Income Taxes

12 Months Ended

Jun. 30, 2019

NOTE 15. INCOME TAXES

For purposes of the Company’s Financial Statements for the periods prior to the Distribution, the income tax provision in the Statements of Operations was calculated as if FOX filed a separate tax return and was operating as a standalone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of FOX’s actual tax balances prior to or subsequent to the Distribution.

Income before income tax (expense) benefit was attributable to the U.S. jurisdiction. Significant components of the Company’s provision for income taxes were as follows:

	For the years ended June 30,
	2019		2018			2017
	(in millions)
U.S.
Federal	$	127	$	481		$	638
State, local and other		68		64			102
		-
Total current		195		545			740

Deferred		386		(603	)		92

Provision for income taxes	$	581	$	(58	)	$	832

The reconciliation of income tax computed at the statutory rate to income tax (expense) benefit was:

	For the years ended June 30,
	2019			2018				2017
U.S. federal income tax rate		21	%		28		%		35		%
Impact of U.S. tax reform^(a)		-			(28	)			-
State and local taxes		4			4				4
Adjustments for tax matters, net		-			(1	)			-
Valuation allowance movements		-			(3	)			1
Domestic production activities deduction		-			(2	)			(3	)
Other		1			(1	)			-

Effective tax rate		26	%		(3	)	%		37		%

^(a)	See Note 2—Summary of Significant Accounting Policies under the heading “U.S. Tax Reform.”

The following is a summary of the components of the deferred tax accounts:

	As of June 30,
	2019			2018
	(in millions)
Deferred tax assets
Basis difference^(a)	$	4,574		$	-
Net operating loss carryforwards		107			11
Accrued liabilities		5			44
Pension benefit obligations		50			61
Equity-based compensation		17			44
Other		68			65

Total deferred tax assets		4,821			225
Deferred tax liabilities
Basis difference^(a)		-			(773	)
Sports rights contracts		(164	)		(478	)

Total deferred tax liabilities		(164	)		(1,251	)

Net deferred tax asset (liability) before valuation allowance		4,657			(1,026	)
Less: valuation allowance		(6	)		(45	)

Total net deferred tax assets (liabilities)	$	4,651		$	(1,071	)

^(a)

As a result of the Separation and the Distribution, which was a taxable transaction for which the estimated tax liability of $5.8 billion was included in the Transaction Tax paid by the Company, FOX obtained a tax basis in its assets equal to their respective fair market values. This amount includes the additional estimated deferred tax asset recorded as a result of the increased tax basis (See Note 1—Description of Business and Basis of Presentation under the heading “Basis of Presentation”).

As of June 30, 2019, the Company had $107 million of tax attributes from net operating loss carryforwards available to offset future taxable income. A substantial portion of these losses can be carried forward indefinitely.

The net decrease in the valuation allowance to $6 million as of June 30, 2019 was primarily due to the Distribution (See Note 1—Description of Business and Basis of Presentation under the heading “Basis of Presentation”).

The following table sets forth the change in the uncertain tax positions, excluding interest and penalties:

	For the years ended June 30,
	2019			2018			2017
	(in millions)
Balance, beginning of year	$	91		$	110		$	102
Additions for prior year tax positions		7			1			7
Additions for current year tax positions		9			-			11
Reduction for prior year tax positions		(13	)		(20	)		(10	)

Balance, end of year	$	94		$	91		$	110

The Company recognizes interest and penalty charges related to uncertain tax positions as income tax (expense) benefit. The Company recorded liabilities for accrued interest of $26 million and $20 million as of June 30, 2019 and 2018, respectively, and the amounts of interest income/expense recorded in each of the three fiscal years 2019, 2018 and 2017 were not material.

The Company is subject to tax in various domestic jurisdictions and, as a matter of ordinary 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 anticipate that the resolution of these pending tax matters will have a material adverse effect on its combined financial condition, future results of operations or liquidity. The net increase to the balance of uncertain tax positions in fiscal 2019 is primarily attributable to state matters. The Company does not expect significant changes to these positions over the next 12 months. As of June 30, 2019 and 2018, $74 million and $72 million, respectively, would affect the Company’s effective income tax rate, if the Company’s position with respect to the uncertainties is sustained.