Fox Corporation — Form 10-K Summary
Period clarification: The supplied filing is Fox Corporation’s 10-K for the fiscal year ended June 30, 2019, not a standalone “2018 Q4” filing. It includes quarterly data for the three months ended June 30, 2019 and June 30, 2018. Fiscal 2019 also includes results before and after Fox became a standalone public company on March 19, 2019; prior-year figures are combined historical results and may not be directly comparable.
Business context
Fox is a U.S. news, sports and entertainment company with Cable Network Programming and Television reporting segments, plus Other, Corporate and Eliminations. Its businesses include FOX News Media, FOX Sports, the FOX Network and 28 owned television stations. Revenue primarily comes from affiliate fees and advertising.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $11.389 billion | $10.153 billion | +12% |
| Net income attributable to Fox stockholders | $1.595 billion | $2.187 billion | -27% |
| Basic and diluted EPS | $2.57 | $3.52 | -27% |
| Operating cash flow | $2.524 billion | $1.317 billion | +$1.207 billion |
| Capital expenditures | $235 million | $215 million | +$20 million |
| Cash and cash equivalents at year-end | $3.234 billion | $2.500 billion | +$734 million |
| Borrowings at year-end | $6.751 billion | None reported | New debt |
Revenue mix in FY2019 was approximately 49% affiliate fees, 44% advertising and 7% other. Total Segment EBITDA, a non-GAAP measure, rose 8% to $2.681 billion; its margin was approximately 23.5%, versus 24.5% in FY2018. Segment EBITDA increased 8% at Cable Network Programming to $2.495 billion and 24% at Television to $470 million; corporate and eliminations costs increased to $284 million from $195 million.
Fiscal 2019 fourth-quarter revenue was $2.513 billion and net income attributable to Fox stockholders was $454 million, compared with $2.394 billion and $471 million, respectively, in fiscal 2018’s fourth quarter.
Year-end current assets were $6.478 billion and current liabilities $1.712 billion. Fox had an unused $1.0 billion unsecured revolving credit facility maturing in March 2024 and reported compliance with its covenants. The $6.8 billion of senior notes are fixed-rate, with maturities from 2022 to 2049; the filing reports no variable-rate debt outstanding. The balance-sheet figures reflect the separation and transaction, so changes from FY2018 are not purely operating movements.
Material changes and unusual items
- Revenue growth reflected higher affiliate rates, NFL Thursday Night Football and an additional NFL postseason game, midterm-election advertising, and higher digital advertising and content licensing. Traditional MVPD subscriber declines partly offset affiliate fee growth.
- Net income fell despite higher revenue and pretax income, mainly because FY2018 included a $607 million provisional tax benefit from the U.S. Tax Act. FY2019’s effective tax rate was 26%, compared with negative 3% in FY2018.
- FY2019 operating expenses included an approximately $55 million write-down of entertainment and syndicated programming rights. Higher sports-rights amortization and production costs also weighed on costs; standalone-company expenses contributed to higher corporate and administrative spending.
- Fox issued approximately $6.8 billion of senior notes in January 2019 and paid an $8.5 billion dividend to 21CF before separation, partly offset by a $2.0 billion payment from Disney. The final transaction tax was $6.5 billion, including an approximately $700 million prepayment subject to later adjustment.
- The tax-basis step-up is expected to generate about $1.5 billion in annual tax deductions, principally over 15 years, and reduce annual cash taxes by an estimated $370 million at the stated tax rate. These are estimates and may change.
- Management estimated $225–$250 million of annual recurring standalone costs beyond amounts reflected in historical statements, and planned $150–$200 million of investment in standalone technical facilities over the two years after separation.
- Operating cash flow increased partly because of lower cash payments for entertainment programming and timing differences in sports-rights amortization and payments. Investing cash flow was negative $637 million, including investments in The Stars Group, Caffeine and Caffeine Studios.
Outlook, risks and contingencies
The filing provides no quantified consolidated revenue or earnings guidance. Management’s strategy is to invest in live news, sports and entertainment, expand digital distribution, and seek value for content through affiliate fees, advertising and new offerings. Initiatives included FOX Nation, FOX Bet and expanded MLB rights through the 2028 season. The company also announced a proposed acquisition of 67% of Credible Labs for approximately $265 million, plus a commitment of up to $75 million; closing was expected by December 31, 2019, subject to approvals and other conditions.
Key risks include cord-cutting and changing viewing habits, advertising cyclicality, renewals and costs of sports rights, carriage or affiliation losses, competition for audiences and content, regulatory and privacy changes, cybersecurity, and the costs and execution risks of operating independently. Fox also disclosed significant contractual commitments, including $31.444 billion for sports programming rights and $6.8 billion of note principal in its commitments table. The company reported ongoing FOX News-related claims and inquiries, but did not expect their resolution to materially adversely affect results; potential liability could not be estimated. The approximately $129 million punitive award in the Bones profits-participants arbitration was vacated by a court on June 3, 2019; related accounting claims had been stayed.
Fox’s financial statements received an unqualified audit opinion, but the auditor was not engaged to audit internal control over financial reporting. Fox stated that its first required management assessment under Sarbanes-Oxley Section 404 would be for FY2020.
Investor verification priorities
- Confirm the applicable reporting period: this is FY2019, with fiscal Q4 comparisons, rather than a standalone 2018 Q4 report.
- Assess the sustainability of affiliate-fee growth against subscriber declines and the durability of election- and sports-driven advertising.
- Review debt service, maturities and covenant terms alongside major sports-rights payment commitments and planned standalone investment.
- Test assumptions behind the estimated $370 million annual cash-tax benefit and the $225–$250 million recurring standalone-cost range.
- Track the Credible transaction, FOX Bet regulatory and commercial execution, litigation developments, and the company’s FY2020 internal-control transition.