ) (32 ) %
Impairment and
restructuring charges - - - - % (35 ) (9 ) (26 ) **
Interest expense (98 ) (89 ) (9 ) (10 ) % (296 ) (269 ) (27 ) (10 ) %
Interest income - 8 (8 ) (100 ) % 3 33 (30 ) (91 ) %
Other, net 61 (632 ) 693 ** 752 (345 ) 1,097 **
Income before income
tax expense 778 145 633 ** 2,561 1,264 1,297 **
Income tax expense (196 ) (55 ) (141 ) ** (632 ) (347 ) (285 ) (82 ) %
Net income 582 90 492 ** 1,929 917 1,012 **
Less: Net income
attributable to
noncontrolling
interests (15 ) (12 ) (3 ) (25 ) % (32 ) (40 ) 8 20 %
Net income attributable
to Fox Corporation
stockholders $ 567 $ 78 $ 489 ** $ 1,897 $ 877 $ 1,020 **
** not meaningful
Overview
For the three months ended
The Company's revenues decreased 7% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as higher affiliate fee revenue was more than offset by lower advertising and other revenues. 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. The decrease in advertising revenue was primarily due to the comparative effect of the broadcast of theNational Football League's ("NFL") Super Bowl LIV inFebruary 2020 (the "Super Bowl") and lower ratings at the FOX Network due in part to COVID-19-impacted schedules in the current year partially offset by the impact of the consolidation of Tubi, which experienced record viewership and record advertising revenue, the rotating broadcast of one additional NFL Divisional playoff game and added broadcasts of NFL regular season games. The decrease in other revenues was primarily due to lower sports sublicensing revenue related to college sports as a result of COVID-19 partially offset by higher content revenue atFOX Entertainment andBento Box Entertainment, LLC ("Bento Box"). Operating expenses decreased 9% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper 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 offset by the impact of the consolidation of Tubi. Partially offsetting lower sports programming rights amortization and production costs were the rotating broadcast of one additional NFL Divisional playoff game, fewerNational Association of Stock Car Auto Racing ("NASCAR") races in the prior year period due to COVID-19 and added broadcasts of NFL regular season games. 22 -------------------------------------------------------------------------------- Selling, general and administrative expenses decreased 6% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to lower marketing costs associated with the absence of theSuper Bowl in the current year.
For the nine months ended
The Company's revenues remained relatively flat for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as higher affiliate fee revenue was offset by lower advertising and other revenues. 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 the estimated affiliate fee credits provided as a result of the under-delivery of live college football games discussed above. The decrease in advertising revenue was primarily due to the comparative effect of the broadcast of theSuper Bowl and lower ratings at the FOX Network due in part to COVID-19-impacted schedules in the current year partially offset by higher political advertising revenue related to the 2020 presidential and congressional elections, the impact of the consolidation of Tubi and the rotating broadcast of one additional NFL Divisional playoff game. The decrease in other revenues was primarily due to lower sports sublicensing revenue related to college sports as a result of COVID-19 and lower content licensing revenue at the FOX Network partially offset by higher content revenue atFOX Entertainment and Bento Box and the impact of the consolidation of Credible in fiscal 2020. Operating expenses decreased 3% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper Bowl in the current year and the under-delivery 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 offset by the impact of the consolidation of Tubi. Partially offsetting lower sports programming rights amortization and production costs were contractual rate increases for NFL, MajorLeague Baseball ("MLB") and college football content, the rotating broadcast of one additional NFL Divisional playoff game and higher volume ofNASCAR races due to fewer races in the prior year period due to COVID-19. Selling, general and administrative expenses increased 2% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the impact of acquisitions that occurred in fiscal 2020 (the "Fiscal 2020 Acquisitions") (See Note 2-Acquisitions, Disposals and Other Transactions to the accompanying Financial Statements) and higher legal and marketing expenses 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 37% and 32% for the three and nine months endedMarch 31, 2021 , respectively, as compared to the corresponding periods of fiscal 2020, primarily due to assets placed into service as the Company transitions from service agreements entered into in connection with the Separation (as defined in Note 1-Description of Business and Basis of Presentation in the 2020 Form 10-K under the heading "The Distribution") and the Fiscal 2020 Acquisitions. Impairment and restructuring charges-Impairment and restructuring charges increased$26 million for the nine months endedMarch 31, 2021 , as compared to the corresponding period of fiscal 2020, primarily due to higher severance costs principally at the Cable Network Programming segment (See Note 11-Additional Financial Information to the accompanying Financial Statements). Interest expense-Interest expense increased 10% for the three and nine months endedMarch 31, 2021 as compared to the corresponding periods of fiscal 2020, primarily due to the issuance of$1.2 billion of senior notes inApril 2020 (See Note 9-Borrowings in the 2020 Form 10-K under the heading "Public Debt - Senior Notes Issued" for additional information).
Interest income-Interest income decreased for the three and nine months ended
Other, net-See Note 11-Additional Financial Information to the accompanying Financial Statements under the heading "Other, net."
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Income tax expense-The Company's tax provision and related effective tax rate of
25% for the three and nine months ended March 31, 2021 was higher than the
statutory rate of 21% primarily due to state taxes and, for the nine months
ended March 31, 2021 , was 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 38% and 27% for
the three and nine months ended March 31, 2020 , respectively, were higher than
the statutory rate of 21% primarily due to state taxes, a valuation allowance
recorded against net capital losses and other permanent items.
Net income-Net income increased $492 million and $1.0 billion for the three and
nine months ended March 31, 2021 , respectively, as compared to the corresponding
periods of fiscal 2020, primarily due to unrealized gains related to changes in
fair value of the Company's investments in equity securities as compared to
losses related to the Company's investment in Roku, Inc. ("Roku") which was sold
in March 2020 partially offset by higher income tax expense. Contributing to the
increase in Net income for the nine months ended March 31, 2021 , as compared to
the corresponding period of fiscal 2020, was the receipt of the $462 million
reimbursement from Disney related to the Divestiture Tax (See Note 1-Description
of Business and Basis of Presentation to the accompanying Financial Statements
for additional information) and higher Segment EBITDA (as defined below) at the
Cable Network Programming and Television segments.
Segment Analysis
The Company's operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment operating income before depreciation and amortization, or Segment EBITDA. Due to the integrated nature of these operating segments, estimates and judgments are made in allocating certain assets, revenues and expenses. Segment EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Segment EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, Interest income, Other, net and Income tax expense. Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company's business segments because it is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources to the Company's businesses. The following tables set forth the Company's Revenues and Segment EBITDA for the three and nine months endedMarch 31, 2021 , as compared to the three and nine months endedMarch 31, 2020 : For the three months ended March 31, For the nine months ended March 31, 2021 2020 Change % Change 2021 2020 Change % Change (in millions, except %) Better/(Worse) Better/(Worse) Revenues Cable Network Programming$ 1,471 $ 1,467 $ 4 -
%
1,695 1,926 (231 ) (12 ) % 5,601 5,548 53 1 %
Other, Corporate and
Eliminations 49 47 2 4 % 134 116 18 16 %
Total revenues $ 3,215 $ 3,440 $ (225 ) (7 ) % $ 10,019 $ 9,885 $ 134 1 %
For the three months ended March 31, For the nine months ended March 31,
2021 2020 Change % Change 2021 2020 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Segment EBITDA
Cable Network
Programming $ 850 $ 792 $ 58 7 % $ 2,202 $ 2,032 $ 170 8 %
Television 135 224 (89 ) (40) % 407 261 146 56 %
Other, Corporate and
Eliminations (86 ) (96 ) 10 10 % (239 ) (256 ) 17 7 %
Adjusted EBITDA(a) $ 899 $ 920 $ (21 ) (2 ) % $ 2,370 $ 2,037 $ 333 16 %
(a) For a discussion of Adjusted EBITDA and a reconciliation of Net income to
Adjusted EBITDA, see "Non-GAAP Financial Measures" below.
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Cable Network Programming (43% of the Company's revenues for the first nine months of fiscal 2021 and 2020)
For the three months ended March 31, For the nine months ended March 31,
2021 2020 Change % Change 2021 2020 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues
Affiliate fee $ 1,068 $ 1,006 $ 62 6 % $ 2,969 $ 2,902 $ 67 2 %
Advertising 283 304 (21 ) (7 ) % 1,023 895 128 14 %
Other 120 157 (37 ) (24 ) % 292 424 (132 ) (31 ) %
Total revenues 1,471 1,467 4 - % 4,284 4,221 63 1 %
Operating expenses (505 ) (554 ) 49 9 % (1,725 ) (1,866 ) 141 8 %
Selling, general and
administrative (122 ) (126 ) 4 3 % (374 ) (342 ) (32 ) (9 ) %
Amortization of cable
distribution
investments 6 5 1 20 % 17 19 (2 ) (11 ) %
Segment EBITDA $ 850 $ 792 $ 58 7 % $ 2,202 $ 2,032 $ 170 8 %
For the three months ended
Revenues at the Cable Network Programming segment remained relatively flat for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as the increase in affiliate fee revenue was offset by lower advertising and other revenues. The increase in affiliate fee revenue was primarily due to contractual rate increases on existing affiliate agreements and affiliate agreement renewals, partially offset by a lower average number of subscribers. 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 advertising revenue was principally due to a slower news cycle, which drove lower linear advertising revenue, including lower ratings, partially offset by higher pricing at FOX News Media. The decrease in other revenues was primarily attributable to lower sports sublicensing revenues due in part to COVID-19 and the absence of revenues generated from Premier Boxing Champions ("PBC") pay-per-view events. Cable Network Programming Segment EBITDA increased 7% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to lower expenses. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs driven by the comparative effect of on-site production costs associated with theSuper Bowl and lower sublicensed sports rights, partially offset by the higher volume ofNASCAR races due to fewer races in the prior year period due to COVID-19.
For the nine months ended
Revenues at the Cable Network Programming segment remained relatively flat for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as the increases in affiliate fee and advertising revenues were offset by lower other revenues. 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 under-delivery of live college football games discussed above. 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 increase in advertising revenue was primarily due to the 2020 presidential election coverage at FOX News Media, which drove higher linear advertising revenue, including higher pricing, and higher digital advertising revenue. The decrease in other revenues was primarily attributable to lower sports sublicensing revenues due in part to COVID-19 and lower revenues generated from PBC pay-per-view events. Cable Network Programming Segment EBITDA increased 8% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the affiliate fee and advertising revenue increases noted above and lower expenses. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs driven by the under-delivery of live games in the first half of fiscal 2021, partially offset by contractual rate increases for college football and MLB content and the shift ofNASCAR races and MLB regular season games into fiscal 2021 as a result of COVID-19. Selling, general and administrative expenses increased principally due to higher legal and marketing expenses. 25
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Television (56% of the Company's revenues for the first nine months of fiscal
2021 and 2020)
For the three months ended March 31, For the nine months ended March 31,
2021 2020 Change % Change 2021 2020 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues
Advertising $ 915 $ 1,266 $ (351 ) (28 ) % $ 3,426 $ 3,726 $ (300 ) (8 ) %
Affiliate fee 651 553 98 18 % 1,801 1,487 314 21 %
Other 129 107 22 21 % 374 335 39 12 %
Total revenues 1,695 1,926 (231 ) (12 ) % 5,601 5,548 53 1 %
Operating expenses (1,359 ) (1,486 ) 127 9 % (4,613 ) (4,713 ) 100 2 %
Selling, general and
administrative (201 ) (216 ) 15 7 % (581 ) (574 ) (7 ) (1 ) %
Segment EBITDA $ 135 $ 224 $ (89 ) (40) % $ 407 $ 261 $ 146 56 %
For the three months ended
Revenues at the Television segment decreased 12% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as higher affiliate fee and other revenues were more than offset by lower advertising revenue. The decrease in advertising revenue was primarily due to the comparative effect of the broadcast of theSuper Bowl 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, the rotating broadcast of one additional NFL Divisional playoff game and added broadcasts of NFL regular season games. 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 atFOX Entertainment and Bento Box. Television Segment EBITDA decreased 40% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the revenue decreases noted above partially offset by lower expenses. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper 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 offset by the impact of the consolidation of Tubi. Partially offsetting the decrease in sports programming rights amortization and production costs were the rotating broadcast of one additional NFL Divisional playoff game, higher volume ofNASCAR races due to fewer races in the prior year period due to COVID-19 and added broadcasts of NFL regular season games. Selling, general and administrative expenses decreased primarily due to lower marketing costs associated with the absence of theSuper Bowl in the current year.
For the nine months ended
Revenues at the Television segment remained relatively flat for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 as higher affiliate fee and other revenues were offset by lower advertising revenue. The decrease in advertising revenue was primarily due to the comparative effect of the broadcast of theSuper Bowl 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 theFOX Television Stations related to the 2020 presidential and congressional elections and the rotating broadcast of one additional 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 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 atFOX Entertainment and Bento Box partially offset by lower content licensing revenue at theFOX Network. 26 -------------------------------------------------------------------------------- Television Segment EBITDA increased 56% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 due to higher revenues and lower expenses. Operating expenses decreased primarily due to lower sports programming rights amortization and production costs, including the absence of the broadcast of theSuper 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 offset by the impact of the consolidation of Tubi. Partially offsetting the decrease in 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 higher volume ofNASCAR races due to fewer races in the prior year period due to COVID-19. Selling, general and administrative expenses remained relatively flat primarily due to the Fiscal 2020 Acquisitions offset by lower bad debt expense and lower marketing costs associated with the absence of theSuper Bowl in the current year.
Other, Corporate and Eliminations (1% of the Company's revenues for the first nine months of fiscal 2021 and 2020)
For the three months ended March 31, For the nine months ended March 31,
2021 2020 Change % Change 2021 2020 Change % Change
(in millions, except %) Better/(Worse) Better/(Worse)
Revenues $ 49 $ 47 $ 2 4 % $ 134 $ 116 $ 18 16 %
Operating expenses (21 ) (21 ) - - % (61 ) (41 ) (20 ) (49 ) %
Selling, general and
administrative (114 ) (122 ) 8 7 % (312 ) (331 ) 19 6 %
Segment EBITDA $ (86 ) $ (96 ) $ 10 10 % $ (239 ) $ (256 ) $ 17 7 %
For the three months ended
Revenues at the Other, Corporate and Eliminations segment increased 4% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to growth at Credible. Other, Corporate and Eliminations Segment EBITDA increased 10% for the three months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the revenue increases noted above and lower expenses. Selling, general and administrative expenses decreased primarily due to lower professional fees and employee costs.
For the nine months ended
Revenues at the Other, Corporate and Eliminations segment increased 16% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the impact of the consolidation of Credible in the second quarter of fiscal 2020 and growth at Credible partially offset by lower revenues from operating the FOX Studio Lot due to COVID-19. Other, Corporate and Eliminations Segment EBITDA increased 7% for the nine months endedMarch 31, 2021 as compared to the corresponding period of fiscal 2020 primarily due to the revenue increases noted above partially offset by higher expenses. Operating expenses increased principally due to the impact of the consolidation of Credible. Selling, general and administrative expenses decreased primarily due to lower professional fees and employee costs.
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.
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).
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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 with U.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.
The following table reconciles Net income to Adjusted EBITDA for the three and
nine months ended March 31, 2021 , as compared to the three and nine months ended
March 31, 2020 :
For the nine months ended
For the three months ended March 31, March 31,
2021 2020 2021 2020
(in millions)
Net income $ 582 $ 90 $ 1,929 $ 917
Add
Amortization of cable distribution investments 6 5 17 19
Depreciation and amortization 78 57 216 164
Impairment and restructuring charges - - 35 9
Interest expense 98 89 296 269
Interest income - (8 ) (3 ) (33 )
Other, net (61 ) 632 (752 ) 345
Income tax expense 196 55 632 347
Adjusted EBITDA $ 899 $ 920 $ 2,370 $ 2,037
The following table sets forth the computation of Adjusted EBITDA for the three
and nine months ended March 31, 2021 , as compared to the three and nine months
ended March 31, 2020 :
For the nine months ended
For the three months ended March 31, March 31,
2021 2020 2021 2020
(in millions)
Revenues $ 3,215 $ 3,440 $ 10,019 $ 9,885
Operating expenses (1,885 ) (2,061 ) (6,399 ) (6,620 )
Selling, general and administrative (437 ) (464 ) (1,267 ) (1,247 )
Amortization of cable distribution investments 6 5 17 19
Adjusted EBITDA $ 899 $ 920 $ 2,370 $ 2,037
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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, the latter of which continues to be negatively impacted by the weak economic environment as a result of COVID-19. Depending on the duration and severity of the weak economic environment, it could lead to changes in consumer behavior, including increasing numbers of consumers canceling or foregoing subscriptions to MVPD services, that adversely affect the Company's affiliate fee and advertising revenues. In addition, the Company's business depends on the volume and popularity of the content it distributes, particularly sports content. Following the COVID-19 outbreak, sports events to which the Company has broadcast rights were cancelled or postponed and the production of certain entertainment content the Company distributes was suspended. Although most sports events and productions have resumed, there may be additional content disruptions in the future and, depending on their duration and severity, these disruptions could materially adversely affect the Company's future advertising revenues and, over a longer period, its future affiliate fee revenues. 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 beyond the Company's control. These include the duration and extent of the pandemic, including increases or spikes in the number of cases, mutations or related strains of the virus and the success of vaccination efforts; 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; and potential changes in consumer behavior. The Company has approximately$5.8 billion of cash and cash equivalents as ofMarch 31, 2021 and an unused five-year$1.0 billion unsecured revolving credit facility (See Note 5-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 ofMarch 31, 2021 , the Company was in compliance with all of the covenants under the 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 (as defined in Note 1-Description of Business and Basis of Presentation in the 2020 Form 10-K under the heading "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
Net cash provided by operating activities for the nine months ended
For the nine months ended
The increase in net cash provided by operating activities during the nine months endedMarch 31, 2021 , as compared to the corresponding period of fiscal 2020, was comprised of higher Segment EBITDA and higher programming amortization over cash payments at the Television segment partially offset by higher tax payments.
Net cash used in investing activities for the nine months ended
For the nine months ended
Net cash used in investing activities during the nine months endedMarch 31, 2021 was primarily comprised of payments related to investments made in connection with establishing the Company's standalone broadcast technical facilities and additional funding in the Company's investments inFlutter Entertainment plc partially offset by the sale of the Company's sports marketing businesses as compared to the acquisitions of three television stations and Credible (See 29 --------------------------------------------------------------------------------
Note 2-Acquisitions, Disposals and Other Transactions to the accompanying
Financial Statements) partially offset by the sale of the Company's investment
in Roku during the nine months ended
Net cash used in financing activities for the nine months ended
For the nine months ended
Net cash used in financing activities during the nine months endedMarch 31, 2021 was lower than the corresponding prior year period primarily due to the$462 million reimbursement fromDisney related to the Divestiture Tax.
Stock Repurchase Program
See Note 6-Stockholders' Equity to the accompanying Financial Statements under the heading "Stock Repurchase Program."
Dividends
The Company declared a semi-annual dividend of$0.23 per share on both the Class A Common Stock and the Class B Common Stock during the three months endedMarch 31, 2021 , which was paid inApril 2021 to stockholders of record onMarch 10, 2021 . Debt Instruments
Borrowings include senior notes (See Note 9-Borrowings in the 2020 Form 10-K under the heading "Public Debt - Senior Notes Issued").
Ratings of the senior notes
The following table summarizes the Company's credit ratings as ofMarch 31, 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
See Note 8-Commitments and Contingencies to the accompanying Financial Statements.
Recent Accounting Pronouncements
See Note 1-Description of Business and Basis of Presentation to the accompanying
Financial Statements under the heading "Recently Adopted and Recently Issued
Accounting Guidance."
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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 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 in general, new
technologies and distribution platforms and related changes in consumer
behavior, and shifts in advertisers' spending toward digital and mobile
offerings and away from more traditional media;
• 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;
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 failure to comply with laws, regulations, rules, industry standards or
contractual obligations relating to privacy and personal data protection;
• 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 loss of key personnel;
• labor disputes, including labor disputes involving professional sports
leagues whose games or events the Company has the right to broadcast;
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--------------------------------------------------------------------------------• 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;
• lower than expected valuations associated with one of the Company's
reporting units, indefinite-lived intangible assets, investments or
long-lived assets;
• changes in GAAP or other applicable accounting standards and policies;
• the Company's limited operating history as a standalone, publicly traded
company and the risk that the Company is unable to make, on a timely or
cost-effective basis, the changes necessary to operate effectively 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 reliance on 21CF to provide the Company various services
during transition periods under transition services agreements with 21CF,
including broadcast operations, sports production, information systems and
technology, and other services, and the risks that 21CF does not properly
provide the services under these agreements or that the Company is unable
to provide or obtain such services following the applicable transition
period (or during such transition period, if 21CF does not properly provide
them in a timely and cost effective manner);
• 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 (as defined in Note
1-Description of Business and Basis of Presentation in the 2020 Form 10-K)
and the indemnification arrangements entered into in connection with the
Separation and the Distribution (as defined in Note 1-Description of
Business and Basis of Presentation in the 2020 Form 10-K); and
• the other risks and uncertainties detailed in Part I., Item 1A. "Risk
Factors" in the 2020 Form 10-K.
Forward-looking statements in this Quarterly Report on Form 10-Q 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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