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

12 Months Ended

Jun. 30, 2020

NOTE 13. 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 to buy and/or sell programming and purchase and/or sell advertising.

The following table sets forth the net revenue from related parties included in the Statements of Operations:

	For the years ended June 30,
	2019			2018
	(in millions)
Related party revenue	$	302		$	254
Related party expense		(57	)		(108	)
Related party revenue, net of expense	$	245		$	146

For the year ended June 30, 2020, the related party revenue and expense were not material (See Note 10—Leases for information related to office facilities that have been subleased to News Corporation).

The following table sets forth the amounts due to related parties on the Balance Sheets:

	As of June 30,
	2020		2019
	(in millions)
Due to related parties	$	67	$	50

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 fiscal 2019 and 2018, 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 $270 million and $310 million of General Corporate Expenses within Selling, general and administrative expenses for fiscal 2019 and 2018, respectively, and the remaining balance of the Corporate allocations presented in the table below within Other, net for fiscal 2019 and 2018.

Intercompany transactions with 21CF or its affiliates and the Company are reflected in the historical Financial Statements for the periods prior to the Distribution. All significant intercompany balances between 21CF and the Company, for the periods prior to the Distribution, have been reflected in the Statements of Cash Flows as a financing activity and in the Statements of Equity as a Twenty-First Century Fox, Inc. investment.

The following table summarizes the components of the net (decrease) increase in the Twenty-First Century Fox, Inc. investment for fiscal 2019 and 2018:

	For the years ended June 30,
	2019			2018
	(in millions)
Cash pooling, general financing activities and other^(a)	$	(1,502	)	$	961
Corporate allocations		291			334
Net dividend paid to Twenty-First Century Fox, Inc.		(6,500	)		-
Taxes payable^(b)		821			-
Deferred taxes on step-up^(c)		5,836			-
Other deferred taxes^(c)		90			-
Net (decrease) increase in Twenty-First Century Fox, Inc. investment	$	(964	)	$	1,295

^(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. As part of this activity and prior to December 31, 2017, the majority of the cash balances were swept to 21CF on a daily basis and the Company received capital from 21CF for the Company’s cash needs. Effective January 1, 2018, the Company ceased participating in 21CF’s capital and cash management accounts.

^(b)

For purposes of the Company’s financial statements for the periods prior to the Distribution, the income tax (expense) benefit 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 under the heading “Basis of Presentation”) and other deferred tax adjustments recorded as of the date of the Distribution.