Equity-Based Compensation

12 Months Ended

Jun. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity-Based Compensation

NOTE 12. EQUITY-BASED COMPENSATION

Prior to the Distribution, the Company’s employees participated in 21CF’s equity plans. 21CF had plans authorized to grant equity awards of 21CF stock to the Company’s employees. The equity-based compensation expense recorded by the Company, in the periods prior to March 19, 2019, includes the expense associated with the employees historically attributable to the Company’s operations, as well as the expense associated with the allocation of equity-based compensation expense for corporate employees.

2019 Shareholder Alignment Plan

In connection with the Distribution, the Company adopted the Fox Corporation 2019 Shareholder Alignment Plan (the “SAP”), under which equity-based compensation, including stock options, stock appreciation rights, restricted and unrestricted stock, RSUs, performance stock units (“PSUs”) and other types of FOX equity awards may be granted. The Company’s officers, directors and employees are eligible to participate in the SAP. The maximum number of shares of Class A Common Stock that may be issued under the SAP is 65 million shares. As of June 30, 2020, the remaining number of shares of Class A Common Stock available for issuance under the SAP was approximately 54 million.

Awards granted under the SAP (other than stock options or stock appreciation rights) entitle the holder to receive Dividend Equivalents (as defined in the SAP) for each regular cash dividend on the common stock underlying the award paid by the Company during the award period. Dividend equivalents granted with respect to equity awards will be accrued during the applicable award period and such dividend equivalents will vest and be paid only if and when the underlying award vests.

The fair value of equity-based compensation under the SAP was calculated according to the type of award issued.  

Restricted Stock Units

RSUs are awards that represent the potential to receive shares of Class A Common Stock at the end of the applicable vesting period, subject to the terms and conditions of the SAP, the applicable award documents and such other terms and conditions as the Compensation Committee of the Board (the “Compensation Committee”) may establish. RSUs awarded under the SAP are fair valued based upon the fair market value of Class A Common Stock on the grant date. Any person who holds RSUs has no ownership interest in the shares of Class A Common Stock to which such RSUs relate until and unless shares of Class A Common Stock are delivered to the holder.

During fiscal 2020, approximately 1.1 million RSUs were granted, which vest in equal annual installments over a three-year period subject to the participants’ continued employment with the Company.

In March 2019, in connection with the Distribution, the Compensation Committee granted approximately 2.4 million RSUs under the SAP, which primarily vest in two tranches. Approximately 50% of the RSUs vested on June 15, 2020 and 50% will vest on June 15, 2021 subject to a service requirement through the vesting date.

Performance Stock Units

PSUs are fair valued on the date of grant and expensed over the service period using a straight-line method as the awards cliff vest at the end of the three-year performance period. The Company also estimates the number of shares expected to vest which is based on management’s determination of the probable outcome of the performance conditions, which requires considerable judgment. The Company records a cumulative adjustment in periods in which the Company’s estimate of the number of shares expected to vest changes. Additionally, the Company ultimately adjusts the expense recognized to reflect the actual vested shares following the resolution of the performance conditions. The number of shares that will be issued upon vesting of PSUs can range from 0% to 200% of the target award, based on the Company’s three-year total shareholder return (“TSR”) as measured against the three-year TSR of the companies that comprise the Standard and Poor’s 500 Index and other performance measures. The fair value of the TSR condition is determined using a Monte Carlo simulation model.

During fiscal 2020, approximately 1.4 million PSUs were granted, which have a three-year performance measurement period beginning in July 2019. The awards are subject to the achievement of three pre-established objective performance measures determined by the Compensation Committee. The awards issued will be settled in shares of Class A Common Stock upon vesting and are subject to the participants’ continued employment with the Company. Any person who holds PSUs shall have no ownership interest in the shares of Class A Common Stock to which such PSUs relate until and unless shares of Class A Common Stock are delivered to the holder. All shares of Class A Common Stock underlying awards that are cancelled or forfeited become available for future grants. Certain of these awards have a graded vesting provision and the expense recognition is accelerated.

21CF RSUs and PSUs

The Company participated in 21CF’s 2013 Long-Term Incentive Plan (the “2013 Plan”), under which RSUs and PSUs were granted. The Company’s employees were eligible to participate in the 2013 Plan prior to the Distribution. The Compensation Committee of 21CF’s Board of Directors (“21CF’s Compensation Committee”) determined the recipients, type of award to be granted and amounts of awards to be granted under the 2013 Plan. In connection with the Distribution, certain of the 21CF RSU and PSU awards were converted into FOX RSUs using a formula designed to preserve the value of the awards immediately prior to the Distribution. All of the converted FOX RSUs were granted under the SAP and the approximately 5.5 million shares of Class A Common Stock underlying the converted FOX RSUs do not count against the maximum number of shares that may be issued under the SAP described above.

The following table summarizes the activity related to RSUs and target PSUs granted to the Company’s employees to be settled in stock (RSUs and PSUs in thousands):

	Fiscal 2020					Fiscal 2019						Fiscal 2018
	Number of shares			Weighted average grant- date fair value		Number of shares				Weighted average grant- date fair value(a)		Number of shares				Weighted average grant- date fair value(a)
RSUs and PSUs
Unvested units at beginning of    the year		7,660		$	32.27		10,896			$	29.77		7,102			$	28.62
Granted		2,499			32.44		1,565		(b)		46.11		5,698		(c)		32.21
Vested		(1,862	)		43.07		(5,070	)	(d)		30.07		(1,112	)			34.59
Cancelled		(254	)		27.14		(3,166	)			29.72		(792	)			30.28
Net units granted in conversion    as a result of the Separation		-			-		1,011		(b), (c)	N/A			-				-
Granted after conversion		-			-		2,424				40.11		-				-
Unvested units at the end of the    year(e)		8,043		$	29.98		7,660			$	32.27		10,896			$	29.77

^{(a) The weighted average grant date fair value prior to the Distribution represents the fair value of awards granted with respect to 21CF class A common stock prior to the conversion of the awards to FOX equity awards. The weighted average grant date fair value of the unvested units after the conversion in fiscal 2019 represents the fair value of awards using the applicable conversion ratio.}

^{(b) In fiscal 2019, 21CF’s Compensation Committee granted approximately 1.6 million 21CF RSUs to certain employees of the Company that converted into FOX RSUs that will generally vest in August 2021.}

^{(c) In fiscal 2018, 21CF’s Compensation Committee granted approximately 3.1 million 21CF PSUs to certain employees of the Company that converted into FOX RSUs that will vest in August 2020. In addition, 21CF’s Compensation Committee made a special grant of approximately 2.6 million 21CF restricted stock units (“Retention RSUs”) to certain of the Company’s senior executives, including 21CF named executive officers. Approximately 50% of the Retention RSUs were paid out in shares of 21CF class A common stock and the remaining 50% were converted into FOX RSUs and Disney RSUs on the same pro rata basis accorded to shareholders of 21CF common stock in the mergers contemplated by the 21CF Disney Merger Agreement and vested in fiscal 2020.}

^{(d) The 21CF PSUs scheduled to vest in 2019 were accelerated and paid out and 50% of the Retention RSUs were paid out in shares of 21CF class A common stock in connection with the Distribution.}

^{(e) The intrinsic value of unvested RSUs and target PSUs as of June 30, 2020 was approximately $215 million.}

Stock Options

Stock options are awards that entitle the holder to purchase a specified number of shares of Class A Common Stock at a specified price for a specified period of time and become exercisable over time, subject to the terms and conditions of the SAP, the applicable award documents and such other terms and conditions as the Compensation Committee may establish. Stock Options granted under the SAP were fair valued using a Black-Scholes option valuation model that uses the following assumptions: (i) expected volatility was generally based on historical volatility of the Company, 21CF and the Company’s peer group over the expected term of the stock options; (ii) expected term of stock options granted was generally determined by analyzing historical data of the Company’s peer group and represented the period of time that stock options granted were expected to be outstanding; (iii) risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award; and (iv) expected dividend yield.

The following table summarizes information about the Company’s stock options granted under the SAP during fiscal 2020 and 2019 (options in thousands).

	Fiscal 2020						Fiscal 2019
	Number of options				Weighted average exercise price		Number of options				Weighted average exercise price
Outstanding at the beginning of the year		3,113			$	40.25		-			$	-
Granted		3,838		(a)		30.87		3,118		(b)		40.25
Cancelled		(142	)			33.37		(5	)			40.26
Outstanding at the end of the year(c)		6,809			$	35.11		3,113			$	40.25
Exercisable at the end of the year(d)		1,626			$	39.30		-			$	-
Weighted average grant-date fair value of options    granted					$	6.87					$	8.67
Weighted average remaining contractual term of    options outstanding at the end of the year					5.98 years						6.72 years
Weighted average remaining contractual term of    options exercisable at the end of the year					5.50 years						N/A

^{(a) The stock options granted in fiscal 2020 generally have a term of seven years and vest in equal annual installments over a three-year period subject to the participants’ continued employment with the Company.}

^{(b) In connection with the Distribution, the Compensation Committee granted stock options in March 2019. Approximately 50% of the stock options vested on June 15, 2020 and 50% will vest on June 15, 2021 subject to a service requirement through the vesting date. The options will expire approximately seven years from the grant date.}

^{(c) The intrinsic value of options outstanding as of June 30, 2020 and 2019 was $2.8 million and nil, respectively.}

^(d) The intrinsic value of options exercisable as of June 30, 2020 and 2019 was $0.7 million and nil, respectively.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants during fiscal 2020 and 2019:

	For the years ended June 30,
	2020			2019
Expected volatility		26.66	%		26.50	%
Risk-free interest rate		1.43	%		2.41	%
Expected dividend yield		1.46	%		1.12	%
Expected term of stock options	3.83 years			3.84 years

The following table summarizes the Company’s equity-based compensation:

	For the years ended June 30,
	2020		2019		2018
	(in millions)
Equity-based compensation(a)	$	156	$	103	$	100
Intrinsic value of all settled equity-based awards	$	47	$	247	$	31
Tax benefit on settled equity-based awards	$	6	$	47	$	9

^(a) Prior to the Distribution in March 2019, equity-based compensation included allocated expense for both executive directors and corporate executives of 21CF, allocated using a proportional allocation driver, which management has deemed to be reasonable.

As of June 30, 2020, the Company’s total estimated compensation cost, not yet recognized, related to non-vested equity awards held by the Company’s employees was approximately $125 million and is expected to be recognized over a weighted average period between one and two years.