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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the quarterly period ended September 30, 2023 |
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission File Number 001-38776
FOX CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 83-1825597 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| 1211 Avenue of the Americas | ||||||||||||||
| New York, | New York | 10036 | ||||||||||||
| (Address of principal executive offices and Zip Code) |
Registrant’s telephone number, including area code (212) 852-7000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||
| Class A Common Stock, par value $0.01 per share | FOXA | The Nasdaq Global Select Market | ||||||
| Class B Common Stock, par value $0.01 per share | FOX | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | x | Accelerated filer | o | |||||||||||
| Non-accelerated filer | o | Smaller reporting company | o | |||||||||||
| Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of October 31, 2023, 247,226,541 shares of Class A Common Stock, par value $0.01 per share, and 235,581,025 shares of Class B Common Stock, par value $0.01 per share, were outstanding.
FOX CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Revenues | $ | 3,207 | $ | 3,192 | |||||||||||||||||||
| Operating expenses | (1,862) | (1,656) | |||||||||||||||||||||
| Selling, general and administrative | (480) | (448) | |||||||||||||||||||||
| Depreciation and amortization | (96) | (99) | |||||||||||||||||||||
| Interest expense, net | (42) | (68) | |||||||||||||||||||||
| Other, net | (166) | (76) | |||||||||||||||||||||
| Income before income tax expense | 561 | 845 | |||||||||||||||||||||
| Income tax expense | (146) | (232) | |||||||||||||||||||||
| Net income | 415 | 613 | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (8) | (8) | |||||||||||||||||||||
| Net income attributable to Fox Corporation stockholders | $ | 407 | $ | 605 | |||||||||||||||||||
| EARNINGS PER SHARE DATA | |||||||||||||||||||||||
| Weighted average shares: | |||||||||||||||||||||||
| Basic | 492 | 550 | |||||||||||||||||||||
| Diluted | 494 | 552 | |||||||||||||||||||||
| Net income attributable to Fox Corporation stockholders per share: | |||||||||||||||||||||||
| Basic | $ | 0.83 | $ | 1.10 | |||||||||||||||||||
| Diluted | $ | 0.82 | $ | 1.10 |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
FOX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | 415 | $ | 613 | |||||||||||||||||||
| Other comprehensive loss, net of tax: | |||||||||||||||||||||||
| Benefit plan adjustments and other | (2) | (2) | |||||||||||||||||||||
| Other comprehensive loss, net of tax | (2) | (2) | |||||||||||||||||||||
| Comprehensive income | 413 | 611 | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests(a) | (8) | (8) | |||||||||||||||||||||
| Comprehensive income attributable to Fox Corporation stockholders | $ | 405 | $ | 603 |
| (a) | Net income attributable to noncontrolling interests includes nil and $(5) million for the three months ended September 30, 2023 and 2022, respectively, relating to redeemable noncontrolling interests. |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
FOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (unaudited) | (audited) | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 3,829 | $ | 4,272 | |||||||
| Receivables, net | 2,420 | 2,177 | |||||||||
| Inventories, net | 751 | 543 | |||||||||
| Other | 239 | 265 | |||||||||
| Total current assets | 7,239 | 7,257 | |||||||||
| Non-current assets | |||||||||||
| Property, plant and equipment, net | 1,683 | 1,708 | |||||||||
| Intangible assets, net | 3,072 | 3,084 | |||||||||
| Goodwill | 3,557 | 3,559 | |||||||||
| Deferred tax assets | 3,042 | 3,090 | |||||||||
| Other non-current assets | 3,056 | 3,168 | |||||||||
| Total assets | $ | 21,649 | $ | 21,866 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Borrowings | $ | 1,250 | $ | 1,249 | |||||||
| Accounts payable, accrued expenses and other current liabilities | 2,339 | 2,514 | |||||||||
| Total current liabilities | 3,589 | 3,763 | |||||||||
| Non-current liabilities | |||||||||||
| Borrowings | 5,962 | 5,961 | |||||||||
| Other liabilities | 1,419 | 1,484 | |||||||||
| Redeemable noncontrolling interests | 228 | 213 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity | |||||||||||
| Class A Common Stock(a) | 3 | 3 | |||||||||
| Class B Common Stock(b) | 2 | 2 | |||||||||
| Additional paid-in capital | 7,991 | 8,253 | |||||||||
| Retained earnings | 2,539 | 2,269 | |||||||||
| Accumulated other comprehensive loss | (151) | (149) | |||||||||
| Total Fox Corporation stockholders’ equity | 10,384 | 10,378 | |||||||||
| Noncontrolling interests | 67 | 67 | |||||||||
| Total equity | 10,451 | 10,445 | |||||||||
| Total liabilities and equity | $ | 21,649 | $ | 21,866 |
| (a) | Class A Common Stock, $0.01 par value per share, 2,000,000,000 shares authorized, 248,778,737 shares and 262,899,364 shares issued and outstanding at par as of September 30, 2023 and June 30, 2023, respectively. |
| (b) | Class B Common Stock, $0.01 par value per share, 1,000,000,000 shares authorized, 235,581,025 shares and 235,581,025 shares issued and outstanding at par as of September 30, 2023 and June 30, 2023, respectively. |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
FOX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
| For the three months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 415 | $ | 613 | |||||||
| Adjustments to reconcile net income to cash provided by operating activities | |||||||||||
| Depreciation and amortization | 96 | 99 | |||||||||
| Amortization of cable distribution investments | 4 | 4 | |||||||||
| Equity-based compensation | 24 | 7 | |||||||||
| Other, net | 166 | 76 | |||||||||
| Deferred income taxes | 47 | 104 | |||||||||
| Change in operating assets and liabilities, net of acquisitions and dispositions | |||||||||||
| Receivables and other assets | (284) | (260) | |||||||||
| Inventories net of programming payable | (253) | (333) | |||||||||
| Accounts payable and accrued expenses | (187) | (127) | |||||||||
| Other changes, net | (27) | 87 | |||||||||
| Net cash provided by operating activities | 1 | 270 | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Property, plant and equipment | (71) | (74) | |||||||||
| Purchase of investments | — | (31) | |||||||||
| Other investing activities, net | 13 | (13) | |||||||||
| Net cash used in investing activities | (58) | (118) | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Repurchase of shares | (250) | (250) | |||||||||
| Dividends paid and distributions | (135) | (147) | |||||||||
| Sale of subsidiary noncontrolling interest | — | 25 | |||||||||
| Other financing activities, net | (1) | (30) | |||||||||
| Net cash used in financing activities | (386) | (402) | |||||||||
| Net decrease in cash and cash equivalents | (443) | (250) | |||||||||
| Cash and cash equivalents, beginning of year | 4,272 | 5,200 | |||||||||
| Cash and cash equivalents, end of period | $ | 3,829 | $ | 4,950 |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
FOX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
(IN MILLIONS)
| Class A | Class B | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Fox Corporation Stockholders’ Equity | Noncontrolling Interests**(a)** | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 263 | $ | 3 | 235 | $ | 2 | $ | 8,253 | $ | 2,269 | $ | (149) | $ | 10,378 | $ | 67 | $ | 10,445 | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 407 | — | 407 | 8 | 415 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (2) | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | (127) | — | (127) | — | (127) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | (15) | — | — | — | (258) | 6 | — | (252) | — | (252) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 1 | — | — | — | (4) | (16) | — | (20) | (8) | (28) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 249 | $ | 3 | 235 | $ | 2 | $ | 7,991 | $ | 2,539 | $ | (151) | $ | 10,384 | $ | 67 | $ | 10,451 | |||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 308 | $ | 3 | 243 | $ | 3 | $ | 9,098 | $ | 2,461 | $ | (226) | $ | 11,339 | $ | 36 | $ | 11,375 | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 605 | — | 605 | 13 | 618 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (2) | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | (137) | — | (137) | — | (137) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | (5) | — | (3) | — | (124) | (126) | — | (250) | — | (250) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | 1 | (1) | (25) | (8) | — | (34) | 15 | (19) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 303 | $ | 3 | 241 | $ | 2 | $ | 8,949 | $ | 2,795 | $ | (228) | $ | 11,521 | $ | 64 | $ | 11,585 |
| (a) | Excludes Redeemable noncontrolling interests which are reflected in temporary equity (See Note 4—Fair Value under the heading “Redeemable Noncontrolling Interests”). |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Fox Corporation (“FOX” or the “Company”) is a news, sports and entertainment company, which manages and reports its businesses in the following segments: Cable Network Programming, Television and Other, Corporate and Eliminations.
The accompanying Unaudited Consolidated Financial Statements of FOX have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these Unaudited Consolidated Financial Statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2024.
The preparation of the Company’s Unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Unaudited Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.
These interim Unaudited Consolidated Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 as filed with the Securities and Exchange Commission on August 11, 2023 (the “2023 Form 10-K”).
All significant intercompany transactions and accounts within the Company’s consolidated businesses have been eliminated. Investments in and advances to entities or joint ventures in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. Significant influence generally exists when the Company owns an interest between 20% and 50%. Equity securities in which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative method which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. All gains and losses on investments in equity securities are recognized in the Unaudited Consolidated Statements of Operations.
The Company’s fiscal year ends on June 30 (“fiscal”) of each year. Certain fiscal 2023 amounts have been reclassified to conform to the fiscal 2024 presentation.
The unaudited and audited consolidated financial statements are referred to as the “Financial Statements” herein. The unaudited consolidated statements of operations are referred to as the “Statements of Operations” herein. The unaudited and audited consolidated balance sheets are referred to as the “Balance Sheets” herein.
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
The Company’s acquisitions support the Company’s strategy to strengthen its core brands, grow its digital businesses and selectively enhance production capabilities for its digital and linear platforms. During the three months ended September 30, 2023 and 2022, the Company made no acquisitions.
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVENTORIES, NET
The Company’s inventories were comprised of the following:
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Licensed programming, including prepaid sports rights | $ | 959 | $ | 720 | |||||||
| Owned programming | 529 | 465 | |||||||||
| Total inventories, net | 1,488 | 1,185 | |||||||||
| Less: current portion of inventories, net | (751) | (543) | |||||||||
| Total non-current inventories, net | $ | 737 | $ | 642 | |||||||
| Owned programming | |||||||||||
| Released | $ | 219 | $ | 256 | |||||||
| In-process or other | 310 | 209 | |||||||||
| Total | $ | 529 | $ | 465 |
The following table presents the aggregate amortization expense related to Inventories, net included in Operating expenses in the Statements of Operations:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Total amortization expense | $ | 995 | $ | 854 |
NOTE 4. FAIR VALUE
Fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”).
The following tables present information about financial assets and redeemable noncontrolling interests carried at fair value on a recurring basis:
| Fair value measurements | ||||||||||||||||||||||||||
| As of September 30, 2023 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Investments in equity securities | $ | 727 | $ | 727 | (a) | $ | — | $ | — | |||||||||||||||||
| Redeemable noncontrolling interests | (228) | — | — | (228) | (b) | |||||||||||||||||||||
| Total | $ | 499 | $ | 727 | $ | — | $ | (228) |
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Fair value measurements | ||||||||||||||||||||||||||
| As of June 30, 2023 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Investments in equity securities | $ | 884 | $ | 884 | (a) | $ | — | $ | — | |||||||||||||||||
| Redeemable noncontrolling interests | (213) | — | — | (213) | (b) | |||||||||||||||||||||
| Total | $ | 671 | $ | 884 | $ | — | $ | (213) |
| (a) | The investments categorized as Level 1 primarily represent an investment in equity securities of Flutter Entertainment plc (“Flutter”) with a readily determinable fair value. |
| (b) | The Company utilizes both the market and income approach valuation techniques for its Level 3 fair value measures. Inputs to such measures could include observable market data obtained from independent sources such as broker quotes and recent market transactions for similar assets. It is the Company’s policy to maximize the use of observable inputs in the measurement of its Level 3 fair value measurements. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the redeemable noncontrolling interests. Examples of utilized unobservable inputs are future cash flows and long-term growth rates. |
Redeemable Noncontrolling Interests
The redeemable noncontrolling interests recorded are put rights held by minority shareholders in Credible Labs Inc. (“Credible”) and an entertainment production company.
The changes in redeemable noncontrolling interests classified as Level 3 measurements were as follows:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Beginning of period | $ | (213) | $ | (188) | |||||||||||||||||||
| Net loss | — | 5 | |||||||||||||||||||||
| Accretion and other | (15) | (10) | |||||||||||||||||||||
| End of period | $ | (228) | $ | (193) |
The put right held by the Credible minority shareholder will become exercisable in fiscal 2025. The put right held by the entertainment production company’s minority shareholder will become exercisable in fiscal 2027.
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
The carrying value of the Company’s financial instruments exclusive of borrowings, such as cash and cash equivalents, receivables, payables and investments accounted for using the measurement alternative method, approximates fair value.
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Borrowings | |||||||||||
| Fair value | $ | 6,604 | $ | 6,895 | |||||||
| Carrying value | $ | 7,212 | $ | 7,210 |
Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (a Level 1 measurement).
Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.
Generally, the Company does not require collateral to secure receivables. As of September 30, 2023, the Company had no individual customers that accounted for 10% or more of the Company’s receivables. As of June 30, 2023, the Company had one customer that accounted for approximately 11% of the Company’s receivables.
NOTE 5. BORROWINGS
Borrowings include senior notes (See Note 9—Borrowings in the 2023 Form 10-K under the heading “Public Debt – Senior Notes Issued”) of which $1.25 billion of 4.030% senior notes are due in January 2024. In October 2023, the Company issued $1.25 billion of 6.500% senior notes due 2033. In addition, the Company is party to a credit agreement providing a $1.0 billion unsecured revolving credit facility with a sub-limit of $150 million available for the issuance of letters of credit and a maturity date of June 2028 (See Note 9—Borrowings in the 2023 Form 10-K under the heading “Revolving Credit Agreement”). As of September 30, 2023, there were no borrowings outstanding under the revolving credit agreement.
NOTE 6. STOCKHOLDERS’ EQUITY
Stock Repurchase Program
The Company’s Board of Directors (the “Board”) has authorized a stock repurchase program under which the Company can repurchase $7 billion of 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”). The program has no time limit and may be modified, suspended or discontinued at any time.
In connection with the stock repurchase program, the Company entered into an accelerated share repurchase (“ASR”) agreement in February 2023, under which the Company paid a third-party financial institution $1 billion and received an initial delivery of approximately 22.5 million shares of Class A Common Stock, representing 80% of the shares expected to be repurchased under the ASR agreement, at a price of $35.54 per share, which was the Nasdaq Global Select Market (“Nasdaq”) closing share price of the Class A Common Stock on February 8, 2023. Upon settlement of the ASR agreement in August 2023, the Company received a final delivery of approximately 7.8 million shares of Class A Common Stock. The final number of shares purchased under the ASR agreement was determined using a price of $33.03 per share (the volume-
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
weighted average market price of the Class A Common Stock on Nasdaq during the term of the ASR agreement less a discount). The Company accounted for the ASR agreement as two separate transactions. The initial delivery of Class A Common Stock was accounted for as a treasury stock transaction recorded on the acquisition date. The final settlement of Class A Common Stock was accounted for as a forward contract indexed to the Class A Common Stock and qualified as an equity transaction.
In total, the Company repurchased approximately 15.4 million shares of Class A Common Stock for approximately $250 million during the three months ended September 30, 2023.
Repurchased shares are retired and reduce the number of shares issued and outstanding. The Company allocates the amount of the repurchase price over par value between additional paid-in capital and retained earnings.
As of September 30, 2023, the Company’s remaining stock repurchase authorization was approximately $2.15 billion. Subsequent to September 30, 2023, the Company repurchased approximately 1.6 million shares of Class A Common Stock for approximately $50 million.
Dividends
The following table summarizes the dividends declared per share on both the Company’s Class A Common Stock and Class B Common Stock:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Cash dividend per share | $ | 0.26 | $ | 0.25 |
The Company declared a semi-annual dividend of $0.26 per share on both the Class A Common Stock and the Class B Common Stock during the three months ended September 30, 2023, which was paid on September 27, 2023.
NOTE 7. EQUITY-BASED COMPENSATION
The Company has equity-based compensation plans, including the Fox Corporation 2019 Shareholder Alignment Plan (See Note 12—Equity-Based Compensation in the 2023 Form 10-K).
The following table summarizes the Company’s equity-based compensation:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Equity-based compensation | $ | 24 | $ | 7 | |||||||||||||||||||
| Intrinsic value of all settled equity-based awards | $ | 65 | $ | 76 | |||||||||||||||||||
| Tax benefit on settled equity-based awards | $ | 10 | $ | 14 |
The Company’s equity-based awards are settled in Class A Common Stock. As of September 30, 2023, the Company’s total estimated compensation cost, not yet recognized, related to non-vested equity awards held by the Company’s employees was approximately $150 million and is expected to be recognized over a weighted average period between one and two years.
As of September 30, 2023 and 2022, the Company had approximately 5 million and 6 million stock options outstanding, respectively. The computation of diluted earnings per share did not include stock options
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
outstanding during each period presented if their inclusion would have been antidilutive, and, for those shares that are contingently issuable, all necessary conditions have not been satisfied for the periods presented.
Awards Vested and Granted
Restricted Stock Units
During the three months ended September 30, 2023 and 2022, restricted stock units (“RSUs”) with a value of approximately $1.7 million and $1.5 million vested and RSUs with a value of approximately $1.8 million and $2.0 million were granted, respectively. These RSUs generally vest in equal annual installments over a three-year period subject to participants’ continued employment with the Company.
Performance-Based Stock Options
During the three months ended September 30, 2023 and 2022, the Company granted approximately 4 million performance-based stock options, in each period, which will vest in full at the end of a three-year performance period if the market condition is met, and have a term of seven years thereafter.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Commitments
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 total firm commitments and future debt payments as of September 30, 2023 and June 30, 2023 were approximately $38 billion and $39 billion, respectively. The decrease from June 30, 2023 was primarily due to sports programming rights payments.
Contingencies
The Company establishes an accrued liability for legal claims and indemnification claims when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could affect the Company’s results of operations and financial condition. For the contingencies disclosed below for which there is at least a reasonable possibility that a loss may be incurred, other than the accrual provided, the Company was unable to estimate the amount of loss or range of loss.
FOX News
The Company’s FOX News business and certain of its current and former employees have been subject to allegations of sexual harassment and discrimination on the basis of sex and race. The Company has resolved many of these claims and is contesting other claims in litigation. The Company has also received regulatory and investigative inquiries relating to these matters. To date, none of the amounts paid in settlements or reserved for pending or future claims is material, individually or in the aggregate, to the Company. The amount of additional liability, if any, that may result from these or related matters cannot be estimated at this time. However, the Company does not currently anticipate that the ultimate resolution of any such pending matters will have a material adverse effect on its business, financial condition, results of operations or cash flows.
U.K. Newspaper Matters Indemnity
In connection with the separation of Twenty-First Century Fox, Inc. (“21CF”) and News Corporation in June 2013 (the “21CF News Corporation Separation”), 21CF agreed to indemnify News Corporation, on an after-tax basis, for payments made after the 21CF News Corporation Separation arising out of civil claims and investigations relating to phone hacking, illegal data access and inappropriate payments to public officials that occurred at subsidiaries of News Corporation before the 21CF News Corporation Separation, as well as legal
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
and professional fees and expenses paid in connection with the related criminal matters, other than fees, expenses and costs relating to employees who are not (i) directors, officers or certain designated employees or (ii) with respect to civil matters, co-defendants with News Corporation (the “U.K. Newspaper Matters Indemnity”). In accordance with the Separation Agreement (as defined in Note 1—Description of Business and Basis of Presentation in the 2023 Form 10-K under the heading “The Transaction”), the Company assumed certain costs and liabilities related to the U.K. Newspaper Matters Indemnity. The liability recorded in the Balance Sheets related to the indemnity was approximately $115 million as of June 30, 2023 and approximately $100 million as of September 30, 2023.
Defamation and Disparagement Claims
From time to time, the Company and its news businesses, including FOX News Media and the FOX Television Stations, and their employees are subject to lawsuits alleging defamation or disparagement. These include lawsuits filed by Smartmatic USA Corp. and certain of its affiliates (collectively, “Smartmatic”) in February 2021 seeking $2.7 billion in damages and Dominion Voting Systems, Inc. and certain of its affiliates (collectively, “Dominion”) in March 2021 seeking $1.6 billion in damages. On March 31, 2023, the court in the Dominion case issued its rulings on summary judgment motions that were unfavorable to the Company. Following these rulings, on April 18, 2023, the Company and its subsidiary, Fox News Network, LLC, entered into a Release and Settlement Agreement with Dominion pursuant to which the parties agreed to resolve the lawsuits among them. The Company paid an aggregate of approximately $800 million to settle this and a related lawsuit in April 2023.
The Company continues to believe the Smartmatic and other pending lawsuits alleging defamation or disparagement are without merit and intends to defend against them vigorously, including through any appeals. Discovery in the Smartmatic case, including depositions, remains ongoing, and expert discovery and summary judgment and other key motions will follow. At this time, a trial in the Smartmatic lawsuit is not expected to commence until 2025. The Company is unable to predict the final outcome of these matters and has determined that a loss in the Smartmatic case is neither probable nor reasonably estimable. There can be no assurance that the ultimate resolution of these pending matters will not have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
On April 11, 2023 and April 20, 2023, stockholders of the Company filed derivative lawsuits in the Delaware Court of Chancery against certain directors of the Company under the captions Schwarz v. Murdoch et al., C.A. No. 2023-0418 (Del. Ch.) and Greenberg et al. v. Murdoch et al., C.A. No. 2023-0440 (Del. Ch.). The Delaware Court of Chancery consolidated the lawsuits into one matter captioned In re Fox Corporation Deriv. Litig., C.A. No. 2023-0418 (Del.Ch.). Two additional derivative lawsuits were subsequently filed by the Company’s stockholders in the same court on September 12, 2023 against certain directors and officers of the Company and are part of the consolidated lawsuit. Each of the lawsuits names the Company as a nominal defendant. The complaints allege that certain directors and officers, as applicable, breached their fiduciary duties by allowing the Company’s news channel to air allegations regarding election fraud in connection with the 2020 U.S. Presidential election, which resulted in significant defamation litigation. The plaintiffs seek orders awarding damages in favor of the Company; directing the Company to reform and improve its policies and procedures; and awarding the plaintiffs attorneys' fees and costs. The Company intends to vigorously contest the lawsuit.
Other
The Company’s operations are subject to tax primarily in various domestic jurisdictions and as a matter of course, the Company is regularly audited by federal and state tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity. Each member of the 21CF consolidated group, which includes 21CF, the Company (prior to the Transaction (as defined in Note 1—Description of Business and Basis of Presentation in the 2023 Form 10-K under the heading “The Transaction”)) and 21CF’s other subsidiaries, is jointly and severally liable for the U.S. federal income and, in certain jurisdictions, state tax liabilities of each other member of the consolidated group. Consequently, the Company could be liable in the event any such
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
liability is incurred, and not discharged, by any other member of the 21CF consolidated group. The tax matters agreement entered into in connection with the Separation (as defined in Note 1—Description of Business and Basis of Presentation in the 2023 Form 10-K under the heading “The Transaction”) requires 21CF and/or The Walt Disney Company to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the Internal Revenue Service in amounts that the Company cannot quantify.
NOTE 9. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company participates in and/or sponsors various pension, savings and postretirement benefit plans. Pension plans and postretirement benefit plans are closed to new participants with the exception of a small group covered by collective bargaining agreements. The net periodic benefit cost was $13 million and $16 million for the three months ended September 30, 2023 and 2022, respectively.
NOTE 10. SEGMENT INFORMATION
The Company is a news, sports and entertainment company, which manages and reports its businesses in the following segments:
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Cable Network Programming**, which produces and licenses news and sports content distributed through traditional cable television systems, direct broadcast satellite operators and telecommunication companies, virtual multi-channel video programming distributors and other digital platforms, primarily in the U.S.
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Television**, which produces, acquires, markets and distributes programming through the FOX broadcast network, advertising supported video-on-demand service Tubi, 29 full power broadcast television stations, including 11 duopolies, and other digital platforms, primarily in the U.S. Eighteen of the broadcast television stations are affiliated with the FOX Network, 10 are affiliated with MyNetworkTV and one is an independent station. The segment also includes various production companies that produce content for the Company and third parties.
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Other, Corporate and Eliminations**, which principally consists of the FOX Studio Lot, Credible, corporate overhead costs and intracompany eliminations. The FOX Studio Lot, located in Los Angeles, California, provides television and film production services along with office space, studio operation services and includes all operations of the facility. Credible is a U.S. consumer finance marketplace.
The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment operating income before depreciation and amortization, or Segment EBITDA. Due to the integrated nature of these operating segments, estimates and judgments are made in allocating certain assets, revenues and expenses.
Segment EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Segment EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, net, Other, net and Income tax expense. 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.
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the Company’s Revenues and Segment EBITDA for the three months ended September 30, 2023 and 2022:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Cable Network Programming | $ | 1,387 | $ | 1,431 | |||||||||||||||||||
| Television | 1,780 | 1,714 | |||||||||||||||||||||
| Other, Corporate and Eliminations | 40 | 47 | |||||||||||||||||||||
| Total revenues | $ | 3,207 | $ | 3,192 | |||||||||||||||||||
| Segment EBITDA | |||||||||||||||||||||||
| Cable Network Programming | $ | 607 | $ | 742 | |||||||||||||||||||
| Television | 351 | 409 | |||||||||||||||||||||
| Other, Corporate and Eliminations | (89) | (59) | |||||||||||||||||||||
| Amortization of cable distribution investments | (4) | (4) | |||||||||||||||||||||
| Depreciation and amortization | (96) | (99) | |||||||||||||||||||||
| Interest expense, net | (42) | (68) | |||||||||||||||||||||
| Other, net | (166) | (76) | |||||||||||||||||||||
| Income before income tax expense | 561 | 845 | |||||||||||||||||||||
| Income tax expense | (146) | (232) | |||||||||||||||||||||
| Net income | 415 | 613 | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (8) | (8) | |||||||||||||||||||||
| Net income attributable to Fox Corporation stockholders | $ | 407 | $ | 605 |
Revenues by Segment by Component
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Cable Network Programming | |||||||||||||||||||||||
| Affiliate fee | $ | 1,005 | $ | 1,029 | |||||||||||||||||||
| Advertising | 290 | 316 | |||||||||||||||||||||
| Other | 92 | 86 | |||||||||||||||||||||
| Total Cable Network Programming revenues | 1,387 | 1,431 | |||||||||||||||||||||
| Television | |||||||||||||||||||||||
| Advertising | 910 | 905 | |||||||||||||||||||||
| Affiliate fee | 735 | 682 | |||||||||||||||||||||
| Other | 135 | 127 | |||||||||||||||||||||
| Total Television revenues | 1,780 | 1,714 | |||||||||||||||||||||
| Other, Corporate and Eliminations | 40 | 47 | |||||||||||||||||||||
| Total revenues | $ | 3,207 | $ | 3,192 |
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Cable Network Programming | $ | 18 | $ | 17 | |||||||||||||||||||
| Television | 29 | 29 | |||||||||||||||||||||
| Other, Corporate and Eliminations | 49 | 53 | |||||||||||||||||||||
| Total depreciation and amortization | $ | 96 | $ | 99 |
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Assets | |||||||||||
| Cable Network Programming | $ | 2,662 | $ | 2,658 | |||||||
| Television | 8,267 | 7,803 | |||||||||
| Other, Corporate and Eliminations | 9,843 | 10,371 | |||||||||
| Investments | 877 | 1,034 | |||||||||
| Total assets | $ | 21,649 | $ | 21,866 |
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Interest Expense, net
The following table sets forth the components of Interest expense, net included in the Statements of Operations:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest expense | $ | (91) | $ | (87) | |||||||||||||||||||
| Interest income | 49 | 19 | |||||||||||||||||||||
| Total interest expense, net | $ | (42) | $ | (68) |
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Other, net
The following table sets forth the components of Other, net included in the Statements of Operations:
| For the three months ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net (losses) gains on investments in equity securities(a) | $ | (171) | $ | 21 | |||||||||||||||||||
| U.K. Newspaper Matters Indemnity(b) | (5) | (61) | |||||||||||||||||||||
| Other | 10 | (36) | |||||||||||||||||||||
| Total other, net | $ | (166) | $ | (76) |
| (a) | Net (losses) gains on investments in equity securities includes the (losses) gains related to the change in fair value of the Company’s investment in Flutter (See Note 4—Fair Value). | ||||
| (b) | See Note 8—Commitments and Contingencies under the headings “U.K. Newspaper Matters Indemnity.” The decrease for the three months ended September 30, 2023, as compared to the corresponding period of fiscal 2023, was attributable to an increase in the number of civil claims submitted in fiscal 2023 in advance of the September 30, 2022 cutoff date set by the judge for this phase of the litigation. |
Other Non-Current Assets
The following table sets forth the components of Other non-current assets included in the Balance Sheets:
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Operating lease assets | $ | 931 | $ | 947 | |||||||
| Investments(a) | 877 | 1,034 | |||||||||
| Inventories, net | 737 | 642 | |||||||||
| Grantor Trust | 262 | 276 | |||||||||
| Other | 249 | 269 | |||||||||
| Total other non-current assets | $ | 3,056 | $ | 3,168 |
| (a) | Includes investments accounted for at fair value on a recurring basis of $727 million and $884 million as of September 30, 2023 and June 30, 2023, respectively (See Note 4—Fair Value). |
FOX CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Payable, Accrued Expenses and Other Current Liabilities
The following table sets forth the components of Accounts payable, accrued expenses and other current liabilities included in the Balance Sheets:
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Programming payable | $ | 849 | $ | 785 | |||||||
| Accrued expenses | 812 | 1,028 | |||||||||
| Deferred revenue | 254 | 160 | |||||||||
| Operating lease liabilities | 70 | 72 | |||||||||
| Other current liabilities | 354 | 469 | |||||||||
| Total accounts payable, accrued expenses and other current liabilities | $ | 2,339 | $ | 2,514 |
Other Liabilities
The following table sets forth the components of Other liabilities included in the Balance Sheets:
| As of September 30, 2023 | As of June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Non-current operating lease liabilities | $ | 907 | $ | 925 | |||||||
| Accrued non-current pension/postretirement liabilities | 334 | 361 | |||||||||
| Other non-current liabilities | 178 | 198 | |||||||||
| Total other liabilities | $ | 1,419 | $ | 1,484 |
Future Performance Obligations
As of September 30, 2023, approximately $5.6 billion of revenues are expected to be recognized primarily over the next one to three years. The Company’s most significant remaining performance obligations relate to affiliate contracts, sports advertising contracts and content licensing contracts with fixed fees. The amount disclosed does not include (i) revenues related to performance obligations that are part of a contract whose original expected duration is one year or less, (ii) revenues that are in the form of sales- or usage-based royalties and (iii) revenues related to performance obligations for which the Company elects to recognize revenue in the amount it has a right to invoice.
Supplemental Information
| For the three months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Supplemental cash flows information | |||||||||||
| Cash paid for interest | $ | (158) | $ | (151) | |||||||
| Cash paid for income taxes | $ | (2) | $ | (8) |
Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS