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(Exact name of registrant as specified in its charter)
iDelaware
i04-2949533
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i1515 Broadway
iNew
York,
iNew York
i10036
(Address of principal executive offices)
(Zip
Code)
(i212)i258-6000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
iClass A
Common Stock, $0.001 par value
iPARAA
iThe Nasdaq Stock Market LLC
iClass B
Common Stock, $0.001 par value
iPARA
iThe Nasdaq Stock Market LLC
i5.75%
Series A Mandatory Convertible Preferred Stock, $0.001 par value
iPARAP
iThe Nasdaq Stock Market LLC
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Number
of shares of common stock outstanding at August 1, 2022:
Class A Common Stock, par value $.001 per share— i40,705,472
Class B Common Stock, par value $.001 per share— i608,421,429
(Tabular dollars in millions, except per share amounts)
1) iBASIS
OF PRESENTATION
Description of Business—Effective February 16, 2022, we changed our name from ViacomCBS Inc. to Paramount Global, and effective at the open of market trading on February 17, 2022, our Class A Common Stock, Class B Common Stock and ii5.75/%
Series A Mandatory Convertible Preferred Stock (“Mandatory Convertible Preferred Stock”) ceased trading under the ticker symbols “VIACA,”“VIAC” and “VIACP” and began trading under the ticker symbols “PARAA,”“PARA” and “PARAP,” respectively, on The Nasdaq Stock Market LLC. References to “Paramount,” the “Company,”“we,”“us” and “our” refer to Paramount Global and its consolidated subsidiaries, unless the context otherwise requires.
Beginning in 2022, primarily as a result of our increased strategic focus on our direct-to-consumer businesses, we made certain changes to how we manage our businesses and allocate resources that resulted in a change to our operating segments. Our management structure has been reorganized to
focus on managing our business as the combination of three parts: a traditional media business, a portfolio of global direct-to-consumer streaming services, and a film studio. Accordingly, beginning in the first quarter of 2022 and for all periods presented we are reporting results based on the following segments:
•TV Media—Our TV Media segment consists of our domestic and international broadcast networks, including the CBS Television Network, Network 10, Channel 5, Telefe, and Chilevisión; our premium and basic cable networks, including Showtime, BET, Nickelodeon, MTV, Comedy Central, Paramount Network, Smithsonian Channel, international extensions of these brands, and CBS Sports Network; our television production operations, including CBS Studios, Paramount Television Studios and CBS Media Ventures, which primarily produces or
distributes first-run syndicated programming; and our owned broadcast television stations, CBS Stations.
•Direct-to-Consumer—Our Direct-to-Consumer segment consists of our portfolio of pay, free and premium global direct-to-consumer streaming services (“DTC services”), including Paramount+, Pluto TV, Showtime Networks’ premium subscription streaming service (Showtime OTT), BET+ and Noggin.
•Filmed Entertainment—Our Filmed Entertainment segment consists of Paramount Pictures, Paramount Players, Paramount Animation, Nickelodeon Studio, and Miramax.
Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared on a basis consistent with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (SEC). These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of our financial position, results of operations and cash flows
for the periods presented. Certain previously reported amounts have been reclassified to conform to the current presentation.
Discontinued Operations—On November 25, 2020, we entered into an agreement to sell our publishing business, Simon & Schuster, which was previously reported as the Publishing segment, to Penguin Random House LLC (“Penguin Random House”), a wholly owned subsidiary of Bertelsmann SE & Co. KGaA, for $i2.175
billion in cash. As a result, Simon & Schuster has been presented as a discontinued operation in our consolidated financial statements for all periods presented (see Note 2).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
iUse
of Estimates—The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may vary from these estimates under different assumptions or conditions.
iNet
Earnings per Common Share—Basic net earnings per share (“EPS”) is based upon net earnings available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net earnings available to common stockholders is calculated as net earnings from continuing operations or net earnings, as applicable, adjusted to include dividends on our Mandatory Convertible Preferred Stock.
Weighted average shares for diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted stock units (“RSUs”) or performance stock units (“PSUs”) only in the periods in which such effect would have been dilutive. Diluted EPS also reflects the effect of the assumed conversion of preferred stock, if dilutive, which includes the issuance of common shares in the weighted average number of shares and excludes
the above-mentioned preferred stock dividend adjustment to net earnings available to common stockholders.
Excluded from the calculation of diluted EPS, because their inclusion would have been antidilutive, were stock options and RSUs of i11 million and i9
million for the three and six months ended June 30, 2022, respectively, and stock options and RSUs of i7 million and i5
million for the three and six months ended June 30, 2021, respectively. Also excluded from the calculation of diluted EPS for the three and six months ended June 30, 2022 was the effect of the assumed conversion of ii10/
million shares of Mandatory Convertible Preferred Stock into shares of common stock because the impact would have been antidilutive. iThe table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS.
Three
Months Ended
Six Months Ended
June 30,
June 30,
(in millions)
2022
2021
2022
2021
Weighted average shares for basic EPS
i649
i646
i649
i634
Dilutive
effect of shares issuable under stock-based
compensation plans
i1
i4
i1
i7
Assumed
conversion of Mandatory Convertible Preferred Stock
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Additionally, because the impact of the assumed conversion of the Mandatory Convertible Preferred Stock would have been antidilutive, net earnings from continuing operations and net earnings used in our calculation of diluted EPS for the three and six months ended June 30, 2022 were adjusted to include the preferred stock dividends recorded during the period. iThe
table below presents a reconciliation of net earnings from continuing operations and net earnings to the amounts used in the calculations of basic and diluted EPS.
Net
earnings from continuing operations for basic and diluted EPS calculation
$
ii344/
$
ii720/
Amounts
attributable to Paramount:
Net earnings
$
i419
$
i852
Preferred
stock dividends
(i14)
(i29)
Net
earnings for basic and diluted EPS calculation
$
ii405/
$
ii823/
i
Recently
Adopted Accounting Pronouncements
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
On January 1, 2022, we adopted Financial Accounting Standards Board (“FASB”) amended guidance to reduce complexity associated with the accounting for convertible instruments with characteristics of liabilities and equity. Under this guidance, embedded conversion features associated with convertible instruments no longer need to be separated from the host contracts unless they are required to be accounted for as derivatives or have been issued at a substantial premium. For contracts
in an entity’s own equity, this guidance removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions. The adoption of this guidance did not have a material impact on our consolidated financial statements.
2) iDISPOSITIONS
During
the first quarter of 2022, we recorded gains on sales totaling $i15 million, comprised of a gain from the sale of international intangible assets and a working capital adjustment to the gain from the fourth quarter 2021 sale of CBS Studio Center.
During the second quarter of 2021, we recognized a net gain on sales of $i116
million, principally relating to the sale of a noncore trademark licensing operation.
During the fourth quarter of 2020, we entered into an agreement to sell our publishing business, Simon & Schuster, to Penguin Random House for $i2.175 billion in cash. Simon & Schuster is presented as a discontinued operation in our consolidated financial statements for all periods presented. On November
2, 2021, the U.S. Department of Justice filed suit to block the sale. The purchase agreement contains commitments on the part of the purchaser to take all necessary steps to obtain any required regulatory approvals and to defend any litigation that would delay or prevent consummation, and also provides for a $i200 million termination fee payable to us in certain circumstances in the event the transaction does not close for regulatory reasons. The trial commenced on August 1, 2022 and is expected to conclude on or about August
18, 2022 (see Note 14).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
i
The
following table sets forth details of net earnings from discontinued operations for the three and six months ended June 30, 2022 and 2021, which primarily reflects the results of Simon & Schuster.
Net
earnings from discontinued operations, net of tax
$
i61
$
i41
$
i103
$
i53
(a)
Included in total costs and expenses are amounts associated with the release of indemnification obligations for leases relating to a previously disposed business of $i5 million and $i10
million for the three and six months ended June 30, 2022, respectively, and $ii2/
million for each of the three and six months ended June 30, 2021.
(b) The tax provision includes amounts relating to previously disposed businesses of $i1 million and $i2
million for the three and six months ended June 30, 2022, respectively, and $i7 million for the six months ended June 30, 2021.
The following table presents the major classes of assets and liabilities of our discontinued operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
3) iPROGRAMMING AND OTHER INVENTORY
ii
The
following table presents our programming and other inventory at June 30, 2022 and December 31, 2021, grouped by type and predominant monetization strategy. During the first quarter of 2022, in connection with our increased strategic focus on our direct-to-consumer businesses, we reassessed our predominant monetization strategy for certain of our internally-produced content, and determined that it had shifted from individual to film group as a result of expected increased monetization of the content on our DTC services.
Acquired program rights, including prepaid sports rights
$
i3,251
$
i3,432
Internally-produced
television and film programming:
Released
i5,813
i3,808
In
process and other
i2,800
i2,609
Individual
Monetization:
Acquired libraries
i418
i441
Film
inventory:
Released
i699
i606
Completed,
not yet released
i103
i253
In
process and other
i1,231
i1,303
Internally-produced
television programming:
Released
i672
i1,604
In
process and other
i629
i769
Home
entertainment
i39
i37
Total
programming and other inventory
i15,655
i14,862
Less
current portion
i1,347
i1,504
Total noncurrent programming and other inventory
$
i14,308
$
i13,358
//i
The
following table presents amortization of television and film programming and production costs, which is included within “Operating expenses” on the Consolidated Statements of Operations.
Production
costs, internally-produced television and film programming:
Individual monetization
$
i671
$
i750
$
i1,162
$
i1,510
Film
group monetization
$
i1,297
$
i651
$
i2,444
$
i1,301
/
4)
iRELATED PARTIES
National Amusements, Inc.
National Amusements, Inc. (“NAI”) is the controlling stockholder of the Company. At June 30, 2022, NAI directly or indirectly owned approximately i77.4%
of our voting Class A Common Stock and approximately i9.8% of our Class A Common Stock and non-voting Class B Common Stock on a combined basis. NAI is controlled by the Sumner M. Redstone National Amusements Part B General Trust (the “General Trust”), which owns i80%
of the voting interest of NAI and acts by majority vote of iseven voting trustees (subject to certain exceptions), including with respect to the NAI shares held by the General Trust. Shari E. Redstone, Chairperson, CEO and President of
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
NAI and non-executive Chair of our Board of Directors, is one of the iseven voting trustees for the General Trust and is one of itwo
voting trustees who are beneficiaries of the General Trust. No member of our management or other member of our Board of Directors is a trustee of the General Trust.
Other Related Parties
In the ordinary course of business, we are involved in transactions with our equity-method investees, primarily for the licensing of television and film programming. iThe following tables present the amounts recorded in our
consolidated financial statements related to these transactions.
Through
the normal course of business, we are involved in transactions with other related parties that have not been material in any of the periods presented.
5) iREVENUES
i
The
table below presents our revenues disaggregated into categories based on the nature of such revenues. See Note 13 for revenues by segment disaggregated into these categories.
Reserves
for accounts receivable reflect our expected credit losses based on historical experience as well as current and expected economic conditions. During the first quarter of 2022, following Russia’s invasion of Ukraine, we recorded a charge of $i39 million, principally to reserve against amounts due from counterparties in Russia, Belarus and Ukraine. The charge was recorded within “Restructuring and other corporate matters” on the Consolidated Statement of Operations. At June 30, 2022 and December 31,
2021, our allowance for credit losses was $i113 million and $i80 million, respectively.
Included
in “Other assets” on the Consolidated Balance Sheets are noncurrent receivables of $i1.61 billion and $i1.84 billion atJune 30,
2022and December 31, 2021, respectively. Noncurrent receivables primarily relate to revenues recognized under long-term content licensing arrangements. Revenues from the licensing of content are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition, while the related cash is generally collected over the term of the license period.
Contract liabilities are included within “Deferred revenues” and “Other liabilities” on the Consolidated Balance Sheets and totaled $i969 million and $i1.20
billion at June 30, 2022and December 31, 2021, respectively. For the six months ended June 30, 2022, we recognized revenues of $i662 million that were included in deferred revenues at December 31, 2021. For the six months ended June 30,
2021, we recognized revenues of $i627 million that were included in deferred revenues at December 31, 2020.
At June 30, 2022, unrecognized revenues attributable to unsatisfied performance
obligations under our long-term contracts were $i6.8 billion, of which $i2.0
billion is expected to be recognized for the remainder of 2022, $i2.4 billion in 2023, $i1.2 billion in 2024, and $i1.2
billion thereafter. These amounts only include contracts subject to a guaranteed fixed amount or the guaranteed minimum under variable contracts, primarily consisting of television and film licensing contracts and affiliate agreements that are subject to a fixed or guaranteed minimum fee. Such amounts change on a regular basis as we renew existing agreements or enter into new agreements. Unrecognized revenues under contracts disclosed above do not include (i) contracts with an original expected term of one year or less,
mainly consisting of advertising contracts, (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage, mainly consisting of affiliate agreements and (iii) long-term licensing agreements for multiple programs for which variable consideration is determined based on the value of the programs delivered to the customer and our right to invoice corresponds with the value delivered.
Performance Obligations Satisfied in Previous Periods
Under certain licensing arrangements, the amount and timing of our revenue recognition is determined based on our licensees’ subsequent sale to its end customers. As a result, under such arrangements
we often satisfy our performance obligation of delivery of our content in advance of revenue recognition. For the three months ended June 30, 2022 and 2021, we recognized revenues of $i181 million and $i104
million, respectively, and for the six months ended June 30, 2022 and 2021, we recognized revenues of $i260 million and $i240
million, respectively, for licensing to distributors of transactional video-on-demand and electronic sell-through services and other arrangements for licensing of our content for which our performance obligation was satisfied in a prior period.
(a)
At June 30, 2022 and December 31, 2021, the senior and junior subordinated debt balances included (i) a net unamortized discount of $i451 million and $i466
million, respectively, and (ii) unamortized deferred financing costs of $i92 million and $i95 million, respectively. The face value of our total debt was $i16.35
billion and $i18.27 billion at June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, we redeemed senior notes totaling $i2.39
billion, prior to maturity, for an aggregate redemption price of $i2.49 billion which included second quarter redemptions of $i970 million for a redemption price of $i1.01
billion. Additionally, in February 2022, we redeemed our $i520 million of i5.875% junior subordinated debentures due February 2057 at par. These redemptions resulted in a total pre-tax loss on
extinguishment of debt of $i47 million and $i120 million for the three and six months ended
June 30, 2022, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During the six months ended June 30, 2022, we issued $i1.00
billion of i6.375% junior subordinated debentures due 2062. The interest rate on these debentures will reset on March 30, 2027, and every ifive years thereafter to a fixed
rate equal to the 5-year Treasury Rate (as defined pursuant to the terms of the debentures) plus a spread of i3.999% from March 30, 2027, i4.249%
from March 30, 2032 and i4.999% from March 30, 2047. These debentures can be called by us at par plus a make whole premium any time before March 30, 2027, or at par on March 30, 2027, or at any interest payment date thereafter.
During the six months ended June 30, 2021, we redeemed senior notes totaling $i1.99
billion, prior to maturity, for an aggregate redemption price of $i2.11 billion resulting in a pre-tax loss on extinguishment of debt of $i128 million.
Our
i6.25% junior subordinated debentures due February 2057 accrue interest at the stated fixed rates until February 28, 2027, on which date the rate will switch to a floating rate. Under the terms of the debentures the floating rate is based on three-month LIBOR plus i3.899%,
reset quarterly. These debentures can be called by us at par at any time after the expiration of the fixed-rate period.
At June 30, 2022, we had a $i3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”). The Credit Facility is used for general corporate purposes and to support commercial paper borrowings, if any. We may, at our option, also borrow in certain foreign currencies up to specified
limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the time of each borrowing and are generally based on either the prime rate in the U.S. or an applicable benchmark rate plus a margin (based on our senior unsecured debt rating), depending on the type and tenor of the loans entered. The benchmark rate for loans denominated in euros, sterling and yen is based on EURIBOR, SONIA and TIBOR rates, respectively. The Credit Facility has one principal financial covenant that requires our Consolidated Total Leverage Ratio to be less than i4.5x
(which we may elect to increase to i5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter. The Consolidated Total Leverage Ratio reflects the ratio of our Consolidated Indebtedness at the end of a quarter, to our Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing twelve-month period. On February 14, 2022, we amended our
Credit Facility to modify the definition of the Consolidated Total Leverage Ratio in the amended credit agreement to allow unrestricted cash and cash equivalents to be netted against Consolidated Indebtedness through June 2024. We met the covenant as of June 30, 2022.
At June 30, 2022, we had ino borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility,
net of outstanding letters of credit, was $i3.50 billion.
Other Bank Borrowings
At June 30, 2022 and December 31, 2021, we had bank borrowings under Miramax’s $ii300/
million credit facility, which matures in April 2023, of $i25 million and $i35 million, respectively, with weighted average interest rates of i4.36%
and i3.50%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Tabular dollars in millions, except per share amounts)
7) iFINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The carrying value of our financial instruments approximates fair value, except for notes and debentures. At June 30, 2022 and December 31, 2021, the carrying value of our notes and debentures was $i15.77
billion and $i17.66 billion, respectively, and the fair value, which is determined based on quoted prices in active markets (Level 1 in the fair value hierarchy) was $i15.0 billion and $i21.5
billion, respectively.
The carrying value of our investments without a readily determinable fair value for which we have no significant influence was $i67 million and $i59
million at June 30, 2022 and December 31, 2021, respectively. These investments are included in “Other assets” on the Consolidated Balance Sheets.
During the three and six months ended June 30, 2021, we recorded an unrealized loss of $i5 million and an unrealized gain of $i15
million, respectively, resulting from changes in the fair value of a marketable security. In addition, during the second quarter of 2021 we recognized a gain of $i37 million from the sale of an investment without a readily determinable fair value.
We use derivative financial instruments primarily to modify our exposure to market risks from
fluctuations in foreign currency exchange rates. We do not use derivative instruments unless there is an underlying exposure and therefore we do not hold or enter into derivative financial instruments for speculative trading purposes.
Foreign exchange forward contracts have principally been used to hedge projected cash flows, in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar, generally for periods up to i24 months. We designate foreign exchange
forward contracts used to hedge committed and forecasted foreign currency transactions as cash flow hedges. Additionally, we enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.
At June 30, 2022 and December 31, 2021, the notional amount of all foreign exchange contracts was $i2.41
billion and $i1.94 billion, respectively. At June 30, 2022, $i1.69 billion related to future production costs and $i716
millionrelated to our foreign currency balances and other expected foreign currency cash flows. At December 31, 2021, $i1.38 billion related to future production costs and $i564
millionrelated to our foreign currency balances and other expected foreign currency cash flows.
i
Gains (losses) recognized on derivative financial instruments were as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except
per share amounts)
Fair Value Measurements
Certain of our assets and liabilities are measured at fair value on a recurring basis. iThe table below presents our assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021. These assets and
liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting our own assumptions about the assumptions that market participants would use in pricing the asset or liability. All of our assets and liabilities that are measured at fair value on a recurring basis use level 2 inputs. The fair value of foreign currency hedges is determined based on the present value of future cash flows using observable inputs including foreign currency exchange rates. The fair value of deferred compensation liabilities is determined
based on the fair value of the investments elected by employees.
In the normal course of business, we enter into joint ventures or make investments with business partners that support our underlying business strategy and provide us the ability to enter new markets to expand the reach of our brands, develop new programming and/or distribute our existing content. In certain instances, an entity in which we make an investment may qualify as a variable interest entity (“VIE”). In determining whether we are the primary beneficiary of a VIE, we assess whether
we have the power to direct matters that most significantly impact the activities of the VIE, and have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
i
The following tables present the amounts recorded in our consolidated financial statements related to our consolidated VIEs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
9) iSTOCKHOLDERS’ EQUITY
Stock Offerings
On March 26, 2021, we completed
offerings of i20 million shares of our Class B Common Stock at a price to the public of $i85 per share and i10
million shares of ii5.75/% Series A Mandatory Convertible
Preferred Stock at a price to the public and liquidation preference of $i100 per share. The net proceeds from the Class B Common Stock offering and the Mandatory Convertible Preferred Stock offering were approximately $i1.67
billion and $i983 million, respectively, in each case after deducting underwriting discounts, commissions and estimated offering expenses.
Mandatory Convertible Preferred Stock
Unless earlier converted, each share of Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date, expected to be April 1, 2024, into
between i1.0013 and i1.1765 shares of our Class B Common Stock, subject to customary antidilution adjustments. The number of shares of Class B Common Stock issuable upon conversion will be determined
based on the average of the volume-weighted average price per share of our Class B Common Stock over the i20 consecutive trading day period commencing on, and including, the i21st scheduled trading day immediately preceding April 1,
2024. Holders of the Mandatory Convertible Preferred Stock (“Holders”) have the right to convert all or any portion of their shares of Mandatory Convertible Preferred Stock at any time prior to April 1, 2024 at the minimum conversion rate of i1.0013 shares of our Class B Common Stock. In addition, the conversion rate applicable to such an early conversion may, in certain circumstances, be increased to compensate Holders for certain unpaid accumulated dividends. However, if a fundamental change (as defined in the Certificate
of Designations governing the Mandatory Convertible Preferred Stock) occurs on or prior to April 1, 2024, then Holders will, in certain circumstances, be entitled to convert all or a portion of their shares of Mandatory Convertible Preferred Stock at an increased conversion rate for a specified period of time and receive an amount to compensate them for unpaid accumulated dividends and any remaining future scheduled dividend payments.
The Mandatory Convertible Preferred Stock is not redeemable. However, at our option, we may purchase or otherwise acquire (including in an exchange transaction) the Mandatory Convertible Preferred Stock from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, Holders. Holders have no voting rights, with certain exceptions.
If
declared, dividends on the Mandatory Convertible Preferred Stock are payable quarterly through April 1, 2024. Dividends on the Mandatory Convertible Preferred Stock accumulate from the most recent dividend payment date, and will be payable on a cumulative basis when, as and if declared by our Board of Directors, or an authorized committee thereof, at an annual rate of ii5.75/%
of the liquidation preference of $i100 per share, payable in cash or, subject to certain limitations, by delivery of shares of Class B Common Stock or through any combination of cash and shares of Class B Common Stock, at our election. If we have not declared any portion of the accumulated and unpaid dividends by April 1, 2024, the conversion rate will be adjusted so that Holders receive an additional number of shares of our Class B Common Stock, with certain limitations.
Dividends
We
declared cash dividends of $ii.24/ per
share on our Class A and Class B Common Stock during each of the three months ended June 30, 2022 and 2021, resulting in total dividends of $i160 million and $i158
million, respectively. We declared cash dividends of $ii.48/
per share on our Class A and Class B Common Stock during each of the six months ended June 30, 2022 and 2021, resulting in total dividends of $i318 million and $i310
million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During each of the first and second quarters of 2022, we declared a quarterly cash dividend of $ii1.4375/
per share on our Mandatory Convertible Preferred Stock, resulting in total dividends of $i14.4 million for the three months ended June 30, 2022, and $i28.8
million for the six months ended June 30, 2022. During the second quarter of 2021, we declared a cash dividend of $i1.5493 per share on our Mandatory Convertible Preferred Stock, representing a dividend period from March 26, 2021 through July 1, 2021. Accordingly, we recorded dividends on the Mandatory Convertible Preferred Stock of $i14.4
million and $i15.4 million during the three and six months ended June 30, 2021, respectively.
Accumulated Other Comprehensive Income (Loss)
i
The
following tables summarize the changes in the components of accumulated other comprehensive loss.
(b) Reflects amortization of net actuarial losses (see Note 11).
/
The net actuarial loss and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income (loss) is net of a tax benefit of $ii10/
million for each of the six-month periods ended June 30, 2022 and 2021.
10) iINCOME TAXES
The provision/benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the three
and six months endedJune 30, 2022, we recorded a provision for income taxes of $i129 million and $i163
million, reflecting effective income tax rates of i24.9% and i16.5%, respectively. Included in the provision for income taxes for the second quarter of 2022 is a net
discrete tax benefit of $i3 million, which together with a net tax benefit of $i23
million on other items identified as affecting the comparability of our results during the period, which include a loss on extinguishment of debt and charges for restructuring and other corporate matters, decreased our effective
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
income tax rate by i0.3
percentage points. The tax provision for the six months ended June 30, 2022 included a net discrete tax benefit of $i81 million primarily resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations. This item, together with a net tax benefit of $i48
million on other items identified as affecting the comparability of our results during the six-month period, which include a loss on extinguishment of debt, charges for restructuring and other corporate matters, and gains on sales, decreased our effective income tax rate by i7.8 percentage points.
For the three months ended June 30, 2021, we recorded a benefit for income taxes of $i34
million, reflecting a negative effective income tax rate of i3.3%, and for the six months ended June 30, 2021, we recorded a provision for income taxes of $i192
million, reflecting an effective income tax rate of i8.8%. Included in income taxes for the three and six months ended June 30, 2021 are discrete tax benefits of $i268
million and $i289 million, respectively, primarily consisting of a benefit of $ii260/ million
to remeasure our UK net deferred income tax asset as a result of the enactment during the second quarter of 2021 of an increase in the UK corporate income tax rate from 19% to 25% beginning April 1, 2023, as well as a net tax benefit in connection with the settlement of income tax audits. For the three and six months ended June 30, 2021, the discrete tax benefit in each period, together with a net tax provision of $i26
million and $i1 million, respectively, on other items identified as affecting the comparability of our results during the period, which include net gains from sales and investments, and restructuring charges in each period, and a loss on extinguishment of debt in the six-month period, reduced our effective income tax rate by i26.3
percentage points and i13.3 percentage points, respectively.
The Company and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and local and foreign jurisdictions. For periods prior to the merger of Viacom Inc. (“Viacom”) with and
into CBS Corporation (“CBS”) (the “Merger”), Viacom and CBS filed separate tax returns. For CBS, we are currently under examination by the IRS for the 2017 and 2018 tax years. For Viacom, we are currently under examination by the IRS for the 2016 through 2019 tax years. Various tax years are also currently under examination by state and local and foreign tax authorities. With respect to open tax years in all jurisdictions, we currently do not believe that it is reasonably possible that the reserve for uncertain tax positions will significantly change within the next 12 months; however, it is difficult to predict the final outcome or timing of resolution of any particular tax matter and events could cause our current expectation to change in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
11) iPENSION AND OTHER POSTRETIREMENT BENEFITS
i
The
following table presents the components of net periodic cost for our pension and postretirement benefit plans, which are included within “Other items, net” on the Consolidated Statements of Operations.
(b) Reflects amounts reclassified from accumulated other comprehensive loss to net earnings.
12) iREDEEMABLE NONCONTROLLING INTERESTS
We
are subject to a redeemable put option, payable in a foreign currency, with respect to an international subsidiary. The put option expires in December 2022 and is classified as “Redeemable noncontrolling interest” on the Consolidated Balance Sheets. iThe activity reflected within redeemable noncontrolling interest for the six months ended June 30, 2022 and 2021 is presented below.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
13) iSEGMENT INFORMATION
The tables below set forth our financial information by reportable segment. Our operating segments, which are the same as our reportable segments,
have been determined in accordance with our internal management structure, which is organized based upon products and services. Beginning in 2022, primarily as a result of our increased strategic focus on our direct-to-consumer businesses, we made certain changes to how we manage our businesses and allocate resources that resulted in the changes described below. Prior period results have been recast to conform to these presentation changes.
Management Structure Change
Our management structure has been reorganized to focus on managing our business as the combination of three parts: a traditional media business, a portfolio of global DTC services, and a film studio. As a result, we realigned our operating segments and accordingly, beginning in the first quarter of 2022, and for all periods presented we are reporting results based on the segments in the tables below (see Note 1 for
a description of each operating segment). In connection with the management structure change, we also reassessed our reporting units and reallocated goodwill from the reporting units that existed prior to the change, to the new reporting units, using a relative fair value approach. We performed goodwill impairment tests as of January 1, 2022 on both the reporting units in place prior to the change and the new reporting units and concluded that the estimated fair values of each of the reporting units exceeded their respective carrying values and therefore no impairment charge was necessary.
Intercompany License Fees
Concurrent with the change to our operating segments, we changed the way we record intersegment content licensing. Under our previous segment structure, management evaluated the results of our segments including intersegment
content licensing at market value as if the sales were to third parties. Therefore, the licensor segment recorded intercompany license fee revenues and profits and the licensee segment recorded production costs in the amount of the license fee charged by the licensor, which generally reflected the cost to the Company plus a margin. The intercompany revenues and the margin embedded in the cost to the licensee were eliminated in consolidation.
Under our new segment structure, management evaluates the results of the segments using an allocation of the total cost of content from the licensor segment to each licensee segment utilizing the content. As a result, content costs are allocated across segments based on the relative value of the distribution windows within each segment. The allocation is recorded by the licensor segment as a reduction
of content cost and no intersegment licensing revenues or profits are recorded.
Revenues
generated between segments are principally from intersegment arrangements for the distribution of content, rental of studio space, and advertising, as well as licensing revenues earned from third parties who license our content to our internal platforms either through a sub-license or co-production arrangement. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
We
present operating income excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters and net gain on sales, each where applicable (“Adjusted OIBDA”), as the primary measure of profit and loss for our operating segments in accordance with FASB guidance for segment reporting since it is the primary method used by our management. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
14) iCOMMITMENTS
AND CONTINGENCIES
Guarantees
Letters of Credit and Surety Bonds
We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2022, the outstanding letters of credit and surety bonds approximated $i173 million and were not recorded on the Consolidated Balance Sheet.
CBS
Television City
In connection with the sale of the CBS Television City property and sound stage operation (“CBS Television City”) in 2019, we guaranteed a specified level of cash flows to be generated by the business during the first ifive years following the completion of the sale. Included in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet at June 30, 2022 is a liability totaling $i51
million, reflecting the present value of the estimated amount remaining under the guarantee obligation.
Lease Guarantees
We have certain indemnification obligations with respect to leases primarily associated with the previously discontinued operations of Famous Players Inc. These lease commitments totaled $i41 million at June 30, 2022 and are presented within “Other
liabilities” on the Consolidated Balance Sheet. The amount of lease commitments varies over time depending on the expiration or termination of individual underlying leases, or the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We believe our accrual is sufficient to meet any future obligations based on our consideration of available financial information, the lessees’ historical performance in meeting their lease obligations and the underlying economic factors impacting the lessees’ business models.
Other
In the course of our business, we both provide and receive indemnities which are intended to allocate certain risks associated with business transactions. Similarly, we may remain contingently
liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. We record a liability for our indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
General
On an ongoing basis, we vigorously defend ourselves in numerous lawsuits and proceedings and respond to various investigations and inquiries from federal, state, local and international authorities (collectively, “litigation”). Litigation may be brought against us without merit, is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the following matters are not likely, in the aggregate,
to result in a material adverse effect on our business, financial condition and results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Stockholder Matters
Litigation Relating to the Merger
Beginning on February 20, 2020, three purported
CBS stockholders filed separate derivative and/or putative class action lawsuits in the Court of Chancery of the State of Delaware. On March 31, 2020, the Court consolidated the ithree lawsuits and appointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs for the consolidated action. On April 14, 2020, the lead plaintiffs filed a Verified Consolidated Class
Action and Derivative Complaint (as used in this paragraph, the “Complaint”) against Shari E. Redstone, NAI, Sumner M. Redstone National Amusements Trust, members of the CBS Board of Directors (comprised of Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Robert N. Klieger, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick), former CBS President and Acting Chief Executive Officer Joseph Ianniello and the Company as nominal defendant. The Complaint alleges breaches of fiduciary duties to CBS stockholders in connection with the negotiation and approval of the Agreement and Plan of Merger dated as of August 13, 2019, as amended on October
16, 2019 (the “Merger Agreement”). The Complaint also alleges waste and unjust enrichment in connection with Mr. Ianniello’s compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On June 5, 2020, the defendants filed motions to dismiss. On January 27, 2021, the Court dismissed ione disclosure claim, while allowing all other claims against the defendants to proceed. Discovery on the surviving
claims is proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Beginning on November 25, 2019, four purported Viacom stockholders filed separate putative class action lawsuits in the Court of Chancery of the State of Delaware. On January 23, 2020, the Court consolidated the ifour lawsuits. On February
6, 2020, the Court appointed California Public Employees’ Retirement System (“CalPERS”) as lead plaintiff for the consolidated action. On February 28, 2020, CalPERS, together with Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago and Louis M. Wilen, filed a First Amended Verified Class Action Complaint (as used in this paragraph, the “Complaint”) against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the special transaction committee of the Viacom Board of Directors (comprised of Thomas J. May, Judith A. McHale, Ronald L. Nelson and Nicole Seligman) and our President and Chief Executive Officer and director, Robert M. Bakish. The Complaint alleges breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement. The Complaint seeks unspecified damages, costs and expenses, as well as other
relief. On May 22, 2020, the defendants filed motions to dismiss. On December 29, 2020, the Court dismissed the claims against Mr. Bakish, while allowing the claims against the remaining defendants to proceed. Discovery on the surviving claims is proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Investigation-Related Matters
As announced on August 1, 2018, the CBS Board of Directors retained itwo
law firms to conduct a full investigation of the allegations in press reports about CBS’ former Chairman of the Board, President and Chief Executive Officer, Leslie Moonves, CBS News and cultural issues at CBS. On December 17, 2018, the CBS Board of Directors announced the completion of its investigation, certain findings of the investigation and the CBS Board of Directors’ determination, with respect to the termination of Mr. Moonves’ employment. We have received subpoenas or requests for information from the New York County District Attorney’s Office, the New York City Commission on Human Rights, the New York State Attorney General’s Office and the United States Securities and Exchange Commission regarding the subject matter of this investigation and related matters, including with respect to CBS’ related public disclosures. We may continue to receive additional related regulatory and investigative inquiries from these
and other entities in the future. We are cooperating with these inquiries.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
On August 27, 2018 and on October 1, 2018, Gene Samit and John Lantz, respectively, filed putative class action lawsuits in the United States District Court for the Southern District of New York,
individually and on behalf of others similarly situated, for claims that are similar to those alleged in the amended complaint described below. On November 6, 2018, the Court entered an order consolidating the two actions. On November 30, 2018, the Court appointed Construction Laborers Pension Trust for Southern California as the lead plaintiff of the consolidated action. On February 11, 2019, the lead plaintiff filed a consolidated amended putative class action complaint against CBS, certain current and former senior executives and members of the CBS Board of Directors. The consolidated action is stated to be on behalf of purchasers of CBS Class A Common Stock and Class B Common Stock between September 26, 2016 and December
4, 2018. This action seeks to recover damages arising during this time period allegedly caused by the defendants’ purported violations of the federal securities laws, including by allegedly making materially false and misleading statements or failing to disclose material information, and seeks costs and expenses as well as remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On April 12, 2019, the defendants filed motions to dismiss this action, which the Court granted in part and denied in part on January 15, 2020. With the exception of one statement made by Mr. Moonves at an industry event in November 2017, in which he allegedly was acting as the agent of CBS, all claims as to all other allegedly false and misleading statements were dismissed. We reached an agreement with the plaintiffs to settle the
lawsuit. The settlement, which includes no admission of liability or wrongdoing by the Company, was granted preliminary approval by the Court on May 13, 2022. All amounts payable by the Company under the settlement will be paid by the Company’s insurers.
Litigation Related to Stock Offerings
On August 13, 2021, Camelot Event Driven Fund filed a putative securities class action lawsuit in New York Supreme Court, County of New York, and on November 5, 2021, an amended
complaint was filed that, among other changes, added an additional named plaintiff (the “Complaint”). The Complaint is purportedly on behalf of investors who purchased shares of the Company’s Class B Common Stock and ii5.75/%
Series A Mandatory Convertible Preferred Stock pursuant to public securities offerings completed in March 2021, and was filed against the Company, certain senior executives, members of our Board of Directors, and the underwriters involved in the offerings. The Complaint asserts violations of federal securities law and alleges that the offering documents contained material misstatements and omissions, including through an alleged failure to adequately disclose certain total return swap transactions involving Archegos Capital Management referenced to our securities and related alleged risks to the Company’s stock price. On December 22, 2021, the plaintiffs filed a stipulation seeking the voluntary dismissal without prejudice of the outside director defendants
from the lawsuit, which the Court subsequently ordered. On the same date, the defendants filed motions to dismiss the lawsuit, which are pending. The complaint seeks unspecified compensatory damages, as well as other relief. We believe that the claims are without merit and intend to defend against them vigorously.
Litigation Related to Television Station Owners
On September 9, 2019, the Company was added as a defendant in a multi-district putative class action lawsuit filed in the United States District Court for the Northern District of Illinois. The lawsuit was filed by parties that claim to have purchased broadcast television spot advertising beginning on or about January 1, 2014
on television stations owned by one or more of the defendant television station owners and alleges the sharing of allegedly competitively sensitive information among such television stations in alleged violation of the Sherman Antitrust Act. The action, which names the Company among ifourteen total defendants, seeks monetary damages, attorneys’ fees, costs and interest as well as injunctions against the allegedly unlawful conduct. On October
8, 2019, the Company and other defendants filed a motion to dismiss the matter, which was denied by the Court on November 6, 2020. We have reached an agreement in principle with the plaintiffs to settle the lawsuit. The settlement, which will include no admission of liability or wrongdoing by the Company, will be subject to Court approval.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Litigation Related to the Proposed Sale of Simon & Schuster
On November 2, 2021, the U.S. Department of Justice (the “DOJ”) filed suit in the United States District Court for the District of Columbia to block our sale of the Simon & Schuster business to Penguin Random House (the “Transaction”) pursuant to a Share Purchase Agreement (“Purchase Agreement”), dated November 24, 2020, between the Company, certain of its subsidiaries,
Penguin Random House and Bertelsmann SE & Co. KGaA. The DOJ asserts that the sale of Simon & Schuster would reduce competition for the acquisition of titles. The Purchase Agreement contains customary representations and warranties and covenants, including commitments on the part of Penguin Random House to take all necessary steps to obtain any required regulatory approvals and to defend any litigation that would delay or prevent consummation, and also provides for a $i200 million termination fee payable to the Company
in certain circumstances in the event the Transaction does not close for regulatory reasons. The trial commenced on August 1, 2022 and is expected to conclude on or about August 18, 2022. We and the other defendants believe the DOJ’s claims are without merit, and we intend to defend against them vigorously.
Claims Related to Former Businesses
Asbestos
We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. We are typically named as
one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of our products is the basis of a claim. Claims against us in which a product has been identified most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. We do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2022, we had pending approximately i26,790
asbestos claims, as compared with approximately i27,770 as of December 31, 2021. During the second quarter of 2022, we received approximately i670
new claims and closed or moved to an inactive docket approximately i640 claims. We report claims as closed when we become aware that a dismissal order has been entered by a court or when we have reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claims, the quality of evidence supporting the claims and other factors. Our total costs for the years 2021 and 2020 for settlement and defense of asbestos claims after insurance recoveries and net of tax were
approximately $i63 million and $i35
million, respectively. Our costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of pending claims against us are non-cancer claims. It is difficult to predict future asbestos liabilities, as events and circumstances may impact the estimate of our asbestos liabilities, including, among others, the number and types of claims
and average cost to resolve such claims. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and when the amount of the loss can be
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
reasonably estimated. We believe that our accrual and insurance are sufficient to cover our asbestos liabilities. Our liability estimate is based upon many factors, including the number
of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims, as well as consultation with a third party firm on trends that may impact our future asbestos liability.
Other
From time to time we receive claims from federal and state environmental regulatory agencies and other entities asserting that we are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations. In addition, from time to time we receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations and predecessors.
We enter into operating leases for the use of our owned production facilities and office buildings. Lease payments received under these agreements consist of fixed payments for the rental of space and certain building operating costs, as well as variable payments based on usage of production facilities and services, and escalating costs of building operations. We recorded total lease income, including both fixed and variable amounts, of $i19 million and $i34
million for the three and six months ended June 30, 2022, respectively, and $i35 million and $i71 million for the three
and six months ended June 30, 2021, respectively. The lower lease income for the three and six months ended June 30, 2022 compared with the same periods in 2021 is the result of the sales of a production facility and an office building during the fourth quarter of 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Restructuring
and Other Corporate Matters
i
During the three and six months ended June 30, 2022 and 2021, we recorded the following costs associated with restructuring and other corporate matters.
During
the three and six months ended June 30, 2022, we recorded restructuring charges of $i10 million and $i28 million, respectively, consisting of severance
costs primarily associated with changes in management related to the realignment of our operating segments. The restructuring charges for the six-month period were comprised of $i18 million recorded within the Filmed Entertainment segment, $i9
million recorded within the TV Media segment, and $i1 million recorded within the Direct-to-Consumer segment.
During the second quarter of 2021, we recorded charges of $i35
million within the TV Media segment for the impairment of lease assets that we determined we would not use and began actively marketing for sublease. This determination was made in connection with cost-transformation initiatives related to the Merger. The impairment was the result of a decline in market conditions since inception of these leases and reflects the difference between the estimated fair values, which were determined based on the expected discounted future cash flows of the lease assets, and the carrying values.
At June 30, 2022 and December 31, 2021, our restructuring liability was $i139
million and $i190 million, respectively, and was recorded in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheets. During the six months ended June 30, 2022, we made payments for restructuring of $i67
million. The liability at June 30, 2022, which principally relates to severance payments, is expected to be substantially paid by the end of 2023.
In addition, for the six months ended June 30, 2022, we recorded charges for other corporate matters of $i79 million, consisting of $i39
million recorded during the first quarter, following Russia’s invasion of Ukraine, principally to reserve against amounts due from counterparties in Russia, Belarus and Ukraine, and $i40 million recorded during the second quarter associated with litigation described under Legal Matters—Stockholder Matters in Note 14.
-32-
Item
2.
Management’s Discussion and Analysis of Results of Operations and Financial Condition.
(Tabular dollars in millions, except per share amounts)
Effective February 16, 2022, we changed our name from ViacomCBS Inc. to Paramount Global. Management’s discussion and analysis of the results of operations and financial condition of Paramount Global should be read in conjunction with the consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed prior to our name change. References in this document to “Paramount,” the “Company,”“we,”“us” and “our”
refer to Paramount Global.
Significant components of management’s discussion and analysis of results of operations and financial condition include:
•Overview—Summary of our business and operational highlights.
•Consolidated Results of Operations—Analysis of our results on a consolidated basis for the three and six months ended June 30, 2022 compared with the three and six months ended June 30, 2021.
•Segment Results of Operations—Analysis of our results on a reportable segment basis for the three and six months
ended June 30, 2022 compared with the three and six months ended June 30, 2021.
•Liquidity and Capital Resources—Discussion of our cash flows, including sources and uses of cash, for the six months ended June 30, 2022 and June 30, 2021; and our outstanding debt as of June 30, 2022.
•Legal Matters—Discussion of legal matters in which we are involved.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net earnings from continuing operations attributable to Paramount
$
358
$
995
$
(637)
(64)
%
Diluted
EPS from continuing operations attributable to Paramount
$
.53
$
1.50
$
(.97)
(65)
%
Non-GAAP:
(a)
Adjusted OIBDA
$
963
$
1,240
$
(277)
(22)
%
Adjusted net earnings from
continuing operations attributable to Paramount
$
429
$
640
$
(211)
(33)
%
Adjusted diluted EPS from continuing operations attributable to Paramount
$
.64
$
.97
$
(.33)
(34)
%
(a) Certain
items identified as affecting comparability are excluded in non-GAAP results. See “Reconciliation of Non-GAAP Measures” for details of these items and reconciliations of non-GAAP results to the most directly comparable financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”).
For the three months ended June 30, 2022, revenues increased 19% to $7.78 billion, driven by the box office success of our second quarter theatrical releases, Top Gun: Maverick and Sonic the Hedgehog 2;significant increases in revenues from our direct-to-consumer streaming services (“DTC services”), led by Paramount+; and higher content licensing, mainly reflecting
an increase in programming produced for third parties, the monetization of recent theatrical releases, and increased international licensing. These increases were partially offset by a decline in advertising revenues for our broadcast and cable networks.
Operating income for the three months ended June 30, 2022 decreased 33% from the same prior-year period. This comparison was impacted by a net gain on sales of $116 million in 2021, principally from the sale of a noncore trademark licensing operation. Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”), which excludes this gain, as well as charges for restructuring and other corporate matters, decreased 22%, mainly as a result of an increased investment in our DTC services.
For the three months ended June 30,
2022, net earnings from continuing operations attributable to Paramount and diluted earnings per share (“EPS”) from continuing operations decreased 64% and 65%, respectively, from the same prior-year period as a result of the decline in operating income and a higher effective tax rate in 2022. The effective tax rate was higher in 2022 because of a discrete tax benefit of $260 million recorded in the 2021 period to remeasure our UK net deferred income tax asset as a result of the enactment of an increase in the UK corporate income tax rate. Adjusted net earnings from continuing operations attributable to Paramount and adjusted diluted EPS, which exclude discrete tax benefits in each period, a loss on extinguishment of debt in the current-year period, and net gains from investments in the prior-year period, as well as the items impacting the comparability of operating income listed above, decreased 33% and 34%, respectively, primarily reflecting the lower Adjusted
OIBDA.
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(a) Certain
items identified as affecting comparability are excluded in non-GAAP results. See “Reconciliation of Non-GAAP Measures” for details of these items and reconciliations of non-GAAP results to the most directly comparable financial measures in accordance with GAAP.
For the six months ended June 30, 2022, revenues increased 8% to $15.11 billion, driven by significant growth in revenues from our DTC services, including Paramount+ and Pluto TV, and the success of our current year theatrical releases. These increases were partially offset by lower advertising revenues for our broadcast and cable networks, driven by the benefit in 2021 from CBS’ broadcast of the Super Bowl, reflecting the rotational nature of the rights to air this event. The absence of the Super Bowl negatively impacted the total revenue comparison by 4-percentage points.
Operating
income for the six months ended June 30, 2022 decreased 42% from the same prior-year period. The operating income comparison was impacted by higher charges in 2022 for restructuring and other corporate matters, as well as the net gain on sales in 2021 discussed above. Adjusted OIBDA, which excludes these items, decreased 35%, driven by increased investment in our DTC services, the benefit to the 2021 period from the broadcast of the Super Bowl, higher costs from the mix of programming on our linear networks, and lower profits from the licensing of films.
For the six months ended June 30, 2022, net earnings from continuing operations attributable to Paramount and diluted EPS from continuing operations decreased 60% and 62%, respectively, from the same prior-year period as a result of the decline in operating
income, as well as a higher effective tax rate in 2022. The higher effective tax rate was the result of lower discrete tax benefits in the current year, which included a net benefit of $81 million compared with $289 million for the prior-year period. Adjusted net earnings from continuing operations attributable to Paramount and adjusted diluted EPS, which exclude discrete tax benefits and a loss on extinguishment of debt in each period, net gains from investments in 2021, and the items impacting the comparability of operating income noted above, decreased 48% and 50%, respectively, primarily reflecting the lower Adjusted OIBDA.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Reconciliation of Non-GAAP Measures
Results for the three and six months ended June 30, 2022 and 2021 included certain items identified as affecting comparability. Adjusted OIBDA, adjusted earnings from continuing operations before income taxes, adjusted provision for income taxes, adjusted net earnings from continuing operations attributable to Paramount, and adjusted diluted EPS from continuing operations (together, the “adjusted measures”) exclude the impact of these items and are measures of performance not calculated in accordance with GAAP. We use
these measures to, among other things, evaluate our operating performance. These measures are among the primary measures used by management for planning and forecasting of future periods, and they are important indicators of our operational strength and business performance. In addition, we use Adjusted OIBDA to, among other things, value prospective acquisitions. We believe these measures are relevant and useful for investors because they allow investors to view performance in a manner similar to the method used by our management; provide a clearer perspective on our underlying performance; and make it easier for investors, analysts and peers to compare our operating performance to other companies in our industry and to compare our year-over-year results.
Because the adjusted measures are measures of performance not calculated in accordance with GAAP, they should not be considered in isolation of, or as
a substitute for, operating income, earnings from continuing operations before income taxes, provision/benefit for income taxes, net earnings from continuing operations attributable to Paramount or diluted EPS from continuing operations, as applicable, as indicators of operating performance. These measures, as we calculate them, may not be comparable to similarly titled measures employed by other companies.
The following tables reconcile the adjusted measures to their most directly comparable financial measures in accordance with GAAP.
Earnings from Continuing Operations Before Income Taxes
Provision for Income Taxes
Net Earnings from Continuing Operations Attributable to Paramount
Diluted EPS from Continuing Operations
Reported (GAAP)
$
519
$
(129)
$
358
$
.53
Items
affecting comparability:
Restructuring and other corporate matters (a)
50
(12)
38
.06
Loss
on extinguishment of debt
47
(11)
36
.05
Discrete tax items
—
(3)
(3)
—
Adjusted
(Non-GAAP)
$
616
$
(155)
$
429
$
.64
(a)
Reflects restructuring charges of $10 million consisting of severance costs primarily associated with changes in management related to the realignment of our operating segments, as well as a charge of $40 million associated with litigation described under Legal Matters—Stockholder Matters.
Earnings from Continuing Operations Before Income Taxes
(Provision) Benefit for Income Taxes
Net Earnings from Continuing Operations Attributable to Paramount
Diluted EPS from Continuing Operations
Reported (GAAP)
$
1,018
$
34
$
995
$
1.50
Items
affecting comparability:
Restructuring and other corporate matters (a)
35
(8)
27
.04
Net
gain on sales (b)
(116)
27
(89)
(.13)
Net gains from investments (c)
(32)
7
(25)
(.04)
Discrete
tax items (d)
—
(268)
(268)
(.40)
Adjusted (Non-GAAP)
$
905
$
(208)
$
640
$
.97
(a)
Reflects the impairment of lease assets in connection with cost transformation initiatives related to the merger of Viacom Inc. (“Viacom”) with and into CBS Corporation (“CBS”) (“the Merger”).
(b) Primarily reflects a gain on the sale of a noncore trademark licensing operation.
(c) Reflects a gain of $37 million on the sale of an investment, partially offset by a decrease in the fair value of a marketable security of $5 million.
(d) Primarily reflects a benefit of $260 million to remeasure our UK net deferred income tax asset as a result of the enactment in June 2021 of an increase in the UK corporate income tax rate from 19% to 25% beginning April 1, 2023, as well as a net tax benefit in connection with the settlement of income tax audits.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Earnings from Continuing Operations Before Income Taxes
Provision for Income Taxes
Net Earnings from Continuing Operations Attributable to Paramount
Diluted EPS from Continuing Operations
Reported (GAAP)
$
989
$
(163)
$
749
$
1.11
Items
affecting comparability:
Restructuring and other corporate matters (a)
107
(24)
83
.13
Net
gain on sales (b)
(15)
4
(11)
(.02)
Loss
on extinguishment of debt
120
(28)
92
.14
Discrete
tax items (c)
—
(81)
(81)
(.12)
Adjusted (Non-GAAP)
$
1,201
$
(292)
$
832
$
1.24
(a) Comprised
of charges of $28 million for restructuring, consisting of severance costs; $39 million recorded following Russia’s invasion of Ukraine, principally to reserve against amounts due from counterparties in Russia, Belarus and Ukraine; and $40 million associated with litigation described under Legal Matters—Stockholder Matters.
(b) Reflects a gain from the sale of international intangible assets and a working capital adjustment to the gain from the fourth quarter 2021 sale of CBS Studio Center.
(c) Primarily reflects a deferred tax benefit resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations.
Earnings from Continuing Operations Before Income Taxes
Provision for Income Taxes
Net Earnings from Continuing Operations Attributable to Paramount
Diluted EPS from Continuing Operations
Reported (GAAP)
$
2,173
$
(192)
$
1,894
$
2.93
Items
affecting comparability:
Restructuring and other corporate matters (a)
35
(8)
27
.04
Net
gain on sales (b)
(116)
27
(89)
(.14)
Loss on extinguishment of debt
128
(30)
98
.15
Net
gains from investments (c)
(52)
12
(40)
(.06)
Discrete tax items (d)
—
(289)
(289)
(.45)
Adjusted
(Non-GAAP)
$
2,168
$
(480)
$
1,601
$
2.47
(a)
Reflects the impairment of lease assets in connection with cost transformation initiatives related to the Merger.
(b) Primarily reflects a gain on the sale of a noncore trademark licensing operation.
(c) Reflects a gain of $37 million on the sale of an investment and an increase in the fair value of a marketable security of $15 million.
(d) Primarily reflects a benefit of $260 million to remeasure our UK net deferred income tax asset as a result of the enactment in June 2021 of an increase in the UK corporate income tax rate from 19% to 25% beginning April 1, 2023, as well as a net tax benefit in connection with the settlement of income tax audits.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For
the three months ended June 30, 2022, advertising revenues declined 2% as lower revenues from our broadcast and cable networks more than offset growth from Paramount+ and Pluto TV. The decline was driven by our domestic networks as lower linear impressions were only partially offset by higher pricing, as a result of softness in the scatter market. For the six months ended June 30, 2022, the 5% decrease in advertising revenues is due to the rotational nature of the rights to broadcast the Super Bowl, which aired on CBS in 2021 and another network in 2022, resulting in a negative impact on the advertising comparison of 8-percentage points. Increases in advertising from Pluto TV and Paramount+ partially offset the decline. The comparison for the six-month period also reflects the impact from lower linear impressions for our domestic networks, partially offset by higher pricing,
and for both the three- and six-month periods reflects the impact from unfavorable foreign exchange rate changes, partially offset by revenues for Chilevisión, which was acquired in the third quarter of 2021, and higher political advertising sales. Foreign exchange rate changes negatively impacted the comparison of total advertising revenues for the three-month period by 2-percentage points and for the six-month period by 1-percentage point.
Affiliate and Subscription
Affiliate and subscription revenues are principally comprised of fees received from multichannel video programming distributors (“MVPDs”) and third-party live television streaming services (“virtual MVPDs” or “vMVPDs”) for carriage of our cable networks (“cable affiliate fees”), fees received from television stations affiliated with the CBS Television Network (“reverse
compensation”), fees for authorizing the MVPDs’ and vMVPDs’ carriage of our owned television stations (“retransmission fees”), and subscription fees for our DTC services.
For the three and six months ended June 30, 2022, affiliate and subscription revenues increased 12% and 13%, respectively, driven by growth in subscribers for our DTC services of 50% to 63.7 million at June 30, 2022 from 42.4 million at June 30, 2021, led by an increase of 21.9 million for Paramount+ to 43.3 million at June 30, 2022.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
These increases were partially offset by lower revenues from international affiliates, including a negative impact from foreign exchange rate changes, and lower revenues from pay-per-view boxing events.
Theatrical
For the three months ended June 30, 2022, theatrical revenues grew $630 million, led by the success of the second quarter 2022 theatrical releases of Top Gun: Maverick and Sonic the Hedgehog 2, and the first quarter release of The
Lost City, while the prior-year period benefited from second quarter 2021 theatrical releases, principally A Quiet Place Part II.For the six months ended June 30, 2022, the $760 million increase in theatrical revenues also includes the benefit from the first quarter 2022 theatrical releases of Scream and Jackass Forever. There were no theatrical releases in the first quarter of 2021 as movie theaters continued to be impacted by closures or reduced capacity in response to the coronavirus pandemic (“COVID-19”).
Licensing and Other
Licensing and other revenues are principally comprised of fees
from the licensing of the rights to exhibit our internally-produced television and film programming on various platforms in the secondary market after its initial exhibition on our owned or third-party platforms; license fees from content produced for third parties; home entertainment revenues, which includes the viewing of our content on a transactional basis through transactional video-on-demand (TVOD) and electronic sell-through services and the sale and distribution of our content through DVDs and Blu-ray discs to wholesale and retail partners; fees from the use of our trademarks and brands for consumer products, recreation and live events; fees from the distribution of third-party programming; and revenues from the rental of production facilities.
For the three months ended June 30, 2022, the 27% increase in licensing and other revenues primarily reflects
a higher volume of content produced for third parties, driven by additional seasons of existing series, including season 3 of Jack Ryan; the monetization of recent theatrical releases; and growth in international licensing. For the six months ended June 30, 2022, licensing and other revenues remained relatively flat.
Operating Expenses
Three
Months Ended June 30,
% of Operating Expenses
% of Operating Expenses
Increase/(Decrease)
Operating Expenses by Type
2022
2021
$
%
Content
costs
$
4,117
81
%
$
3,114
81
%
$
1,003
32
%
Distribution and other
989
19
751
19
238
32
Total
Operating Expenses
$
5,106
100
%
$
3,865
100
%
$
1,241
32
%
Six
Months Ended June 30,
% of Operating Expenses
% of Operating Expenses
Increase/(Decrease)
Operating Expenses by Type
2022
2021
$
%
Content
costs
$
7,948
80
%
$
6,838
83
%
$
1,110
16
%
Distribution and other
1,954
20
1,390
17
564
41
Total
Operating Expenses
$
9,902
100
%
$
8,228
100
%
$
1,674
20
%
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Content Costs
Content costs include the amortization of costs of internally-produced television and theatrical film content; amortization of acquired program rights; other television production costs, including on-air talent; and participation and residuals expenses, which reflect amounts owed to talent and other participants in our content pursuant to contractual and collective bargaining arrangements.
For the three months ended June 30, 2022, content costs increased 32% driven by costs associated with second quarter theatrical releases, an increased investment
in content for our DTC services, and higher costs associated with the increase in content licensing. For the six months ended June 30, 2022, content costs increased 16% reflecting higher costs associated with theatrical releases and increased investment in content for our DTC services, partially offset by costs in 2021 from CBS’ broadcast of the Super Bowl.
Distribution and Other
Distribution and other operating expenses primarily include costs relating to the distribution of our content, including print and advertising for theatrical releases and costs for amounts paid to third-party distributors; compensation; revenue-sharing costs to television stations affiliated with the CBS Television Network; and other ancillary and overhead costs associated with our operations.
For the
three and six months ended June 30, 2022, distribution and other expenses increased 32% and 41%, respectively, primarily reflecting costs to support our theatrical releases. The increasealso reflects higher costs associated with the growth of our DTC services, mainly for amounts paid to third-party distributors.
Selling,
general and administrative (“SG&A”) expenses include costs incurred for advertising, marketing, occupancy, professional service fees, and back office support, including employee compensation and technology. For the three and six months ended June 30, 2022, SG&A expenses increased 17% and 16%, respectively, driven by advertising, marketing and other cost increases to support the growth and expansion of our DTC services.
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Restructuring and Other Corporate Matters
During the three and six months ended June 30, 2022 and 2021, we recorded the following costs associated with restructuring and other corporate matters.
During
the three and six months ended June 30, 2022, we recorded restructuring charges of $10 million and $28 million, respectively, consisting of severance costs primarily associated with changes in management related to the realignment of our operating segments. The restructuring charges for the six-month period were comprised of $18 million recorded within the Filmed Entertainment segment, $9 million recorded within the TV Media segment, and $1 million recorded within the Direct-to-Consumer segment. In addition, for the six months ended June 30, 2022, we recorded charges for other corporate matters of $79 million, consisting of $39 million recorded during the first quarter, following Russia’s invasion of Ukraine, principally to reserve
against amounts due from counterparties in Russia, Belarus and Ukraine, and $40 million recorded during the second quarter associated with litigation described under Legal Matters—Stockholder Matters.
During the second quarter of 2021, we recorded charges of $35 million within the TV Media segment for the impairment of lease assets that we determined we would not use and began actively marketing for sublease. This determination was made in connection with cost-transformation initiatives related to the Merger. The impairment was the result of a decline in market conditions since inception of these leases and reflects the difference between the estimated fair values, which were determined based on the expected discounted future cash flows of the lease assets, and the
carrying values.
Net Gain on Sales
For the six months ended June 30, 2022, we recorded gains on sales totaling $15 million, comprised of a gain from the sale of international intangible assets and a working capital adjustment to the gain from the fourth quarter 2021 sale of CBS Studio Center. For the three and six months ended June 30, 2021, net gain on sales of $116 million principally included a gain on the sale of a noncore trademark licensing operation.
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presents our outstanding debt balances, excluding finance leases, and the weighted average interest rates as of June 30, 2022 and 2021.
At
June 30,
Weighted Average
Weighted Average
2022
Interest Rate
2021
Interest Rate
Total long-term debt
$
15,768
5.13
%
$
17,644
4.93
%
Other
bank borrowings
$
25
4.36
%
$
45
3.50
%
Net
Gains from Investments
Net gains from investments for the three and six months ended June 30, 2021 primarily reflect a gain of $37 million from the sale of an investment. In addition, during the three and six months ended June 30, 2021, we recorded an unrealized loss of $5 million and an unrealized gain of $15 million, respectively, resulting from changes in the fair value of a marketable security.
Loss on Extinguishment of Debt
For the three and six months ended June 30, 2022, we recorded losses on extinguishment of debt of $47 million and $120 million, respectively, associated with the early redemption of long-term debt of $2.91 billion, of which $970 million was redeemed during
the second quarter. For the six months ended June 30, 2021, we recorded a loss on extinguishment of debt of $128 million associated with the early redemption of long-term debt of $1.99 billion.
Other Items, Net
The following table presents the components of Other items, net.
Results of Operations and Financial Condition (Continued)
(Tabular
dollars in millions, except per share amounts)
Provision/Benefit for Income Taxes
The provision/benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the three and six months endedJune 30, 2022, we recorded a provision for income taxes of $129 million and $163 million, reflecting effective income tax rates of 24.9% and 16.5%, respectively. Included in the provision for income taxes for the second quarter of 2022 is a net discrete tax benefit of $3 million, which together with a net tax benefit of $23 million on other items identified as affecting the comparability of our results during the period, which include a loss on extinguishment of debt and
charges for restructuring and other corporate matters, decreased our effective income tax rate by 0.3 percentage points. The tax provision for the six months ended June 30, 2022 included a net discrete tax benefit of $81 million primarily resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations. This item, together with a net tax benefit of $48 million on other items identified as affecting the comparability of our results during the six-month period, which include a loss on extinguishment of debt, charges for restructuring and other corporate matters, and gains on sales, decreased our effective income tax rate by 7.8 percentage points.
For the three months ended June 30,
2021, we recorded a benefit for income taxes of $34 million, reflecting a negative effective income tax rate of 3.3%, and for the six months ended June 30, 2021, we recorded a provision for income taxes of $192 million, reflecting an effective income tax rate of 8.8%. Included in income taxes for the three and six months ended June 30, 2021 are discrete tax benefits of $268 million and $289 million, respectively, primarily consisting of a benefit of $260 million to remeasure our UK net deferred income tax asset as a result of the enactment during the second quarter of 2021 of an increase in the UK corporate income tax rate from 19% to 25% beginning April 1, 2023, as well as a net tax benefit in connection with the settlement of income tax audits. For the three and six months ended June 30,
2021, the discrete tax benefit in each period, together with a net tax provision of $26 million and $1 million, respectively, on other items identified as affecting the comparability of our results during the period, which include net gains from sales and investments, and restructuring charges in each period, and a loss on extinguishment of debt in the six-month period, reduced our effective income tax rate by 26.3 percentage points and 13.3 percentage points, respectively.
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in loss of investee companies for our equity-method investments.
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net Earnings from Discontinued Operations
During the fourth quarter of 2020, we entered into an agreement to sell our publishing business, Simon & Schuster, to Penguin Random House LLC (“Penguin Random House”), a wholly owned subsidiary of Bertelsmann SE & Co. KGaA (see Legal Matters). Simon & Schuster has been presented as a discontinued operation in our consolidated financial statements for all periods presented.
The following table sets forth details of net earnings from discontinued operations for the three and six
months ended June 30, 2022 and 2021, which primarily reflects the results of Simon & Schuster.
Net earnings from discontinued operations, net of tax
$
61
$
41
$
103
$
53
(a) Included
in total costs and expenses are amounts associated with the release of indemnification obligations for leases relating to a previously disposed business of $5 million and $10 million for the three and six months ended June 30, 2022, respectively, and $2 million for each of the three and six months ended June 30, 2021.
(b) The tax provision includes amounts relating to previously disposed businesses of $1 million and $2 million for the three and six months ended June 30, 2022, respectively, and $7 million for the six months ended June 30, 2021.
Net Earnings from Continuing Operations Attributable to Paramount and Diluted EPS from Continuing Operations Attributable to Paramount
Net earnings from continuing operations attributable to Paramount
$
358
$
995
(64)
%
$
749
$
1,894
(60)
%
Diluted
EPS from continuing operations attributable to Paramount
$
.53
$
1.50
(65)
%
$
1.11
$
2.93
(62)
%
For
the three and six months ended June 30, 2022, net earnings from continuing operations attributable to Paramount decreased 64% and 60%, respectively, and diluted EPS from continuing operations decreased 65% and 62%, respectively, driven by the decrease in operating income as well as higher discrete tax benefits in the prior-year periods.
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except
per share amounts)
Segment Results of Operations
We present operating income excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters and net gain on sales, each where applicable (“Adjusted OIBDA”), as the primary measure of profit and loss for our operating segments in accordance with Financial Accounting Standards Board guidance for segment reporting. We believe the presentation of Adjusted OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by our management and enhances their ability to understand our operating performance. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management. Stock-based
compensation is included as a component of our consolidated Adjusted OIBDA. The reconciliation of Adjusted OIBDA to our consolidated net earnings is presented in Note 13 to the consolidated financial statements.
Beginning in 2022, primarily as a result of our increased strategic focus on our direct-to-consumer businesses, we made certain changes to how we manage our businesses and allocate resources that resulted in a change to our operating segments. Our management structure has been reorganized to focus on managing our business as the combination of three parts: a traditional media business, a portfolio of global DTC services, and a film studio. Accordingly, beginning in the first quarter of 2022, and for all periods presented we are reporting results based on the following segments:
•TV Media—Our TV
Media segment consists of our domestic and international broadcast networks, including the CBS Television Network, Network 10, Channel 5, Telefe and Chilevisión; our premium and basic cable networks, including Showtime, BET, Nickelodeon, MTV, Comedy Central, Paramount Network, Smithsonian Channel, international extensions of these brands, and CBS Sports Network; our television production operations, including CBS Studios, Paramount Television Studios and CBS Media Ventures, which primarily produces or distributes first-run syndicated programming; and our owned broadcast television stations, CBS Stations.
•Direct-to-Consumer—Our Direct-to-Consumer segment consists of our portfolio of pay, free and premium global DTC services, including Paramount+, Pluto TV, Showtime
Networks’ premium subscription streaming service (“Showtime OTT”), BET+ and Noggin.
•Filmed Entertainment—Our Filmed Entertainment segment consists of Paramount Pictures, Paramount Players, Paramount Animation, Nickelodeon Studio, and Miramax.
For the three months ended June 30, 2022, revenues increased 1%, primarily reflecting higher licensing revenues, partially offset by lower advertising and affiliate revenues.
Advertising
The
6% decrease in advertising revenues was primarily driven by lower linear impressions for our domestic networks. Pricing only partially offset the decline as it was impacted by softness in the scatter market. The decline also reflects unfavorable foreign exchange rate changes, which negatively impacted the total advertising revenue comparison by 2-percentage points. The decrease was partially offset by the benefit from the acquisition of Chilevisión in the third quarter of 2021 and higher political advertising sales.
Affiliate and Subscription
The 3% decrease in affiliate and subscription revenues was driven by lower affiliate revenues in international markets, where we restructured certain affiliate agreements, resulting in a shift of revenue from our pay television services to our DTC services. The decline in international affiliate revenues also reflects unfavorable
foreign exchange rate changes, which negatively impacted the total affiliate and subscription revenue comparison by 1-percentage point, and the absence of revenues in Russia, where we suspended our operations following Russia’s invasion of Ukraine. Lower revenues from pay-per-view boxing events also contributed to the decline.
Licensing and Other
Licensing and other revenues increased 27%, reflecting a higher volume of content produced for third parties, primarily driven by the licensing of additional seasons of existing series, including season 3 of Jack Ryan, and higher international licensing.
Adjusted OIBDA
Adjusted OIBDA decreased 8%, reflecting the decline in advertising and affiliate revenues.
The increase in licensing revenues was principally offset by the associated content costs.
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the six months ended June 30, 2022, revenues decreased 3%, reflecting lower advertising revenues, driven by the comparison against CBS’ broadcast of the Super Bowl in the first quarterof 2021, which negatively impacted the total revenue comparison by 4-percentage points. The decline was partially offset by higher licensing revenues.
Advertising
The 10% decrease in advertising revenues was driven by the rotational nature of the rights to broadcast the Super Bowl, which aired on CBS in 2021 and another network in 2022, resulting in a negative impact on the advertising revenue comparison of 9-percentage points. Also included in the decline is the impact from lower linear impressions for our domestic networks, partially offset by higher pricing and higher political advertising sales.
Affiliate and Subscription
The 1% decrease in affiliate and subscription revenues was driven by lower international affiliate revenues,
partially offset by higher domestic affiliate revenues. International affiliate revenues decreased as a result of the previously-mentioned restructuring of certain affiliate agreements; unfavorable foreign exchange rate changes, which negatively impacted the total affiliate and subscription revenue comparison by 1-percentage point; and the absence of revenues in Russia. The increase in domestic affiliate revenues was driven by rate increases from MVPDs and vMVPDs, the launch of our basic cable networks on a vMVPD in April 2021, and growth in reverse compensation, partially offset by a decline in MVPD subscribers.
Licensing and Other
Licensing and other revenues increased 12%, reflecting higher international licensing and a higher volume of content produced for third parties, primarily driven by the licensing of additional seasons of existing series, partially
offset by lower revenues from the domestic licensing of library titles.
Adjusted OIBDA
Adjusted OIBDA decreased11%, primarily reflecting the benefit to the prior-year period from the broadcast of the Super Bowl, declines in other advertising revenues and affiliate revenues as well as higher costs associated with the mix of programming.
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Management’s Discussion and Analysis of
Results of Operations
and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(a)
Direct-to-consumer streaming subscribers (“DTC subscribers”) include customers with access to our domestic or international DTC services, either directly through our owned and operated apps and websites, or through third-party distributors. Our subscribers include paid subscriptions and those customers registered in a free trial, and subscribers are considered unique to each of our services, whether offered individually or as part of a bundle. For the periods above subscriber counts reflect the number of subscribers as of the applicable period-end date. Global DTC subscribers include subscribers for Paramount+, Showtime OTT and all other DTC subscription streaming services.
(b) The Monthly Active Users (“MAUs”) count reflects the number of unique devices interacting with the Pluto TV service
in a calendar month, and for the periods above reflects the MAU count for the last month of the applicable period.
Revenues
For the three months ended June 30, 2022, the 56% increase in revenues was driven by growth from Paramount+, Showtime OTT and Pluto TV.
Advertising
The 25% increase in advertising revenues reflects growth from Paramount+ and Pluto TV, which was driven by increased impressions, including from the benefit of subscriber growth for Paramount+ and MAU growth for Pluto TV. Pluto TV global MAUs were 69.6 million for June 2022, reflecting growth of 17.3 million, or 33%, from 52.3 million for June 2021, and 2.1 million, or 3%, from 67.5 million for March 2022.
Subscription
The
74% increase in subscription revenues was driven by growth from Paramount+ and Showtime OTT. Global DTC subscribers grew 21.3 million, or 50%, compared with June 30, 2021, led by an increase of 21.9 million, or 102% for Paramount+, reflecting significant growth in U.S. subscribers and the impact from launches in international markets. During the quarter, global DTC subscribers increased 1.3 million, or 2%, to 63.7 million at
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
June 30,
2022 from 62.4 million at March 31, 2022, and Paramount+ subscribers grew 3.7 million, or 9% to 43.3 million, driven by launches in international markets as well as growth in U.S. subscribers. The year-over-year comparisons and the growth in the quarter were each impacted by the removal of subscribers in Russia, where we suspended our operations following Russia’s invasion of Ukraine. This resulted in the removal of 3.9 million global DTC subscribers during the second quarter of 2022, including 1.2 million for Paramount+. Excluding the impact of the removal of subscribers in Russia, global DTC subscribers increased 5.2 million and Paramount+ subscribers increased 4.9 million during the second quarter of 2022.
Adjusted OIBDA
Adjusted OIBDA decreased $302 million, as the revenue growth was more than
offset by higher costs to support growth in our DTC services including content, marketing, distribution, employee and technology costs.
For
the six months ended June 30, 2022, the 67% increase in revenues was primarily driven by growth from Paramount+, Pluto TV and Showtime OTT.
Advertising
The 39% increase in advertising revenues reflects growth from Paramount+ and Pluto TV, which was driven by increases in pricing and impressions, benefiting from subscriber growth for Paramount+ and MAU growth for Pluto TV.
Subscription
The 84% increase in subscription revenues was primarily driven by growth from Paramount+ and Showtime OTT.
Adjusted OIBDA
Adjusted OIBDA decreased $609 million, as the revenue growth was more than offset by
higher costs to support growth in our DTC services including content, marketing, distribution, employee and technology costs.
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(a) Primarily reflects advertising revenues earned from the use of Filmed Entertainment content on third party digital platforms as well as sponsorships.
Revenues
For the three months ended June 30,
2022, the 126% increase in revenues reflects growth across all revenue streams, primarily driven by the benefit from our recent theatrical releases.
Theatrical
Theatrical revenues increased $630 million, principally reflecting the strong performance of the current quarter theatrical releases of Top Gun: Maverick and Sonic the Hedgehog 2, and the first quarter release of The Lost City, while the prior-year period benefited from the theatrical releases of A Quiet Place Part II and Wrath of Man.
Licensing and Other
The
27% increase in licensing and other revenues was primarily driven by the monetization of recent theatrical releases, reflecting the benefit from a higher volume of theatrical releases during the past year, as well as the licensing of Senior Year.
Adjusted OIBDA
Adjusted OIBDA increased $129 million, reflecting the strong performance of current year releases.
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Management’s Discussion and Analysis of
Results of Operations
and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(a) Primarily reflects advertising revenues earned from the use of Filmed Entertainment content on third party digital platforms as well as sponsorships.
Revenues
For the six months ended June 30,
2022, the 36% increase in revenues reflects higher theatrical revenues, partially offset by lower licensing revenues.
Theatrical
The $760 million increase in theatrical revenues reflects the success of our current year releases, including the previously-mentioned releases that drove the growth in the three-month period, as well as the first quarter theatrical releases of Scream and Jackass Forever. The comparable period in 2021 included revenues from the second quarter 2021 theatrical releases of A Quiet Place Part II and Wrath of Man. There were no theatrical releases in the first quarter of 2021 as movie theaters continued to be impacted by closures or reduced capacity
in response to COVID-19.
Licensing and Other
The 18% decrease in licensing and other revenues primarily reflects lower revenues from the licensing of library titles.
Adjusted OIBDA
Adjusted OIBDA decreased 38%, mainly reflecting lower profits from the licensing of library titles, partially offset by higher profits from current year releases.
Fluctuations in results for the Filmed Entertainment segment may occur as a result of the timing of the recognition of distribution costs, including print and advertising, which are generally incurred before and throughout the theatrical release of a film, while the revenues for the respective film
are recognized as earned through the film’s theatrical exhibition and distribution to other platforms.
Liquidity and Capital Resources
Sources and Uses of Cash
We project anticipated cash requirements for our operating, investing and financing needs as well as cash flows expected to be generated and available to meet these needs. Our operating needs include, among other items, expenditures for content for our broadcast and cable networks and DTC services, including television and film programming, sports rights, and talent contracts, as well as advertising and marketing costs to promote our content and platforms; payments for leases, interest,
and income taxes; and pension funding obligations. Our investing and
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
financing spending includes capital expenditures; acquisitions; funding relating to new and existing investments, including funding of our streaming joint venture with Comcast, SkyShowtime, under which both parent companies have committed to support initial operations; share repurchases; dividends and principal payments on our outstanding indebtedness. We believe that our operating
cash flows, cash and cash equivalents, borrowing capacity under our $3.50 billion Credit Facility described below, as well as access to capital markets are sufficient to fund our operating, investing and financing requirements for the next twelve months.
Our funding for short-term and long-term obligations, including our long-term debt obligations due over the next five years, which were $2.35 billion as of June 30, 2022, as well as our other long term commitments, will come primarily from cash flows from operating activities, proceeds from non-core asset sales, including the planned sale of Simon & Schuster described below, and our ability to refinance our debt. Any additional cash funding requirements are financed with short-term borrowings, including commercial paper, and long-term debt. To the extent that commercial paper is not available to us, the
Credit Facility provides sufficient capacity to satisfy short-term borrowing needs. We routinely assess our capital structure and opportunistically enter into transactions to manage our outstanding maturities, which could result in a charge from the early extinguishment of debt.
During 2020, we entered into an agreement to sell Simon & Schuster for $2.175 billion in cash, and expect to use proceeds from the sale to invest in our strategic growth priorities, including in streaming, as well as to fund dividends and pay down debt. On November 2, 2021, the U.S. Department of Justice filed suit to block the sale. The purchase agreement contains commitments on the part of the purchaser to take all necessary steps to obtain any required regulatory approvals and to defend any litigation that would delay or prevent
consummation, and also provides for a $200 million termination fee payable to us in certain circumstances in the event the transaction does not close for regulatory reasons. The trial commenced on August 1, 2022 and is expected to conclude on or about August 18, 2022 (see Legal Matters).
On March 26, 2021, we completed offerings of 20 million shares of our Class B Common Stock at a price to the public of $85 per share and 10 million shares of 5.75% Series A Mandatory Convertible Preferred Stock at a price to the public and liquidation preference of $100 per share. The net proceeds from the Class B Common Stock offering and the Mandatory Convertible Preferred Stock offering were approximately $1.67 billion and $983
million, respectively, in each case after deducting underwriting discounts, commissions and estimated offering expenses. We have used and intend to continue to use the net proceeds for general corporate purposes, including investments in streaming.
Our access to capital markets can be impacted by factors outside our control, including economic conditions; however, we believe that our strong cash flows and balance sheet, our credit facility and our credit rating will provide us with adequate access to funding for our expected cash needs. The cost of any new borrowings is affected by market conditions and short and long-term debt ratings assigned by independent rating agencies, and there can be no assurance that we will be able to access capital markets on terms and conditions that will be favorable to us.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Cash Flows
The changes in cash, cash equivalents and restricted cash were as follows:
Net cash flow provided by operating activities from:
Continuing operations
$
475
$
1,702
$
(1,227)
Discontinued
operations
116
89
27
Net cash flow provided by operating activities
591
1,791
(1,200)
Net cash flow (used for) provided by investing activities from:
Continuing
operations
(257)
131
(388)
Discontinued operations
(1)
(2)
1
Net cash flow (used for) provided by investing activities
(258)
129
(387)
Net
cash flow (used for) provided by financing activities
(2,498)
351
(2,849)
Effect of exchange rate changes on cash and cash equivalents
(65)
(8)
(57)
Net (decrease) increase in cash,
cash equivalents and restricted cash
$
(2,230)
$
2,263
$
(4,493)
Operating Activities. For the six months ended June 30, 2022, the decrease in cash flow provided by operating activities from continuing operations was mainly driven by an increased investment in our DTC services, including spending for content, marketing and distribution costs, and the timing of incentive compensation payments.
Cash
flow provided by operating activities for the six months ended June 30, 2022 and 2021 included payments for restructuring, merger-related costs and transformation initiatives of $95 million and $181 million, respectively. Since the Merger, we have invested in a number of transformation initiatives. Initially, these were undertaken to realize synergies related to the Merger. Beginning in 2022, our transformation initiatives are related to future-state technology, including the unification and evolution of systems and platforms, and migration to the cloud. In addition, we are investing in future-state workspaces, including adapting our facilities to accommodate our hybrid and agile work model.
Cash flow provided by operating activities from discontinued operations reflects the operating activities of Simon & Schuster.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net cash flow (used for) provided by investing activities from continuing operations
(257)
131
Net
cash flow used for investing activities from discontinued operations
(1)
(2)
Net cash flow (used for) provided by investing activities
$
(258)
$
129
(a) 2022 and 2021 primarily include investment in
The CW. 2022 also includes investment in SkyShowtime.
(b) Includes payments associated with the implementation of our transformation initiatives of $26 million and $36 million in 2022 and 2021, respectively.
(c) 2022 primarily reflects the disposition of international intangible assets. 2021 primarily reflects proceeds received from the sale of our investment in fuboTV Inc. during the fourth quarter of 2020, as well as proceeds received from the sales of a noncore trademark licensing operation and an investment.
Payment
of payroll taxes in lieu of issuing shares for stock-based compensation
(13)
(49)
Proceeds from exercise of stock options
—
408
Payments to noncontrolling interests
(77)
(157)
Other
financing activities
(34)
(42)
Net cash flow (used for) provided by financing activities
$
(2,498)
$
351
Dividends
We
declared cash dividends of $.24 per share on our Class A and Class B Common Stock during each of the three months ended June 30, 2022 and 2021, resulting in total dividends of $160 million and $158 million, respectively. We declared cash dividends of $.48 per share on our Class A and Class B Common Stock during each of the six months ended June 30, 2022 and 2021, resulting in total dividends of $318 million and $310 million, respectively.
During each of the first and second quarters of 2022, we declared a quarterly cash dividend of $1.4375 per share on our Mandatory Convertible Preferred Stock, resulting in total dividends of $14.4 million for the three months ended June 30, 2022,
and $28.8 million for the six months ended June 30, 2022. During the second quarter of 2021, we declared a cash dividend of $1.5493 per share on our Mandatory Convertible Preferred Stock, representing a dividend period from March 26, 2021 through July 1, 2021. Accordingly, we recorded dividends on the Mandatory Convertible Preferred Stock of $14.4 million and $15.4 million during the three and six months ended June 30, 2021, respectively.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(a) At June 30, 2022 and December 31, 2021, the senior and junior subordinated debt balances included (i) a net unamortized discount of $451 million and $466 million, respectively, and (ii) unamortized deferred financing costs of $92 million and $95 million, respectively. The face value of our total debt was $16.35 billion and $18.27 billion at June 30,
2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, we redeemed senior notes totaling $2.39 billion, prior to maturity, for an aggregate redemption price of $2.49 billion which included second quarter redemptions of $970 million for a redemption price of $1.01 billion. Additionally, in February 2022, we redeemed our $520 million of 5.875% junior subordinated debentures due February 2057 at par. These redemptions resulted in a total pre-tax loss on extinguishment of debt of $47 million and $120 million for the three and six months ended June 30, 2022, respectively.
During the six months ended June 30, 2022,
we issued $1.00 billion of 6.375% junior subordinated debentures due 2062. The interest rate on these debentures will reset on March 30, 2027, and every five years thereafter to a fixed rate equal to the 5-year Treasury Rate (as defined pursuant to the terms of the debentures) plus a spread of 3.999% from March 30, 2027, 4.249% from March 30, 2032 and 4.999% from March 30, 2047. These debentures can be called by us at par plus a make whole premium any time before March 30, 2027, or at par on March 30, 2027, or at any interest payment date thereafter.
During the six months ended June 30, 2021, we redeemed senior
notes totaling $1.99 billion, prior to maturity, for an aggregate redemption price of $2.11 billion resulting in a pre-tax loss on extinguishment of debt of $128 million.
Our 6.25% junior subordinated debentures due February 2057 accrue interest at the stated fixed rates until February 28, 2027, on which date the rate will switch to a floating rate. Under the terms of the debentures the floating rate is based on three-month LIBOR plus 3.899%, reset quarterly. These debentures can be called by us at par at any time after the expiration of the fixed-rate period.
The subordination, interest deferral option and extended term of our junior subordinated debentures provide significant credit protection measures for senior creditors and, as a result of these features, the debentures received a 50% equity
credit by Standard & Poor’s Rating Services and Fitch Ratings Inc., and a 25% equity credit by Moody’s Investors Service, Inc.
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Credit
Facility
At June 30, 2022, we had a $3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”). The Credit Facility is used for general corporate purposes and to support commercial paper borrowings, if any. We may, at our option, also borrow in certain foreign currencies up to specified limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the time of each borrowing and are generally based on either the prime rate in the U.S. or an applicable benchmark rate plus a margin (based on our senior unsecured debt rating), depending on the type and tenor of the loans entered. The benchmark rate for loans denominated in euros, sterling and yen is based on EURIBOR, SONIA and TIBOR rates, respectively. The Credit Facility has one principal financial covenant that requires our Consolidated Total Leverage Ratio to
be less than 4.5x (which we may elect to increase to 5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter. The Consolidated Total Leverage Ratio reflects the ratio of our Consolidated Indebtedness at the end of a quarter, to our Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing twelve-month period. On February 14, 2022, we amended our Credit Facility to modify the definition of the Consolidated Total Leverage Ratio in the amended credit agreement to allow unrestricted cash and cash equivalents to be netted against Consolidated Indebtedness through June 2024. We met the covenant as of June 30, 2022.
At June 30,
2022, we had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $3.50 billion.
Other Bank Borrowings
At June 30, 2022 and December 31, 2021, we had bank borrowings under Miramax’s $300 million credit facility, which matures in April 2023, of $25 million and $35 million, respectively, with weighted average interest rates of 4.36% and 3.50%, respectively.
Guarantees
Letters of Credit and Surety Bonds
We have
indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2022, the outstanding letters of credit and surety bonds approximated $173 million and were not recorded on the Consolidated Balance Sheet.
CBS Television City
In connection with the sale of the CBS Television City property and sound stage operation (“CBS Television City”) in 2019, we guaranteed a specified level of cash flows to be generated by the business during the first five years following the completion of the sale. Included in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet at June 30, 2022 is a liability totaling $51 million,
reflecting the present value of the estimated amount remaining under the guarantee obligation.
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Lease Guarantees
We have certain indemnification obligations with respect to leases primarily associated with the previously discontinued operations of Famous Players Inc. These lease commitments totaled $41 million at June 30, 2022 and are presented within “Other
liabilities” on the Consolidated Balance Sheet. The amount of lease commitments varies over time depending on the expiration or termination of individual underlying leases, or the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We believe our accrual is sufficient to meet any future obligations based on our consideration of available financial information, the lessees’ historical performance in meeting their lease obligations and the underlying economic factors impacting the lessees’ business models.
Other
In the course of our business, we both provide and receive indemnities which are intended to allocate certain risks associated with business transactions. Similarly,
we may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. We record a liability for our indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
General
On an ongoing basis, we vigorously defend ourselves in numerous lawsuits and proceedings and respond to various investigations and inquiries from federal, state, local and international authorities (collectively, “litigation”). Litigation may be brought against us without merit, is inherently uncertain and always difficult to predict. However, based on our understanding and
evaluation of the relevant facts and circumstances, we believe that the following matters are not likely, in the aggregate, to result in a material adverse effect on our business, financial condition and results of operations.
Stockholder Matters
Litigation Relating to the Merger
Beginning on February 20, 2020, three purported CBS stockholders filed separate derivative and/or putative class action lawsuits in the Court of Chancery of the State of Delaware. On March 31, 2020, the Court consolidated the three lawsuits and appointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs for the consolidated action. On April
14, 2020, the lead plaintiffs filed a Verified Consolidated Class Action and Derivative Complaint (as used in this paragraph, the “Complaint”) against Shari E. Redstone, NAI, Sumner M. Redstone National Amusements Trust, members of the CBS Board of Directors (comprised of Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Robert N. Klieger, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick), former CBS President and Acting Chief Executive Officer Joseph Ianniello and the Company as nominal defendant. The Complaint alleges breaches of fiduciary duties to CBS stockholders in connection with the negotiation and approval of the Agreement and Plan of merger of Viacom Inc. (“Viacom”) with and into CBS Corporation (“CBS”)
(the “Merger”) dated as of August 13, 2019, as amended on October 16, 2019 (the “Merger Agreement”). The Complaint also alleges waste and unjust enrichment in connection with Mr. Ianniello’s compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On June 5, 2020, the defendants filed motions to dismiss. On January 27, 2021, the Court dismissed one disclosure claim, while allowing all other claims against the defendants to proceed. Discovery on the surviving claims is
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Beginning on November 25, 2019, four purported Viacom stockholders filed separate putative class action lawsuits in the Court of Chancery of the State of Delaware. On January 23, 2020, the Court consolidated the four lawsuits. On February 6, 2020, the Court appointed California Public Employees’ Retirement System (“CalPERS”) as lead plaintiff for the consolidated action. On
February 28, 2020, CalPERS, together with Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago and Louis M. Wilen, filed a First Amended Verified Class Action Complaint (as used in this paragraph, the “Complaint”) against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the special transaction committee of the Viacom Board of Directors (comprised of Thomas J. May, Judith A. McHale, Ronald L. Nelson and Nicole Seligman) and our President and Chief Executive Officer and director, Robert M. Bakish. The Complaint alleges breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On May 22, 2020, the defendants filed motions to dismiss. On December
29, 2020, the Court dismissed the claims against Mr. Bakish, while allowing the claims against the remaining defendants to proceed. Discovery on the surviving claims is proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Investigation-Related Matters
As announced on August 1, 2018, the CBS Board of Directors retained two law firms to conduct a full investigation of the allegations in press reports about CBS’ former Chairman of the Board, President and Chief Executive Officer, Leslie Moonves, CBS News and cultural issues at CBS. On December 17, 2018, the CBS Board of Directors announced the completion of its investigation, certain findings of the investigation and the CBS Board of Directors’ determination,
with respect to the termination of Mr. Moonves’ employment. We have received subpoenas or requests for information from the New York County District Attorney’s Office, the New York City Commission on Human Rights, the New York State Attorney General’s Office and the United States Securities and Exchange Commission regarding the subject matter of this investigation and related matters, including with respect to CBS’ related public disclosures. We may continue to receive additional related regulatory and investigative inquiries from these and other entities in the future. We are cooperating with these inquiries.
On August 27, 2018 and on October 1, 2018, Gene Samit and John Lantz, respectively, filed putative class action lawsuits in the United States District Court for the Southern District of New York, individually
and on behalf of others similarly situated, for claims that are similar to those alleged in the amended complaint described below. On November 6, 2018, the Court entered an order consolidating the two actions. On November 30, 2018, the Court appointed Construction Laborers Pension Trust for Southern California as the lead plaintiff of the consolidated action. On February 11, 2019, the lead plaintiff filed a consolidated amended putative class action complaint against CBS, certain current and former senior executives and members of the CBS Board of Directors. The consolidated action is stated to be on behalf of purchasers of CBS Class A Common Stock and Class B Common Stock between September 26, 2016 and December 4, 2018.
This action seeks to recover damages arising during this time period allegedly caused by the defendants’ purported violations of the federal securities laws, including by allegedly making materially false and misleading statements or failing to disclose material information, and seeks costs and expenses as well as remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On April 12, 2019, the defendants filed motions to dismiss this action, which the Court granted in part and denied in part on January 15, 2020. With the exception of one statement made by Mr. Moonves at an industry event in November 2017, in which he allegedly was acting as the agent of CBS, all claims as to all other allegedly false and misleading statements were dismissed. We reached an agreement with the plaintiffs to settle the lawsuit. The
settlement, which includes no admission of liability or wrongdoing by
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Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
On August 13, 2021, Camelot Event Driven Fund filed a putative securities class action lawsuit in New York Supreme Court, County of New York, and on November 5, 2021, an amended complaint was filed that, among other changes, added an additional named plaintiff (the “Complaint”). The Complaint is purportedly on behalf of investors who purchased shares of the Company’s Class B Common Stock and 5.75% Series A Mandatory Convertible Preferred Stock pursuant to public securities offerings completed in March 2021, and was filed against the
Company, certain senior executives, members of our Board of Directors, and the underwriters involved in the offerings. The Complaint asserts violations of federal securities law and alleges that the offering documents contained material misstatements and omissions, including through an alleged failure to adequately disclose certain total return swap transactions involving Archegos Capital Management referenced to our securities and related alleged risks to the Company’s stock price. On December 22, 2021, the plaintiffs filed a stipulation seeking the voluntary dismissal without prejudice of the outside director defendants from the lawsuit, which the Court subsequently ordered. On the same date, the defendants filed motions to dismiss the lawsuit, which are pending. The complaint seeks unspecified compensatory damages, as well as other
relief. We believe that the claims are without merit and intend to defend against them vigorously.
Litigation Related to Television Station Owners
On September 9, 2019, the Company was added as a defendant in a multi-district putative class action lawsuit filed in the United States District Court for the Northern District of Illinois. The lawsuit was filed by parties that claim to have purchased broadcast television spot advertising beginning on or about January 1, 2014 on television stations owned by one or more of the defendant television station owners and alleges the sharing of allegedly competitively sensitive information among such television stations in alleged violation of
the Sherman Antitrust Act. The action, which names the Company among fourteen total defendants, seeks monetary damages, attorneys’ fees, costs and interest as well as injunctions against the allegedly unlawful conduct. On October 8, 2019, the Company and other defendants filed a motion to dismiss the matter, which was denied by the Court on November 6, 2020. We have reached an agreement in principle with the plaintiffs to settle the lawsuit. The settlement, which will include no admission of liability or wrongdoing by the Company, will be subject to Court approval.
Litigation
Related to the Proposed Sale of Simon & Schuster
On November 2, 2021, the U.S. Department of Justice (the “DOJ”) filed suit in the United States District Court for the District of Columbia to block our sale of the Simon & Schuster business to Penguin Random House (the “Transaction”) pursuant to a Share Purchase Agreement (“Purchase Agreement”), dated November 24, 2020, between the Company, certain of its subsidiaries, Penguin Random House and Bertelsmann SE & Co. KGaA. The DOJ asserts that the sale of Simon & Schuster would reduce competition for the acquisition of titles. The Purchase Agreement contains customary representations
and warranties and covenants, including commitments on the part of Penguin Random House to take all necessary steps to obtain any required regulatory approvals and to defend any litigation that would delay or prevent consummation, and also provides for a $200 million termination fee payable to the Company in certain circumstances in the event the Transaction does not close for regulatory reasons. The trial commenced on August 1, 2022 and is expected to conclude on or about August 18, 2022. We and the other defendants believe the DOJ’s claims are without merit, and we intend to defend against them vigorously.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Claims Related to Former Businesses
Asbestos
We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. We are typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of our products is the basis of a claim. Claims against us in which a product
has been identified most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. We do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2022, we had pending approximately 26,790 asbestos claims, as compared with approximately 27,770 as of December 31, 2021. During the second quarter of 2022, we received approximately 670 new claims and closed or moved to an inactive docket
approximately 640 claims. We report claims as closed when we become aware that a dismissal order has been entered by a court or when we have reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claims, the quality of evidence supporting the claims and other factors. Our total costs for the years 2021 and 2020 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $63 million and $35 million, respectively. Our costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung
cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of pending claims against us are non-cancer claims. It is difficult to predict future asbestos liabilities, as events and circumstances may impact the estimate of our asbestos liabilities, including, among others, the number and types of claims and average cost to resolve such claims. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and when the amount of the loss can be reasonably estimated. We believe that our accrual and insurance are sufficient to cover our asbestos liabilities. Our liability estimate is based upon many factors, including the number of outstanding claims, estimated average cost per claim,
the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims, as well as consultation with a third party firm on trends that may impact our future asbestos liability.
Other
From time to time we receive claims from federal and state environmental regulatory agencies and other entities asserting that we are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations. In addition, from time to time we receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations and predecessors.
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Management’s
Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Related Parties
See Note 4 to the consolidated financial statements.
Recently Adopted Accounting Pronouncements
See Note 1 to the consolidated financial statements.
Critical Accounting Policies
See Item 7, Management’s Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of our critical accounting policies.
This Quarterly Report on Form 10-Q contains both historical and forward‑looking statements, including statements related to our future results and performance. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements reflect our current expectations concerning future results and events; generally can be identified by the use of statements that include phrases such as “believe,”“expect,”“anticipate,”“intend,”“plan,”“foresee,”“likely,”“will,”“may,”“could,”“estimate” or other similar words or phrases; and involve known and
unknown risks, uncertainties and other factors that are difficult to predict and which may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. These risks, uncertainties and other factors include, among others: risks related to our streaming initiatives; changes in consumer behavior, as well as evolving technologies, distribution platforms and packaging; the impact on our advertising revenues as a result of changes in consumer viewership, advertising market conditions and deficiencies in audience measurement; our ability to maintain attractive brands and our reputation, and to offer popular programming and other content; increased costs for content and other rights; competition for talent, content, audiences, subscribers, advertising and distribution; the potential for loss of carriage or other reduction in or the impact of negotiations for the distribution
of our content; losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and programming; risks related to our ongoing investments in new businesses, products, services and technologies, through acquisitions and other strategic initiatives; evolving business continuity, cybersecurity, privacy and data protection and similar risks; content infringement; the impact of COVID-19 and other pandemics and measures taken in response thereto; domestic and global political, economic and regulatory factors affecting our businesses generally; liabilities related to discontinued operations and former businesses; the loss of existing or inability to hire new key employees or secure creative talent; strikes and other union activity; potential conflicts of interest arising from our ownership structure with a controlling stockholder; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not
limited to our most recent Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. There may be additional risks, uncertainties and factors that we do not currently view as material or that are not necessarily known. The forward‑looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we do not undertake any obligation to publicly update any forward‑looking statements to reflect subsequent events or circumstances.
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Management’s Discussion and Analysis of
Results
of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes to market risk since reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item
4.
Controls and Procedures.
Our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended.
No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART
II – OTHER INFORMATION
Item 1.
Legal Proceedings.
The information set forth in Note 14 to the consolidated financial statements appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q under the caption “Legal Matters” is incorporated by reference herein.
Item 1A.
Risk
Factors.
There have been no material changes to risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Company Purchases of Equity Securities
In November 2010, we announced that our Board of Directors
approved a program to repurchase $1.5 billion of our common stock in open market purchases or other types of transactions (including accelerated stock repurchases or privately negotiated transactions). Since then, various increases totaling $16.4 billion have been approved and announced, including most recently, an increase to the share repurchase program to a total availability of $6.0 billion on July 28, 2016. During the second quarter of 2022, we did not purchase any shares under our publicly announced share repurchase program, which had remaining authorization of $2.36 billion at June 30, 2022.
Form of Terms and Conditions for Performance Share Units under ViacomCBS Inc. 2009 Long‑Term Incentive Plan (filed herewith).*
(31)
Rule 13a-14(a)/15d-14(a)
Certifications
(a)
Certification of the Chief Executive Officer of Paramount Global. pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
(b)
Certification of the Chief Financial Officer of Paramount Global pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed
herewith).
(32)
Section 1350 Certifications
(a)
Certification of the Chief Executive Officer of Paramount Global furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
(b)
Certification of the Chief Financial Officer of Paramount
Global furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
(101)
Interactive Data File
101. INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101. SCH Inline XBRL Taxonomy Extension Schema.
101.
CAL Inline XBRL Taxonomy Extension Calculation Linkbase.
101. PRE Inline XBRL Taxonomy Extension Presentation Linkbase.
(104)
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101).
____________________________________
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
