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Related Party Transactions and Twenty-First Century Fox, Inc. Investment

9 Months Ended

Mar. 31, 2020

NOTE 10. RELATED PARTY TRANSACTIONS AND TWENTY-FIRST CENTURY FOX, INC. INVESTMENT

Related Party Transactions

In the ordinary course of business, the Company enters into transactions with related parties, which prior to the Distribution included subsidiaries and equity affiliates of 21CF.

The following table sets forth the net revenue from related parties included in the Statements of Operations for the three and nine months ended March 31, 2019:

	For the three months ended March 31, 2019			For the nine months ended March 31, 2019
	(in millions)
Related party revenue	$	111		$	289
Related party expense		(33	)		(67	)
Related party revenue, net of expense	$	78		$	222

For the three and nine months ended March 31, 2020, the related party revenue and expense were not material.

Corporate Allocations and Twenty-First Century Fox, Inc. Investment

Prior to the Distribution, 21CF provided services to and funded certain expenses for the Company such as: global real estate and occupancy costs and employee benefits (“Direct Corporate Expenses”). In addition, the Company’s Financial Statements include, for the periods prior to March 19, 2019, general corporate expenses of 21CF which were not historically allocated to the Company for certain support functions that were provided on a centralized basis within 21CF prior to the Distribution and not recorded at the business unit level, such as certain expenses related to finance, legal, insurance, information technology, compliance and human resources management activities, among others (“General Corporate Expenses”). For purposes of the Financial Statements for the three and nine months ended March 31, 2019, the General Corporate Expenses were allocated to the Company. The General Corporate Expenses were included in the Statements of Operations in Selling, general and administrative expenses and Other, net, as appropriate. These expenses were allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, headcount or other relevant measures of the Company. Management believes the assumptions underlying the Financial Statements, including the assumptions regarding allocating General Corporate Expenses from 21CF are reasonable. Nevertheless, the Financial Statements may not include all of the actual expenses that would have been incurred by FOX and may not reflect the Company’s consolidated results of operations and cash flows had it been a standalone company prior to the Distribution. Actual costs that would have been incurred if the Company had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. For the purposes of the Statements of Operations, the Company recorded approximately $100 million and $270 million of General Corporate Expenses within Selling, general and administrative expenses for the three and nine months ended March 31, 2019, respectively, and the remaining balance of the Corporate allocations presented in the table below within Other, net for the three and nine months ended March 31, 2019.

Intercompany transactions with 21CF or its affiliates and the Company are reflected in the historical Financial Statements for the period prior to the Distribution. All significant intercompany balances between 21CF and the Company for the period prior to the Distribution have been reflected in the Statement of Cash Flows as a financing activity.

The following table summarizes the components of the net decrease in the Twenty-First Century Fox, Inc. investment for the three and nine months ended March 31, 2019:

	For the three months ended March 31, 2019			For the nine months ended March 31, 2019
	(in millions)
Cash pooling, general financing activities and other^(a)	$	(1,523	)	$	(1,537	)
Corporate allocations		111			291
Net dividend paid to Twenty-First Century Fox, Inc.		(6,500	)		(6,500	)
Taxes payable^(b)		593			593
Deferred taxes on step-up^(c)		5,515			5,515
Other deferred taxes^(c)		(481	)		(481	)
Net decrease in Twenty-First Century Fox, Inc. investment	$	(2,285	)	$	(2,119	)

^(a)	The nature of activities included in the line item ‘Cash pooling, general financing activities and other’ includes financing activities, capital transfers, cash sweeps, other treasury services and Direct Corporate Expenses.

^(b)

For purposes of the Company’s financial statements for the periods prior to the Distribution, the income tax expense in the Statements of Operations has been calculated as if FOX filed a separate tax return and was operating as a standalone business. This amount represents the difference between the separate tax return methodology and the actual tax liabilities attributed to the Company, in accordance with applicable tax law, as of the date of the Distribution.

^(c)

As a result of the Separation and the Distribution, FOX obtained an additional tax basis in its assets equal to their respective fair market values. These amounts represent 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 in the 2019 Form 10-K under the heading “Basis of Presentation”) and other deferred tax adjustments recorded as of the date of the Distribution.