Fox Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020, filed August 10, 2020. Although the request metadata says “2019 Q4,” the supplied filing is an annual report for FY2020; quarterly results below are identified separately. Fox became a standalone public company on March 19, 2019, so prior-year comparisons include pre-separation periods prepared partly on a combined basis.
Business context
Fox is a U.S. news, sports and entertainment company reporting Cable Network Programming, Television, and Other, Corporate and Eliminations. Its principal brands include FOX News Media, FOX Sports, FOX Entertainment and FOX Television Stations. The Television segment includes the Tubi ad-supported streaming service, acquired in April 2020.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $12.303 billion | $11.389 billion | +8% |
| Net income attributable to Fox stockholders | $999 million | $1.595 billion | -37% |
| Diluted earnings per share | $1.62 | $2.57 | Lower |
| Adjusted EBITDA | $2.779 billion | $2.681 billion | +4% |
| Cash from operating activities | $2.365 billion | $2.524 billion | Down $159 million |
| Cash and cash equivalents at year-end | $4.645 billion | $3.234 billion | Up $1.411 billion |
| Borrowings, carrying value | $7.946 billion | $6.751 billion | Up $1.195 billion |
FY2020 operating cash flow less capital expenditures of $359 million was approximately $2.006 billion. Year-end gross public debt was $8.0 billion; cash exceeded carrying-value borrowings by approximately $3.301 billion. The company had an unused $1.0 billion revolving credit facility and reported compliance with its covenants. No variable-rate debt was outstanding.
Affiliate fees were $5.908 billion, advertising revenue $5.333 billion and other revenue $1.062 billion. Segment EBITDA was $2.706 billion for Cable Network Programming, $430 million for Television and negative $357 million for Other, Corporate and Eliminations. Adjusted EBITDA was approximately 22.6% of revenue, calculated from the filing’s figures. The effective income tax rate was 27%.
Material changes and unusual items
- Revenue rose on higher affiliate fees, Super Bowl LIV advertising, pricing and digital revenue, partly offset by COVID-19 impacts, fewer sports broadcasts and lower local advertising.
- Net income fell despite higher revenue and Adjusted EBITDA. FY2020 included $451 million of impairment and restructuring charges, versus $26 million in FY2019, and higher interest expense and other losses.
- Fox recorded approximately $425 million of charges related to terminating its USGA programming-rights agreement, including a $320 million payment and a write-off of about $75 million in programming advances. Fox gave up future USGA event rights and reported no further payment obligations to the USGA.
- Programming-rights write-downs were approximately $95 million, compared with $55 million in FY2019. Fox also recorded a roughly $210 million loss from the change in fair value of its Roku investment before selling it; the investment was sold for approximately $340 million.
- Operating cash flow declined, principally due to the USGA payment, higher interest paid and income taxes. Investing cash use increased to $1.100 billion, reflecting acquisitions and the Flutter investment.
- Acquisitions included Tubi for about $445 million net of cash acquired, 67% of Credible for about $260 million net of cash acquired, and three television stations for about $350 million. Fox repurchased approximately 17 million shares for $600 million; $1.4 billion remained under its authorization at year-end.
Outlook, risks and contingencies
- COVID-19 disrupted sports schedules and entertainment production and weakened advertising, especially in local markets. The company said the duration and financial impact remained highly uncertain.
- Television-segment advertising revenue fell 29% in the quarter ended June 30, 2020. If then-current demand trends continued through FY2021 Q1, Fox expected that segment’s advertising revenue to decline approximately $230–$250 million, or about 30%, year over year. Management cited pandemic-related weakness, fewer original entertainment hours and college football games, and comparison-period effects; higher political advertising and Tubi consolidation were partial offsets.
- Management highlighted risks from further content disruption, economic weakness, subscriber declines at traditional MVPDs, advertising cyclicality, competition for sports rights, and possible impairment charges. The company also cited regulatory, privacy, cybersecurity, intellectual-property and standalone-company execution risks.
- Fox estimated that the transaction-related tax basis step-up could provide approximately $370 million of annual cash tax savings for many years, subject to revision. In August 2020, after year-end, Fox received $490 million from Disney, primarily reimbursing its prepayment for taxes related to Disney’s regional sports network divestitures.
- Material commitments included $27.146 billion for sports programming rights and $8.0 billion of debt principal. Fox contributed $58 million toward settlements of Bones profits-participant claims. The company disclosed ongoing FOX News-related claims and inquiries but said it did not expect their resolution to materially affect results; it could not estimate any resulting liability.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded controls were effective as of June 30, 2020.
Important facts for investors to verify
- Confirm the annual FY2020 reporting period and account for the March 2019 separation when interpreting year-over-year comparisons.
- Track the realization and duration of COVID-related advertising and programming impacts against the FY2021 Q1 Television advertising outlook.
- Review the full debt maturity schedule, cash requirements for sports-rights commitments and the company’s ability to sustain cash generation.
- Assess the durability of the tax-basis cash benefit and the final tax settlement with Disney, including the $490 million subsequent receipt.
- Evaluate the economics and integration progress of Tubi, Credible and the acquired stations, as well as the value and risks of sports-betting-related investments and options.
- Reconcile the substantial gap between revenue growth, Adjusted EBITDA growth and lower GAAP net income, including the USGA charge, Roku loss and programming write-downs.