PARAMOUNT GLOBAL EffectiveFebruary 16, 2022 , we changed our name fromViacomCBS Inc. toParamount Global . Management's discussion and analysis of the results of operations and financial condition ofParamount Global should be read in conjunction with our consolidated financial statements and related notes. References in this document to "Paramount ," the "Company," "we," "us" and "our" refer toParamount Global and its consolidated subsidiaries, unless the context otherwise requires.
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 each of the three years endedDecember 31, 2022 , including comparisons of 2022 to 2021 and 2021 to 2020. •Segment Results of Operations-Analysis of our results on a reportable segment basis for each of the three years endedDecember 31, 2022 including comparisons of 2022 to 2021 and 2021 to 2020. •Liquidity and Capital Resources-Discussions of our cash flows, including sources and uses of cash, for each of the three years endedDecember 31, 2022 , and of our outstanding debt, commitments and contingencies as ofDecember 31, 2022 .
•Critical Accounting Policies-Detail with respect to accounting policies that are considered by management to require significant judgment and use of estimates and that could have a significant impact on our financial statements.
•Legal Matters-Discussion of legal matters to which we are involved.
•Market Risk-Discussion of how we manage exposure to market and interest rate risks.
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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)
Overview
Operational Highlights 2022 vs. 2021
Consolidated results of operations Increase/(Decrease) Year Ended December 31, 2022 2021 $ % GAAP: Revenues$ 30,154 $ 28,586 $ 1,568 5 % Operating income$ 2,342 $ 6,297 $ (3,955) (63) % Net earnings from continuing operations attributable to Paramount$ 725 $ 4,381 $ (3,656) (83) % Diluted EPS from continuing operations attributable to Paramount$ 1.03 $ 6.69 $ (5.66) (85) % Non-GAAP: (a) Adjusted OIBDA$ 3,276 $ 4,444 $ (1,168) (26) % Adjusted net earnings from continuing operations attributable to Paramount$ 1,171 $ 2,292 $ (1,121) (49) % Adjusted diluted EPS from continuing operations attributable to Paramount$ 1.71 $ 3.48 $ (1.77) (51) % (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 inthe United States ("GAAP"). For 2022, revenues increased 5% to$30.15 billion , driven by significant growth in our streaming services, led by Paramount+, and higher theatrical revenues, reflecting the success of our 2022 releases, led by Top Gun: Maverick. These increases were partially offset by lower revenues from our linear networks, including the impact from the rotational nature of the rights to air theSuper Bowl , which was broadcast on CBS in 2021 but another network in 2022. The absence of theSuper Bowl negatively impacted the total revenue comparison by 2 percentage points. The revenue comparison also includes a 2 percentage point negative impact from foreign exchange rate changes. Operating income for 2022 decreased 63% to$2.34 billion . This comparison was impacted by higher charges in 2022 for restructuring and other corporate matters, as well as lower gains on dispositions. Adjusted OIBDA, which excludes these items, decreased 26%, driven by our investment in our streaming services, and revenue declines from our linear networks, including from the comparison to the broadcast of theSuper Bowl in 2021. For 2022, net earnings from continuing operations attributable toParamount and diluted EPS from continuing operations decreased 83% and 85%, respectively, from 2021, primarily as a result of the decline in operating income. Adjusted net earnings from continuing operations attributable toParamount and adjusted diluted EPS, which exclude the items impacting the comparability of operating income noted above, discrete tax benefits of$80 million in 2022 and$517 million in 2021, and the other items described under Reconciliation of Non-GAAP Measures for 2022, decreased 49% and 51%, respectively, primarily reflecting the lower Adjusted OIBDA. II-4 --------------------------------------------------------------------------------
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 each of the years presented 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 toParamount , 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 for income taxes, net earnings from continuing operations attributable toParamount 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.
Year Ended December 31, 2022 2021 2020
Operating income (GAAP) $ 2,342 $ 6,297 $ 4,139
Depreciation and amortization (a) 405 390 430
Restructuring and other corporate matters (b) 585 100 618
Programming charges (b) - - 159
Net gain on dispositions (b) (56) (2,343) (214)
Adjusted OIBDA (Non-GAAP) $ 3,276 $ 4,444 (a) 2022 and 2020 include impairment charges forFCC licenses of$27 million and$25 million , respectively, and 2020 includes accelerated depreciation of$12 million for technology that was abandoned in connection with synergy plans related to the merger of Viacom Inc. ("Viacom") with and intoCBS Corporation ("CBS") (the "Merger").
(b) See notes on the following tables for additional information on items affecting comparability.
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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)
Year Ended December 31, 2022
Earnings from Continuing Net Earnings from
Operations Before Income Provision for Income Continuing Operations Diluted EPS from
Taxes Taxes Attributable to Paramount Continuing Operations
Reported (GAAP) $ 1,266 $ (227) $ 725 $ 1.03
Items affecting comparability:
Restructuring and other corporate
matters (a) 585 (137) 448 .69
Impairment charge (b) 27 (7) 20 .03
Gain on dispositions (c) (56) 14 (42) (.06)
Loss from investments (d) 9 (1) 8 .01
Loss on extinguishment of debt 120 (28) 92 .14
Discrete tax items (e) - (80) (80) (.13)
Adjusted (Non-GAAP) $ 1,951 $ (466) $ 1,171 $ 1.71
(a) Comprised of charges of $328 million for restructuring, as described under
Restructuring and Other Corporate Matters, consisting of severance costs and the
impairment of lease assets; $211 million associated with litigation described
under Legal Matters-Stockholder Matters; and $46 million recorded following
Russia's invasion of Ukraine in the first quarter of 2022, principally to
reserve against amounts due from counterparties in Russia , Belarus and Ukraine .
(b) Reflects a charge to reduce the carrying values of
(c) Reflects a$41 million gain recognized upon the contribution of certain assets of Paramount+ inDenmark ,Finland ,Norway andSweden (the "Nordics") to SkyShowtime, our streaming joint venture ("SkyShowtime") as well as gains totaling$15 million 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.
(d) Reflects a loss on the sale of a 37.5% interest in The CW and an impairment of an investment sold in the fourth quarter of 2022.
(e) 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.
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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)
Year Ended December 31, 2021
Earnings from Continuing Net Earnings from
Operations Before Income Provision for Income Continuing Operations Diluted EPS from
Taxes Taxes Attributable to Paramount Continuing Operations
Reported (GAAP) $ 5,206 $ (646) $ 4,381 $ 6.69
Items affecting comparability:
Restructuring (a) 100 (25) 75 .11
Net gain on dispositions (b) (2,343) 592 (1,751) (2.67)
Gains from investments (c) (47) 11 (36) (.05)
Loss on extinguishment of debt 128 (30) 98 .15
Pension settlement charge (d) 10 (2) 8 .01
Discrete tax items (e) - (517) (517) (.79)
Impairment of equity-method
investment,
net of tax - - 34 .05Impact of antidilution of Mandatory
Convertible Preferred Stock (f) - - - (.02) Adjusted (Non-GAAP)$ 3,054 $ (617) $ 2,292 $ 3.48
(a) Reflects severance costs and the impairment of lease assets.
(b) Primarily reflects gains on the sales of CBS Studio Center,51 West 52nd Street , an office tower that was formerly the headquarters of CBS ("51 West 52nd Street "), and a noncore trademark licensing operation. (c) Primarily reflects a gain of$37 million on the sale of an investment and a gain of$9 million from an increase in the fair value of an investment that was sold during the third quarter of 2021.
(d) Reflects the accelerated recognition of a portion of the unamortized actuarial losses due to the volume of lump sum benefit payments in one of our pension plans.
(e) Primarily reflects a benefit of$260 million to remeasure ourUnited Kingdom ("U.K.") net deferred income tax asset as a result of the enactment of an increase in theU.K. corporate income tax rate from 19% to 25% beginningApril 1, 2023 , a benefit of$229 million from the recognition of a capital loss associated with a change in the tax entity classification of a foreign subsidiary, as well as a net tax benefit in connection with the settlement of income tax audits. (f) The weighted average number of common shares outstanding used in the calculation of reported diluted EPS from continuing operations was 655 million and in the calculation of adjusted diluted EPS from continuing operations was 646 million. These amounts differ because adjusted diluted EPS excludes the effect of the assumed conversion of our Mandatory Convertible Preferred Stock into shares of common stock since the impact would have been antidilutive. As a result, in the calculation of adjusted diluted EPS, the weighted average number of diluted shares outstanding does not include the assumed issuance of shares upon conversion of preferred stock, and preferred stock dividends recorded during the year endedDecember 31, 2021 of$44 million are deducted from net earnings from continuing operations. II-7 -------------------------------------------------------------------------------- Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) (Tabular dollars in millions, except per share amounts) Year Ended December 31, 2020 Earnings from Continuing Net Earnings from Operations Before Income Provision for Income Continuing Operations Diluted EPS from Taxes Taxes Attributable to Paramount Continuing Operations Reported (GAAP)$ 3,147 $ (535) $ 2,305 $ 3.73 Items affecting comparability: Restructuring and other corporate matters (a) 618 (133) 485 .79 Impairment charge (b) 25 (6) 19 .03 Depreciation of abandoned technology (c) 12 (3) 9 .01 Programming charges (d) 159 (39) 120 .20 Gain on dispositions (e) (214) 31 (183) (.30) Net gains from investments (f) (206) 50 (156) (.25) Loss on extinguishment of debt 126 (29) 97 .16 Discrete tax items (g) - (110) (110) (.18) Impairment of equity-method investment, net of tax - - 9 .01 Adjusted (Non-GAAP)$ 3,667 $ (774) $ 2,595 $ 4.20 (a) Comprised of charges of$542 million for restructuring, consisting of severance costs, the impairment of lease assets and other exit costs; costs of$56 million incurred in connection with the Merger; and charges of$15 million to write down property and equipment that was classified as held for sale and$5 million for other corporate matters.
(b) Reflects a charge to reduce the carrying values of
(c) Reflects accelerated depreciation for technology that was abandoned in connection with synergy plans related to the Merger.
(d) Primarily related to the abandonment of certain incomplete programs resulting from production shutdowns related to the coronavirus pandemic ("COVID-19").
(e) Reflects a gain on the sale of
(f) Primarily reflects an increase in the value of our investment in fuboTV, Inc. ("fuboTV"), which was sold in the fourth quarter of 2020.
(g) Primarily reflects a benefit from the remeasurement of ourU.K. net deferred income tax asset as a result of an increase in theU.K. corporate income tax rate from 17% to 19% enacted during the third quarter of 2020.
Consolidated Results of Operations - 2022 vs. 2021
Revenues Revenues by Type % of Total % of Total Increase/(Decrease) Year Ended December 31, 2022 Revenues 2021 Revenues $ % Advertising$ 10,890 36 %$ 11,412 40 % $ (522) (5) % Affiliate and subscription 11,551 38 10,442 36 1,109 11 Theatrical 1,223 4 241 1 982 407 Licensing and other 6,490 22 6,491 23 (1) - Total Revenues$ 30,154 100 %$ 28,586 100 % $ 1,568 5 % Advertising Advertising revenues are generated primarily from the sale of advertising spots on our global broadcast and cable networks, television stations, and streaming services. For 2022, the 5% decrease in advertising revenues principally reflects the rotational nature of the rights to broadcast theSuper Bowl , which aired on CBS in 2021 II-8 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
but another network in 2022, resulting in a negative impact on the advertising comparison of 4 percentage points. The advertising revenue comparison also includes a negative impact of 2 percentage points from unfavorable foreign exchange rate changes.
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) and our owned television stations
(retransmission fees), fees received from television stations for their
affiliation with the CBS Television Network ("reverse compensation"), and
subscription fees for our streaming services. For 2022, affiliate and
subscription revenues increased 11% driven by growth in subscribers for our
streaming services of 21.2 million, or 38%, to 77.3 million at December 31, 2022
from 56.1 million at December 31, 2021 , led by an increase of 23.1 million for
Paramount+ to 55.9 million at December 31, 2022 . The increase was partially
offset by lower affiliate fees for our linear networks.
Theatrical
Theatrical revenues are principally earned from the worldwide theatrical distribution of films through audience ticket sales. For 2022, theatrical revenues increased$982 million driven by the success of our 2022 releases, led by Top Gun: Maverick, as well as Sonic the Hedgehog 2, Smile and The Lost City. We had fewer theatrical releases in 2021, due to the impacts from COVID-19 on movie theaters and film production. Releases in 2021 included A Quiet Place Part II and PAW Patrol: The Movie. 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 or distributed for third parties; home entertainment revenues, which include 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; and revenues from the rental of production facilities. Licensing and other revenues for 2022 of$6.49 billion remained flat compared with 2021. Operating Expenses % of % of Operating Expenses by Type Operating Operating Increase/(Decrease) Year EndedDecember 31, 2022 Expenses 2021 Expenses $ % Content costs$ 15,980 81 %$ 14,703 83 % $ 1,277 9 % Distribution and other 3,865 19 3,041 17 824 27 Total Operating Expenses$ 19,845 100 %$ 17,744 100 % $ 2,101 12 % 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. II-9 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For 2022, content costs increased 9% reflecting investment in content for our
streaming services and higher costs associated with theatrical releases,
partially offset by costs in 2021 from
InJanuary 2023 , we announced that we will be fully integratingShowtime into Paramount+ across both streaming and linear platforms later in 2023. In connection with this plan, we have undertaken a comprehensive strategic review of the combined content portfolio ofShowtime and Paramount+. At the same time, we are rationalizing and right-sizing our international operations to align with our streaming strategy, and closing or globalizing certain of our international channels. We plan to complete this review in the first quarter of 2023 and abandon or remove from our platforms certain content, which will result in charges for the impairment or abandonment of the affected content, which we estimate will be approximately$1.3 billion to$1.5 billion .
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 third-party distribution; compensation; revenue-sharing costs to television stations affiliated with theCBS Television Network ; and other ancillary and overhead costs associated with our operations. For 2022, distribution and other expenses increased 27% primarily reflecting higher costs associated with theatrical content as well as the growth of our streaming services, including costs for third-party distribution and to support the international expansion of our streaming services.
Selling, General and Administrative Expenses
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Selling, general and administrative expenses $ 7,033 $ 6,398 $ 635 10 %
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. The 10% increase in
SG&A expenses in 2022 was driven by advertising, marketing and other cost
increases to support the growth and expansion of our streaming services.
Depreciation and Amortization
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Depreciation and amortization $ 405 $ 390 $ 15 4 %
Depreciation and amortization expense reflects depreciation of fixed assets,
including equipment under finance leases, amortization of finite-lived
intangible assets, and impairment of fixed and intangible assets, when
applicable. For 2022, amortization expense included an impairment charge of
$27 million in the TV Media segment to write down the carrying values of FCC
licenses in two markets to their estimated fair values. The impairment charge
was the result of a higher discount rate utilized in our annual impairment
tests, reflecting the impacts of market volatility and higher interest rates.
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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)
Restructuring and Other Corporate Matters
During the years ended
Year Ended December 31, 2022 2021
Severance (a) $ 260 $ 65
Lease impairments and other exit costs 68 35
Restructuring charges 328 100
Other corporate matters 257 -
Restructuring and other corporate matters $ 585 $ 100 (a) Severance costs include the accelerated vesting of stock-based compensation.
Since the Merger, we have implemented a series of initiatives designed to integrate and transform our operations, including changes in our management structure, some of which resulted in changes to our operating segments (see Segments). These initiatives led to restructuring actions, and as a result, we recorded restructuring charges of$260 million and$65 million during the years endedDecember 31, 2022 and 2021, respectively, for severance associated with the elimination of positions and changes in management. In 2022, the actions giving rise to the restructuring charges are primarily associated with our segment realignment, our plan to integrateShowtime into Paramount+ across both streaming and linear platforms, and restructuring of our international operations. In addition, since the Merger we have been consolidating our real estate portfolio to reduce our real estate footprint and create cost synergies. In connection with this consolidation, we identified lease assets that we determined we would not use and instead sublease or terminate early, which resulted in lease impairment charges of$68 million and$35 million for the years endedDecember 31, 2022 and 2021, respectively. Additionally, in 2022, we recorded charges for other corporate matters of$257 million , consisting of$211 million associated with litigation described under Legal Matters-Stockholder Matters and$46 million recorded followingRussia's invasion ofUkraine in the first quarter of 2022, principally to reserve against amounts due from counterparties inRussia ,Belarus andUkraine .
During 2022, we recorded a gain of$41 million relating to the contribution of certain assets of Paramount+ in the Nordics to SkyShowtime. Also in 2022, we recorded gains on dispositions 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.
During 2021, we completed the sale of
Also in 2021, we completed the sale of CBS Studio Center to
In addition, during 2021 we recognized a net gain of
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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)
Interest Expense and Interest Income
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Interest expense $ 931 $ 986 $ (55) (6) %
Interest income $ 108 $ 53 $ 55 104 %
The following table presents our outstanding debt balances, excluding finance
leases, and the weighted average interest rate as of December 31, 2022 and 2021:
Weighted Average Weighted Average
At December 31, 2022 Interest Rate 2021 Interest Rate
Total long-term debt $ 15,781 5.13 % $ 17,658 4.93 %
Other bank borrowings $ 55 7.09 % $ 35 3.50 %
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Net gains (losses) from investments $ (9) $ 47 $ (56) (119) %
Net gains (losses) from investment for 2022 includes a loss of $4 million on the
sale of a 37.5% interest in The CW, which is principally comprised of
transaction costs, and a $5 million impairment of an investment that was sold
during the fourth quarter of 2022. Net gains (losses) from investments for 2021
primarily includes a gain of $37 million on the sale of an investment and a gain
of $9 million from an increase in the fair value of a marketable security that
was sold during the third quarter of 2021.
Loss on Extinguishment of Debt
For 2022 and 2021, we recorded losses on extinguishment of debt of
Other Items, Net
The following table presents the components of Other items, net.
Year Ended December 31, 2022 2021
Pension and postretirement benefit costs $ (65) $ (43)
Foreign exchange losses (58) (26)
Pension settlement charge (a) - (10)
Other (1) 2
Other items, net $ (124) $ (77) (a) Reflects the accelerated recognition of a portion of the unamortized actuarial losses due to the volume of lump sum benefit payments in one of our pension plans.
Provision for Income Taxes The provision 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 2022, we recorded a provision for income taxes of$227 million , reflecting an effective income tax rate of 17.9%. Included in the provision for II-12 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
income taxes was a net discrete tax benefit of $80 million , primarily resulting
from the transfer of intangible assets between our subsidiaries in connection
with a reorganization of our international operations. This net discrete tax
benefit, together with a net tax benefit of $159 million on the items identified
as affecting comparability in Reconciliation of Non-GAAP Measures, which
primarily consist of restructuring and other corporate matters, reduced our
effective income tax rate by 6.0 percentage points.
For 2021, we recorded a provision for income taxes of $646 million , reflecting
an effective income tax rate of 12.4%. Included in the provision for income
taxes was a net discrete tax benefit of $517 million , which includes a benefit
of $260 million to remeasure our U.K. net deferred income tax asset as a result
of the enactment during the second quarter of 2021 of an increase in the U.K.
corporate income tax rate from 19% to 25% beginning April 1, 2023 , a benefit of
$229 million from the recognition of a capital loss associated with a change in
the tax entity classification of a foreign subsidiary, as well as a net tax
benefit in connection with the settlement of income tax audits. The net discrete
tax benefit of $517 million , together with a net tax provision of $546 million
on the items identified as affecting comparability in Reconciliation of Non-GAAP
Measures, which principally include net gains on dispositions, reduced our
effective income tax rate by 7.8 percentage points.
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in loss of investee companies for our equity-method investments.
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Equity in loss of investee companies $ (237) $ (140) $ (97) (69) %
Tax benefit 33 49 (16) (33)
Equity in loss of investee companies, net of tax
(113) (124) %
For 2022, the increase in equity in loss of investee companies, net of tax was driven by our investment in SkyShowtime.
For 2021, equity in loss of investee companies, net of tax includes an
impairment charge of
Net Earnings from Continuing Operations Attributable to
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Net earnings from continuing operations attributable to
Paramount$ 725 $ 4,381 $ (3,656) (83) %
Diluted EPS from continuing operations attributable to
Paramount$ 1.03 $ 6.69 $ (5.66) (85) %
For 2022, net earnings from continuing operations attributable to
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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 Discontinued Operations
InNovember 2020 , we entered into an agreement to sell our publishing business, Simon & Schuster, which was previously reported as the Publishing segment, toPenguin Random House LLC ("Penguin Random House"), a wholly owned subsidiary ofBertelsmann SE & Co. KGaA . As a result, we began presenting Simon & Schuster as a discontinued operation in our consolidated financial statements for the fourth quarter of 2020. InNovember 2021 , theU.S. Department of Justice (the "DOJ") filed suit in theUnited States District Court for the District of Columbia to block the sale and inOctober 2022 the Court ruled in favor of the DOJ. InNovember 2022 , we terminated the agreement and in accordance with its terms, subsequently received a$200 million termination fee (see Legal Matters). Simon & Schuster remains a noncore asset as it does not fit strategically within our video-based portfolio. We expect to enter into a new agreement to sell Simon & Schuster in 2023. Assuming that we do so, closing would be subject to closing conditions that would include regulatory approval. Simon & Schuster continues to be presented as a discontinued operation for all periods presented.
The following tables set forth details of net earnings from discontinued
operations for the years ended
Year Ended December 31, 2022 Simon & Schuster Other (a) Total Revenues$ 1,177 $ -$ 1,177 Costs and expenses: Operating 746 (30) 716 Selling, general and administrative 180 - 180 Restructuring charges 3 - 3 Total costs and expenses 929 (30) 899 Operating income 248 30 278 Termination fee, net of advisory fees 190 - 190 Other items, net (12) - (12) Earnings from discontinued operations 426 30 456 Income tax provision (70) (7) (77) Net earnings from discontinued operations, net of tax$ 356 $ 23 $ 379 Year Ended December 31, 2021 Simon & Schuster Other (a) Total Revenues$ 993 $ -$ 993 Costs and expenses: Operating 618 (16) 602 Selling, general and administrative 158 - 158 Depreciation and amortization 3 - 3 Restructuring charges 1 - 1 Total costs and expenses 780 (16) 764 Operating income 213 16 229 Other items, net (10) - (10) Earnings from discontinued operations 203 16 219 Income tax provision (46) (11) (57) Net earnings from discontinued operations, net of tax$ 157 $ 5 $ 162
(a) Primarily relates to indemnification obligations for leases associated with
the previously discontinued operations of
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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)
Consolidated Results of Operations- 2021 vs. 2020
Revenues Revenues by Type % of Total % of Total Increase/(Decrease) Year Ended December 31, 2021
Revenues 2020 Revenues $ % Advertising$ 11,412 40 %$ 9,751 39 % $ 1,661 17 % Affiliate and subscription 10,442 36 9,166 36 1,276 14 Theatrical 241 1 180 1 61 34 Licensing and other 6,491 23 6,188 24 303 5 Total Revenues$ 28,586 100 %$ 25,285 100 % $ 3,301 13 % Advertising For 2021, the 17% increase in advertising revenues was driven by the benefit in 2021 fromCBS' broadcasts of Super Bowl LV andNCAA Division I Men's Basketball Championship (the "NCAA Tournament") games for which there were no comparable broadcasts on CBS in 2020 and higher advertising for Pluto TV and Paramount+. We have the rights to broadcast theSuper Bowl and the national semi-finals and championship games of theNCAA Tournament on a rotational basis with other networks, including in 2021. Additionally, while we share the games in the preceding rounds of theNCAA Tournament withTurner Broadcasting System, Inc. ("Turner") each year, COVID-19 caused the cancellation of theNCAA Tournament in 2020. These noncomparable sporting events contributed 8 percentage points of the advertising revenue increase for 2021. The advertising revenue growth also reflected higher pricing and demand compared with 2020, which was negatively impacted by COVID-19. These increases were partially offset by lower linear impressions for our domestic networks and lower political advertising sales, reflecting the benefit to 2020 from theU.S. Presidential election. Affiliate and Subscription For 2021, affiliate and subscription revenues increased 14% driven by growth in subscribers for our streaming services of 26.2 million to 56.1 million atDecember 31, 2021 from 29.9 million atDecember 31, 2020 , led by an increase of 21.1 million for Paramount+ to 32.8 million atDecember 31, 2021 . The increase also reflects higher affiliate fees for our linear networks, driven by rate increases, the launch of our basic cable networks inJune 2020 andApril 2021 on two vMVPDs, growth in reverse compensation, and higher revenues from pay-per-view boxing events, partially offset by the impact from subscriber declines.
Theatrical
For 2021, the 34% increase in theatrical revenues reflects the benefit from 2021 releases including A Quiet Place Part II and PAW Patrol: The Movie, while 2020 was impacted by the closure or reduced capacity of movie theaters in response to COVID-19, following the release of Sonic the Hedgehog in the first quarter of 2020, and throughout the remainder of the year.
Licensing and Other
For 2021, licensing and other revenues increased 5%, reflecting a higher volume
of licensing, including from the timing of program availabilities as a result of
production shutdowns in 2020 because of COVID-19, and increased licensing for
consumer products. These increases were partially offset by the benefit to 2020
from the licensing of the domestic streaming rights to South Park.
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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)
Operating Expenses
% of % of
Operating Expenses by Type Operating Operating Increase/(Decrease)
Year Ended December 31, 2021 Expense 2020 Expense $ %
Content costs $ 14,703 83 % $ 11,933 80 % $ 2,770 23 %
Programming charges - - 159 1 (159) n/m
Distribution and other 3,041 17 2,900 19 141 5
Total Operating Expenses $ 17,744 100 % $ 14,992 100 % $ 2,752 18 %
n/m - not meaningful
Content Costs
For 2021, the 23% increase in production expenses was primarily a result of an
increased investment in content for our streaming services; the timing of
production, as 2020 was impacted by shutdowns as a result of COVID-19; higher
sports programming costs, principally associated with noncomparable sporting
events; and higher costs associated with increased licensing revenues and the
mix of titles licensed in each year.
Programming Charges
During 2020, we recorded programming charges of
Distribution and Other
For 2021, the 5% increase was a result of cost increases associated with the growth of our streaming services.
Selling, General and Administrative Expenses
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Selling, general and administrative expenses $ 6,398 $ 5,320 $ 1,078 20 %
For 2021, the 20% increase in SG&A expenses was driven by advertising, marketing
and other cost increases to support the growth and expansion of our streaming
services, including the March 2021 launch of Paramount+. The increase also
reflects higher advertising and marketing costs to promote the increased level
of original programming in 2021.
Depreciation and Amortization
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Depreciation and amortization $ 390 $ 430 $ (40) (9) %
For 2020, amortization expense included an impairment charge of $25 million in
the TV Media segment to write down the carrying values of FCC licenses in two
markets to their estimated fair values and accelerated depreciation of $12
million resulting from the abandonment of technology in connection with synergy
plans related to the Merger.
II-16
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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)
Restructuring and Other Corporate Matters
During the years ended
Year Ended December 31, 2021 2020
Severance (a) $ 65 $ 472
Lease impairments and other exit costs 35 70
Restructuring charges 100 542
Merger-related costs - 56
Other corporate matters - 20
Restructuring and other corporate matters $ 100 $ 618 (a) Severance costs include the accelerated vesting of stock-based compensation.
During the years endedDecember 31, 2021 and 2020, respectively, we recorded restructuring charges of$65 million and$472 million for severance associated with the elimination of positions and changes in management, as well as lease impairment charges of$35 million and$42 million . For the year endedDecember 31, 2020 , we also recorded other exit costs of$28 million resulting from the termination of contractual obligations. Additionally, in 2020, we incurred costs of$56 million in connection with the Merger, consisting of professional fees mainly associated with integration activities, as well as transaction-related bonuses. We also incurred costs of$5 million for professional fees associated with dispositions and other corporate matters, and we recorded a charge of$15 million to write down property and equipment, which was classified as held for sale in 2020, to its fair value less costs to sell.Net Gain on Dispositions
During 2021, we completed the sale of
Also in 2021, we completed the sale of CBS Studio Center to
In addition, during 2021 we recognized a net gain of
In
Interest Expense and Interest Income
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Interest expense $ 986 $ 1,031 $ (45) (4) %
Interest income $ 53 $ 60 $ (7) (12) %
II-17--------------------------------------------------------------------------------
Management's Discussion and Analysis of
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 rate as of December 31, 2021 and 2020:
Weighted Average Weighted Average
At December 31, 2021 Interest Rate 2020 Interest Rate
Total long-term debt $ 17,658 4.93 % $ 19,612 4.80 %
Other bank borrowings $ 35 3.50 % $ 95 3.50 %
Net Gains from Investments
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Net gains from investments $ 47 $ 206 $ (159) (77) %
For 2021, net gains from investments primarily include a gain of $37 million on
the sale of an investment and a gain of $9 million from an increase in the fair
value of a marketable security that was sold during the third quarter of 2021.
For 2020, net gains from investments primarily reflect an increase of $213
million in the fair value of our investment in fuboTV, which was sold in the
fourth quarter of 2020.
Loss on Early Extinguishment of Debt
For 2021 and 2020, we recorded losses on extinguishment of debt of
Other Items, Net
The following table presents the components of Other items, net.
Year Ended December 31, 2021 2020
Pension and postretirement benefit costs $ (43) $ (69)
Foreign exchange losses (26) (35)
Pension settlement charge (a) (10) -
Other 2 3
Other items, net $ (77) $ (101) (a) Reflects the accelerated recognition of a portion of the unamortized actuarial losses due to the volume of lump sum benefit payments in one of our pension plans.
Provision for Income Taxes For 2021, we recorded a provision for income taxes of$646 million , reflecting an effective income tax rate of 12.4%. Included in the provision for income taxes was a net discrete tax benefit of$517 million , which includes a benefit of$260 million to remeasure ourU.K. net deferred income tax asset as a result of the enactment during the second quarter of 2021 of an increase in theU.K. corporate income tax rate from 19% to 25% beginningApril 1, 2023 , a benefit of$229 million from the recognition of a capital loss associated with a change in the tax entity classification of a foreign subsidiary, as well as a net tax benefit in connection with the settlement of income tax audits. The net discrete tax benefit of$517 million , together with a net tax provision of$546 million on the items identified as affecting comparability in Reconciliation of Non-GAAP Measures, which principally include net gains on dispositions, reduced our effective income tax rate by 7.8 percentage points. II-18 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For 2020, the provision for income taxes was $535 million , reflecting an
effective income tax rate of 17.0%. Included in the provision for income taxes
was a net discrete tax benefit of $110 million , primarily consisting of a
benefit of $100 million to remeasure our U.K. net deferred income tax asset as a
result of an increase in the UK corporate income tax rate from 17% to 19%
enacted during the third quarter of 2020, as well as a tax benefit of $13
million realized in connection with the preparation of the 2019 tax returns.
These items, together with a net tax benefit of $129 million on the items
identified as affecting comparability in Reconciliation of Non-GAAP Measures,
including restructuring and other corporate matters, programming charges, loss
on extinguishment of debt and net gains from dispositions and investments,
reduced our effective income tax rate by 4.1 percentage points.
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in loss of investee companies for our equity-method investments.
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Equity in loss of investee companies $ (140) $ (47) $ (93) (198) %
Tax benefit 49 19 30 158
Equity in loss of investee companies, net of tax
(63) (225) %
For 2021 and 2020, equity in loss of investee companies, net of tax includes
impairment charges of
Net Earnings Attributable to Noncontrolling Interests
Year Ended December 31, 2021 2020
Net earnings attributable to noncontrolling interests
For 2020, net earnings attributable to noncontrolling interests primarily reflects our joint venture partners' share of profit from the licensing of the domestic streaming rights to South Park to a streaming service.
Net Earnings from Continuing Operations Attributable to
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Net earnings from continuing operations attributable to
Paramount$ 4,381 $ 2,305 $ 2,076 90 %
Diluted EPS from continuing operations attributable to
Paramount$ 6.69 $ 3.73 $ 2.96 79 % For 2021, net earnings from continuing operations attributable toParamount and diluted EPS from continuing operations increased 90% and 79%, respectively, primarily driven by the above-mentioned gains on dispositions of$1.75 billion , net of tax and higher discrete tax benefits in 2021. The diluted EPS comparison also includes the effect of higher weighted average shares outstanding as a result of stock issuances in the first quarter of 2021, which negatively impacted EPS for 2021 by$.26 . II-19 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net Earnings from Discontinued Operations
The following tables set forth details of net earnings from discontinued
operations for the years ended
Year Ended December 31, 2021 Simon & Schuster Other (a) Total Revenues$ 993 $ -$ 993 Costs and expenses: Operating 618 (16) 602 Selling, general and administrative 158 - 158 Depreciation and amortization 3 - 3 Restructuring charges 1 - 1 Total costs and expenses 780 (16) 764 Operating income 213 16 229 Other items, net (10) - (10) Earnings from discontinued operations 203 16 219 Income tax provision (46) (11) (57) Net earnings from discontinued operations, net of tax$ 157 $ 5 $ 162 Year Ended December 31, 2020 Simon & Schuster Other (a) Total Revenues$ 901 $ -$ 901 Costs and expenses: Operating 573 (19) 554 Selling, general and administrative 172 - 172 Depreciation and amortization 5 - 5 Restructuring charges 10 - 10 Total costs and expenses 760 (19) 741 Operating income 141 19 160 Other items, net (5) - (5) Earnings from discontinued operations 136 19 155 Income tax provision (34) (4) (38) Net earnings from discontinued operations, net of tax$ 102 $ 15 $ 117
(a) Primarily relates to indemnification obligations for leases associated with the previously discontinued operations of Famous Players.
II-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)
Segments
Beginning in the first quarter of 2022, primarily as a result of our increased strategic focus on our direct-to-consumer streaming 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 was reorganized to focus on managing our business as the combination of three parts: a traditional media business, a portfolio of domestic and international streaming services, and a film studio. Accordingly, beginning in 2022, and for all periods presented we are reporting results based on the following segments: TV Media-Our TV Media segment consists of our (1) broadcast operations - theCBS Television Network , our domestic broadcast television network; CBS Stations, our owned television stations; and our international free-to-air networks, Network 10,Channel 5 , Telefe, and Chilevisión; (2) premium and basic cable networks, includingShowtime ,MTV ,Comedy Central , Paramount Network, The Smithsonian Channel, Nickelodeon,BET Media Group ,CBS Sports Network , and international extensions of certain of these brands; (3) domestic and international television studio operations, includingCBS Studios ,Paramount Television Studios andMTV Entertainment Studios as well asCBS Media Ventures , which produces and distributes first-run syndicated programming. TV Media also includes a number of digital properties such as CBS News Streaming and CBS Sports HQ. Direct-to-Consumer-Our Direct-to-Consumer segment consists of our portfolio of domestic and international pay and free streaming services, including Paramount+, Pluto TV,Showtime Networks' premium subscription streaming service ("Showtime OTT"), BET+ and Noggin.
Filmed Entertainment-Our
In
We present operating income excluding depreciation and amortization, stock-based
compensation, costs for restructuring and other corporate matters, programming
charges and net gain on dispositions, 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 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. Stock-based compensation is included as a component of our
consolidated Adjusted OIBDA. See Reconciliation of Non-GAAP Measures for a
reconciliation of total Adjusted OIBDA to Operating Income, the most directly
comparable financial measure in accordance with GAAP.
II-21
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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 - 2022 vs. 2021
% of Total % of Total Increase/(Decrease)
Year Ended December 31, 2022 Revenues 2021 Revenues $ % Revenues: TV Media$ 21,732 72 %$ 22,734 80 % $ (1,002) (4) % Direct-to-Consumer 4,904 16 3,327 12 1,577 47 Filmed Entertainment 3,706 13 2,687 9 1,019 38 Eliminations (188) (1) (162) (1) (26) (16) Total Revenues$ 30,154 100 %$ 28,586 100 % $ 1,568 5 % Increase/(Decrease)
Year Ended December 31, 2022 2021 $ % Adjusted OIBDA: TV Media$ 5,451 $ 5,892 $ (441) (7) % Direct-to-Consumer (1,819) (992) (827) (83) Filmed Entertainment 272 207 65 31 Corporate/Eliminations (470) (491) 21 4 Stock-based compensation (158) (172) 14 8 Total Adjusted OIBDA 3,276 4,444 (1,168) (26) Depreciation and amortization (405) (390) (15) (4) Restructuring and other corporate matters (585) (100) (485) (485) Net gain on dispositions 56 2,343 (2,287) (98) Total Operating Income$ 2,342 $ 6,297 $ (3,955) (63) % II-22
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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)
TV Media
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Advertising $ 9,350 $ 10,105 $ (755) (7) %
Affiliate and subscription 8,180 8,413 (233) (3)
Licensing and other 4,202 4,216 (14) -
Revenues $ 21,732 $ 22,734 $ (1,002) (4) %
Adjusted OIBDA $ 5,451 $ 5,892 $ (441) (7) %
Revenues
For 2022, revenues decreased 4%, primarily reflecting lower advertising
revenues, driven by the comparison against CBS' broadcast of the Super Bowl in
2021, which negatively impacted the total revenue comparison by 2 percentage
points.
Advertising
The 7% decrease in advertising revenues was driven by the rotational nature of
the rights to broadcast the Super Bowl , which aired on CBS in 2021 but another
network in 2022, resulting in a negative impact on the advertising revenue
comparison of 4 percentage points. Additionally, declines for our domestic
networks from lower impressions were only partially offset by higher pricing,
reflecting softness in the advertising market. The decline also reflects
unfavorable foreign exchange rate changes, which negatively impacted the total
advertising revenue comparison by 1 percentage point. These decreases were
partially offset by higher advertising for our local televisions stations, which
benefited the total advertising revenue comparison by 1 percentage point, driven
by higher political advertising sales. The total advertising revenue comparison
also includes the benefit from the acquisition of Chilevisión in the third
quarter of 2021.
Affiliate and Subscription
The 3% decrease in affiliate and subscription revenues mainly reflects lower international affiliate revenues, driven by the restructuring of certain affiliate agreements, resulting in a shift of revenue from our pay television services to our streaming services; unfavorable foreign exchange rate changes, which negatively impacted the total affiliate and subscription revenue comparison by 1 percentage point; and the absence of revenues inRussia after we suspended our operations followingRussia's invasion ofUkraine in the first quarter of 2022. Domestic affiliate revenues contributed 1% of the decline, primarily reflecting lower revenues from pay-per-view boxing events, as the impact from lower domestic subscribers was substantially offset by rate increases, growth in reverse compensation, and the launch of our basic cable networks on a vMVPD inApril 2021 .
Licensing and Other
Licensing and other revenues for 2022 of
Adjusted OIBDA Adjusted OIBDA decreased 7%, primarily reflecting the benefit to 2021 from the broadcast of theSuper Bowl as well as declines in other advertising revenues and affiliate revenues. II-23 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Direct-to-Consumer
(in millions)
Year Ended December 31, 2022 2021 Increase/(Decrease)
Advertising $ 1,533 $ 1,298 $ 235 18 %
Subscription 3,371 2,029 1,342 66
Revenues $ 4,904 $ 3,327 $ 1,577 47 %
Adjusted OIBDA $ (1,819) $ (992) $ (827) (83) %
Global Streaming Subscribers (a) 77.3 56.1 21.2 38 %
(in millions)
Year Ended December 31, 2022 2021 Increase/(Decrease)
Paramount+ (Global)
Subscribers (a) 55.9 32.8 23.1 70 %
Revenues $ 2,767 $ 1,347 $ 1,420 105 %
Pluto TV (Global)
MAUs (b) 78.5 64.4 14.1 22 %
Revenues $ 1,112 $ 1,059 $ 53 5 %
(a) Our streaming subscribers include customers with access to our domestic or
international streaming 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
streaming subscribers include subscribers for Paramount+, Showtime OTT and all
other 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 2022, revenues increased 47%, led by growth from Paramount+.
Advertising
The 18% increase in advertising revenues was driven by higher impressions, reflecting the benefit from growth in Paramount+ subscribers.
Pluto TV global MAUs were 78.5 million forDecember 2022 , reflecting growth of 14.1 million, or 22%, from 64.4 million forDecember 2021 , and 6.5 million, or 9%, from 72.0 million forSeptember 2022 .
Subscription
The 66% increase in subscription revenues was driven by growth from Paramount+, Showtime OTT, and BET+. Global streaming subscribers grew 21.2 million, or 38%, compared withDecember 31, 2021 , led by an increase of 23.1 million, or 70%, for Paramount+, reflecting significant growth inU.S. subscribers and the impact from launches in international markets. Subscriber growth was impacted by the removal of 1.9 million Paramount+ subscribers following theSeptember 2022 launch of the SkyShowtime streaming service in the Nordics, where it replaced Paramount+ in the market. Growth in subscribers was also impacted by the removal of 3.9 million global II-24 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
streaming subscribers (including 1.2 million for Paramount+) in Russia , where we
suspended our operations following Russia's invasion of Ukraine in the first
quarter of 2022.
During the fourth quarter, global streaming subscribers increased 10.8 million,
or 16%, to 77.3 million at December 31, 2022 from 66.5 million at September 30,
2022 , and Paramount+ subscribers grew 9.9 million, or 22%, to 55.9 million,
driven by launches in international markets as well as growth in U.S.
subscribers, reflecting the strength of content premieres in the quarter,
including Tulsa King, 1923 and Top Gun: Maverick.
Adjusted OIBDA
Adjusted OIBDA decreased
Increase/(Decrease)
Year Ended December 31, 2022 2021 $ %
Advertising $ 23 $ 18 $ 5 28 %
Theatrical 1,223 241 982 407
Licensing and other 2,460 2,428 32 1
Revenues $ 3,706 $ 2,687 $ 1,019 38 %
Adjusted OIBDA $ 272 $ 207 $ 65 31 %
Revenues
For 2022, the 38% increase in revenues was primarily driven by the success of Top Gun: Maverick.
Theatrical The$982 million increase in theatrical revenues was driven by the success of our 2022 releases, led by Top Gun: Maverick. We released eight films in 2022, including Top Gun: Maverick, as well as Sonic the Hedgehog 2, Smile, and The Lost City, compared with four films in 2021, including A Quiet Place Part II and PAW Patrol: The Movie. The lower number of theatrical releases in 2021 was due to the impacts from COVID-19 on movie theaters and film production.
Licensing and Other
The 1% increase in licensing and other revenues primarily reflects higher licensing of recent theatrical releases in 2022 compared with 2021, driven by the success of Top Gun: Maverick in the digital home entertainment market, partially offset by the licensing of Coming 2 America andTom Clancy's Without Remorse in 2021 and lower revenues from the licensing of library titles.
Adjusted OIBDA
Adjusted OIBDA increased 31%, mainly reflecting higher profits from 2022 releases, partially offset by lower profits from the licensing of library titles.
Fluctuations in results for theFilmed 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. II-25 --------------------------------------------------------------------------------
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 - 2021 vs. 2020
% of Total % of Total Increase/(Decrease)
Year Ended December 31, 2021 Revenues 2020 Revenues $ % Revenues: TV Media$ 22,734 80 %$ 21,120 83 % $ 1,614 8 % Direct-to-Consumer 3,327 12 1,815 7 1,512 83 Filmed Entertainment 2,687 9 2,470 10 217 9 Corporate/Eliminations (162) (1) (120) - (42) (35) Total Revenues$ 28,586 100 %$ 25,285 100 % $ 3,301 13 % Increase/(Decrease) Year Ended December 31, 2021 2020 $ % Adjusted OIBDA: TV Media$ 5,892 $ 5,816 $ 76 1 % Direct-to-Consumer (992) (171) (821) (480) Filmed Entertainment 207 158 49 31 Corporate/Eliminations (491) (485) (6) (1) Stock-based compensation (172) (186) 14 8 Total Adjusted OIBDA 4,444 5,132 (688) (13) Depreciation and amortization (390) (430) 40 9 Restructuring and other corporate matters (100) (618) 518 84 Programming charges - (159) 159 n/m Net gain on dispositions 2,343 214 2,129 n/m Total Operating Income$ 6,297 $ 4,139 $ 2,158 52 % n/m - not meaningful II-26
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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)
TV Media
Increase/(Decrease)
Year Ended December 31, 2021 2020 $ %
Advertising $ 10,105 $ 9,062 $ 1,043 12 %
Affiliate and subscription 8,413 8,037 376 5
Licensing and other 4,216 4,021 195 5
Revenues $ 22,734 $ 21,120 $ 1,614 8 %
Adjusted OIBDA $ 5,892 $ 5,816 $ 76 1 %
Revenues
For 2021, revenues increased 8%, reflecting growth across all revenue streams,
led by increased advertising revenues, including from CBS' broadcasts of
tentpole sporting events for which there were no comparable broadcasts on CBS in
2020.
Advertising
The 12% increase in advertising revenues was driven by CBS' broadcasts in 2021
of sporting events for which there were no comparable broadcasts on CBS in 2020,
including Super Bowl LV and NCAA Tournament games. We have the rights to
broadcast the Super Bowl and the national semi-finals and championship games of
the NCAA Tournament on a rotational basis. The Super Bowl aired on CBS in 2021
but another network in 2020. The national semi-finals and championship games of
the NCAA Tournament also aired on CBS in 2021, but COVID-19 caused the
cancellation of the NCAA Tournament in 2020, including the games in the
preceding rounds of the NCAA Tournament that we share with Turner each year. The
advertising revenue growth also reflected higher pricing and demand compared
with 2020, which was negatively impacted by COVID-19, as well as a higher level
of original programming broadcast in 2021. These increases were partially offset
by lower linear impressions for our domestic networks and lower political
advertising sales.
Affiliate and Subscription
The 5% increase in affiliate and subscription revenues was driven by rate
increases, the launch of our basic cable networks in
Licensing and Other
Licensing and other revenues increased 5%, driven by the timing of program availabilities, primarily from the impact of production shutdowns in 2020 due to COVID-19, as well as higher domestic licensing in the secondary market, reflecting the benefit from several significant licensing arrangements in 2021, including for NCIS and Bull. The increase was partially offset by the comparison against the licensing of the domestic streaming rights to South Park in 2020.
Adjusted OIBDA
Adjusted OIBDA increased 1% as the higher revenues were substantially offset by
higher costs associated with sports broadcasts, more original programming and
higher licensing revenues in 2021.
II-27
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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)
Direct-to-Consumer
(in millions)
Year Ended December 31, 2021 2020 Increase/(Decrease)
Advertising $ 1,298 $ 686 $ 612 89 %
Subscription 2,029 1,129 900 80
Revenues $ 3,327 $ 1,815 $ 1,512 83 %
Adjusted OIBDA $ (992) $ (171) $ (821) (480) %
Global Streaming Subscribers 56.1 29.9 26.2 88 %
(in millions)
Year Ended December 31, 2021 2020 Increase/(Decrease)
Paramount+ (Global) (a)
Subscribers 32.8 11.7 21.1 180 %
Revenues $ 1,347 $ 627 $ 720 115 %
Pluto TV (Global)
MAUs 64.4 43.1 21.3 49 %
Revenues $ 1,059 $ 562 $ 497 88 %
(a) Prior to its rebranding in
Revenues
For 2021, revenues increased 83% reflecting growth across our streaming services.
Advertising
The 89% increase in advertising revenues reflects growth from Pluto TV and
Paramount+. Pluto TV global MAUs were 64.4 million for
Subscription
The 80% increase in subscription revenues reflects growth across our subscription streaming services. Global streaming subscribers grew 26.2 million, or 88%, compared withDecember 31, 2020 , led by growth from Paramount+, reflecting significant growth inU.S. subscribers and the impact from launches in international markets, as well as subscriber growth for Showtime OTT and BET+.
Adjusted OIBDA
Adjusted OIBDA decreased$821 million , as the revenue growth was more than offset by higher content, marketing, distribution, and other cost increases to support growth in our streaming services, including for the launch of Paramount+ in 2021. II-28 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Filmed Entertainment Increase/(Decrease) Year Ended December 31, 2021 2020 $ % Advertising$ 18 $ 18 $ - - % Theatrical 241 180 61 34 Licensing and other 2,428 2,272 156 7 Revenues$ 2,687 $ 2,470 $ 217 9 % Adjusted OIBDA$ 207 $ 158 $ 49 31 % Revenues
For 2021, the 9% increase in revenues reflected growth in licensing and theatrical revenues.
Theatrical
The 34% increase in theatrical revenues was driven by 2021 releases including A Quiet Place Part II and PAW Patrol: The Movie, while 2020 was impacted by the closure or reduced capacity of movie theaters in response to COVID-19, following the release of Sonic the Hedgehog in the first quarter of 2020, and throughout the remainder of the year. Licensing and Other The 7% increase in licensing and other revenues was driven by the licensing of Coming 2 America,Tom Clancy's Without Remorse andHalloween Kills while 2020 included licensing of the first quarter 2020 theatrical release Sonic the Hedgehog, but was also impacted by the above-mentioned impact from COVID-19.
Adjusted OIBDA
Adjusted OIBDA increased 31%, primarily the result of higher profits from licensing.
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 streaming 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 financing spending includes capital expenditures; acquisitions; funding relating to new and existing investments, including SkyShowtime, our streaming joint venture with Comcast, under which both parent companies have committed to support initial operations over a multiyear period; discretionary share repurchases, dividends and principal payments on our outstanding indebtedness. Our planned spending in 2023 includes continued increased investment in our streaming services. We believe that our operating cash flows, cash and cash equivalents, which were$2.89 billion as ofDecember 31, 2022 , 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 long-term obligations, including our long-term debt (see Note 10), and the long-term portion of the other cash requirements discussed above, including contractual commitments for programming and talent (see II-29 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Note 20) and lease obligations (see Note 11), as well as those not yet committed
to, will come from cash flows from operating activities, proceeds from noncore
asset sales, including the planned sale of Simon & Schuster (see Consolidated
Results of Operations - 2022 vs. 2021, Net Earnings from Discontinued
Operations), 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. In addition, if necessary, we could increase our liquidity
position by reducing non-committed spending. We routinely assess our capital
structure and opportunistically enter into transactions to manage our
outstanding debt maturities, which could result in a charge from the early
extinguishment of debt.
Our access to capital markets can be impacted by factors outside our control,
including economic conditions; however, we believe that our strong balance
sheet, cash flows, credit facility and credit ratings 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.
Cash Flows
The changes in cash, cash equivalents and restricted cash were as follows:
Increase/ (Decrease) Increase/ (Decrease)
Year Ended December 31, 2022 2021 2022 vs. 2021 2020 2021 vs. 2020
Net cash flow (used for) provided by
operating activities:
Continuing operations $ (142) $ 835 $ (977) $ 2,215 $ (1,380)
Discontinued operations 361 118 243 79 39
Net cash flow provided by operating
activities 219 953 (734) 2,294 (1,341)
Net cash flow (used for) provided by
investing activities:
Continuing operations (518) 2,402 (2,920) 63 2,339
Discontinued operations (8) (7) (1) (7) -
Net cash flow (used for) provided by
investing
activities (526) 2,395 (2,921) 56 2,339
Net cash flow used for financing activities (2,981) (152) (2,829) (90) (62)
Effect of exchange rate changes on cash and
cash
equivalents (94) (48) (46) 25 (73)
Net (decrease) increase in cash, cash
equivalents and
restricted cash $ (3,382) $ 3,148 $ (6,530) $ 2,285 $ 863
Operating Activities. Operating cash flow from continuing operations for 2022
was a net use of cash of $142 million compared to a net source of cash of $835
million for 2021. The use of cash in 2022 was mainly the result of significant
investment in our streaming services, including spending for content, marketing
and distribution costs. The decrease in operating cash flow from continuing
operations in 2022 compared to 2021 is primarily driven by the decline in
Adjusted OIBDA, partially offset by lower payments for income taxes. Cash paid
for income taxes from continuing operations decreased to $61 million for
2022 from $291 million for 2021, primarily resulting from lower earnings from
continuing operations before income taxes, partially offset by the impact of the
timing of production tax incentive receipts.
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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)
The decrease in cash flow provided by operating activities from continuing
operations for 2021 compared to 2020 was mainly driven by our increased
investment in our streaming services, including spending for content,
advertising and marketing, and a higher level of production in 2021 as a result
of production shutdowns in 2020 due to COVID-19. The decrease was partially
offset by higher collections and lower payments for restructuring,
merger-related costs and transformation initiatives, as well as lower payments
for income taxes. Cash paid for income taxes from continuing operations
decreased to $291 million for 2021 from $411 million for 2020, primarily due to
a higher volume of production incentives received, lower adjusted earnings from
continuing operations before income taxes and a higher deduction associated with
the exercise and vesting of stock-based compensation, partially offset by higher
payments associated with gains from dispositions, primarily from the sale of CBS
Studio Center in 2021.
Net cash flow provided by operating activities included payments for
restructuring, merger-related costs and transformation initiatives of $244
million , $294 million and $584 million for 2022, 2021, and 2020, 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, and for 2022 also includes the
receipt of the $200 million termination fee described under Legal
Matters-Litigation Related to the Proposed Sale of Simon & Schuster.
Investing Activities
Year Ended December 31, 2022 2021 2020
Investments (a) $ (254) $ (193) $ (59)
Capital expenditures (b) (358) (354) (324)
Acquisitions, net of cash acquired (c) - (54) (147)
Proceeds from dispositions (d) 95 3,028 593
Other investing activities (1) (25) -
Net cash flow (used for) provided by investing activities from continuing operations
(518) 2,402 63
Net cash flow used for investing activities from discontinued operations
(8) (7) (7)
Net cash flow (used for) provided by investing activities $
(526)
(a) Primarily includes investment in The CW in all three years. 2022 also includes investment in SkyShowtime.
(b) Includes payments associated with the implementation of our transformation initiatives of$45 million ,$68 million , and$40 million for 2022, 2021, and 2020, respectively. (c) 2021 reflects the acquisitions of Chilevisión, a free-to-air television channel, and a controlling interest in Fox TeleColombia & Estudios TeleMexico, a Spanish language content producer. 2020 primarily reflects the acquisition ofMiramax , a global film and television studio. (d) 2022 primarily reflects proceeds related to the sale of investments and from the disposition of international intangible assets. 2021 primarily reflects proceeds received from the sales of CBS Studio Center and51 West 52nd Street . 2021 also includes proceeds received from the sale of our investment in fuboTV during the fourth quarter of 2020, and proceeds received from the sales of a noncore trademark licensing operation and other investments. 2020 reflects the sales of CMG and marketable securities. II-31 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Financing Activities
Year Ended December 31, 2022 2021 2020 Repayments of commercial paper borrowings, net $ - $ -$ (698) Proceeds from issuance of debt 1,138 58 4,375 Repayment of debt (3,140) (2,230) (2,909) Dividends paid on preferred stock (58) (30) - Dividends paid on common stock (631) (617) (600) Proceeds from issuance of preferred stock - 983 - Proceeds from issuance of common stock - 1,672 - Purchase of Company common stock - - (58)
Payment of payroll taxes in lieu of issuing shares for stock-based compensation
(31) (110) (93)
Proceeds from exercise of stock options - 408 5
Payments to noncontrolling interests (218) (235) (59)
Other financing activities (41) (51) (53)
Net cash flow used for financing activities $ (2,981) $ (152) $ (90)
Dividends
We declared a quarterly cash dividend on our Class A and Class B Common Stock
during each of the quarters of 2022, 2021, and 2020. During each of the years
ended December 31, 2022 , 2021 and 2020, we declared total per share dividends of
$.96 , resulting in total annual dividends of $635 million , $625 million and $601
million , respectively.
During each of the quarters of 2022, we declared a quarterly cash dividend of
$1.4375 per share on our 5.75% Series A Mandatory Convertible Preferred Stock
("Mandatory Convertible Preferred Stock"), resulting in total annual dividends
of $58 million for the year ended December 31, 2022 . For the year ended
December 31, 2021 , we recorded total annual dividends on our Mandatory
Convertible Preferred Stock of $44 million . During each of the third and fourth
quarters of 2021, we declared a quarterly cash dividend on our Mandatory
Convertible Preferred Stock of $1.4375 per share. During the second quarter of
2021, we declared a quarterly cash dividend on our Mandatory Convertible
Preferred Stock of $1.5493 per share, representing a dividend period from March
26, 2021 through July 1, 2021 .
Capital Structure
The following table sets forth our debt.
At December 31, 2022 2021
Senior debt (2.90%-7.875% due 2023-2050)
Junior debt (5.875%-6.375% due 2057 and 2062) 1,632 1,157
Other bank borrowings 55 35
Obligations under finance leases 10 16
Total debt (a) 15,846 17,709
Less current portion of long-term debt 239 11
Total long-term debt, net of current portion
(a) 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)
During the year ended December 31, 2022 , we redeemed senior notes totaling $2.39
billion , prior to maturity, for an aggregate redemption price of $2.49 billion
and redeemed, at par, our $520 million of 5.875% junior subordinated debentures
due February 2057 . These redemptions resulted in a total pre-tax loss on
extinguishment of debt of $120 million .
During the year ended December 31, 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 on any interest payment date thereafter.
During the year ended December 31, 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 .
During the year ended December 31, 2020 , we issued $4.50 billion of senior notes
and redeemed long-term debt totaling $2.77 billion , prior to maturity, for an
aggregate redemption price of $2.88 billion resulting in a pre-tax loss on
extinguishment of debt of $126 million .
Our 6.25% junior subordinated debentures due February 2057 accrue interest at
the stated fixed rate 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, however, with the
phasing out of LIBOR and the passage of the Adjustable Interest Rate (LIBOR)
Act, signed into law on March 15, 2022 , it is expected that the 6.25% junior
subordinated debentures due 2057 will, upon switching to a floating rate, bear
interest at a replacement rate based on three-month CME Term Secured Overnight
Financing Rate (SOFR). 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 the 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.
The interest rate payable on our 3.45% senior notes due October 2026 , will be
subject to adjustment from time to time if Moody's Investor Services, Inc. or
S&P Global Ratings downgrades (or downgrades and subsequently upgrades) the
credit rating assigned to these senior notes. The interest rate on these senior
notes would increase by 0.25% upon each credit agency downgrade, up to a maximum
of 2.00%, and would similarly be decreased for subsequent upgrades. At
December 31, 2022 , the outstanding principal amount of these senior notes was
$124 million .
Some of our outstanding notes and debentures provide for certain covenant
packages typical for an investment grade company. There is an acceleration
trigger for the majority of the notes and debentures in the event of a change in
control under specified circumstances coupled with ratings downgrades due to the
change in control, as well as certain optional redemption provisions for our
junior debentures.
Commercial Paper
At both
II-33
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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)
Credit Facility
AtDecember 31, 2022 , we had a$3.50 billion revolving credit facility with a maturity inJanuary 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 theU.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. OnFebruary 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 throughJune 2024 . We met the covenant as ofDecember 31, 2022 . AtDecember 31, 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
AtDecember 31, 2022 and 2021, we had bank borrowings underMiramax's $300 million credit facility, which matures inApril 2023 , of$55 million and$35 million , respectively, with weighted average interest rates of 7.09% and 3.50%, respectively. Critical Accounting Policies The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. The risks and uncertainties involved in applying our critical accounting policies are provided below. Unless otherwise noted, we applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented, and have discussed such policies with our Audit Committee. For a summary of our significant accounting policies, see the accompanying notes to the consolidated financial statements.
Revenue Recognition
Revenue is recognized when control of a good or service is transferred to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Significant judgments used in
II-34
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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)
the determination of the amount and timing of revenue recognition include the
identification of distinct performance obligations in contracts containing
bundled advertising sales or bundled content licenses, and the allocation of
consideration among individual performance obligations within these arrangements
based on their relative standalone selling prices.
Advertising Revenues-Advertising revenues are recognized when the advertising
spots are aired on television or streamed or displayed on digital platforms. If
a contract includes a guarantee to deliver a targeted audience rating or number
of impressions, the delivery of the advertising spots that achieve the guarantee
represents the performance obligation to be satisfied over time and revenues are
recognized based on the proportion of the audience rating or impressions
delivered to the total guaranteed in the contract. To the extent the amounts
billed exceed the amount of revenue recognized, such excess is deferred until
the guaranteed audience ratings or impressions are delivered. For contracts that
do not include impressions guarantees, the individual advertising spots are the
performance obligation and consideration is allocated among the individual
advertising spots based on relative standalone selling price.
Affiliate Revenues-The performance obligation for our affiliate agreements is a
license to our programming provided through the continuous delivery of live
linear feeds and, for agreements with MVPDs and vMVPDs, also includes a license
to programming for video-on-demand viewing. Affiliate revenues are recognized
over the term of the agreement as we satisfy our performance obligation by
continuously providing our customer with the right to use our programming. For
agreements that provide for a variable fee, revenues are determined each month
based on an agreed upon contractual rate applied to the number of subscribers to
our customer's service. For agreements that provide for a fixed fee, revenues
are recognized based on the relative fair value of the content provided over the
term of the agreement. These agreements primarily include agreements with
television stations affiliated with the CBS Television Network ("network
affiliates") for which fair value is determined based on the fair value of the
network affiliate's service and the value of our programming.
Content Licensing Revenues-For licenses of exhibition rights for
internally-produced programming, each individual episode or film delivered
represents a separate performance obligation and revenues are recognized when
the episode or film is made available to the licensee for exhibition and the
license period has begun. For license agreements that include delivery of
content on one or more dates for a fixed fee, consideration is allocated based
on the relative standalone selling price of each episode or film, which is based
on licenses for comparable content within the marketplace. Estimation of
standalone selling prices requires judgment, which can impact the timing of
recognizing revenues.
Film and Television Production and Programming Costs
Costs incurred to produce television programs and feature films are capitalized
when incurred and amortized over the projected life of each television program
or feature film. The costs incurred to acquire television series and feature
film programming rights, including advances, are capitalized when the license
period has begun and the program is accepted and available for airing. The costs
of programming rights licensed under multi-year sports programming agreements
are capitalized if the rights payments are made before the related economic
benefit has been received. Acquired programming rights, including rights for
sports programming, are expensed over the shorter of the license period or the
period in which an economic benefit is expected to be derived.
We categorize our capitalized production and programming costs based on the
expected predominant monetization strategy throughout the life of the content.
Our programming that is expected to be predominantly monetized through licensing
and distribution on third-party platforms is considered individually monetized
and our programming that is expected to be predominantly monetized on our
networks and streaming services together with other programming is considered to
be monetized as part of a film group. The predominant
II-35
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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)
monetization strategy is determined when capitalization of production costs
commences and is reassessed if there is a significant change to the expected
future monetization strategy. This reassessment will include an assessment of
the monetization strategy throughout the entire life of the programming.
For internally-produced television programs and feature films that are
predominantly monetized on an individual basis, we use an
individual-film-forecast computation method to amortize capitalized production
costs and to accrue estimated liabilities for participations and residuals over
the applicable title's life cycle based upon the ratio of current period
revenues to estimated remaining total gross revenues to be earned ("Ultimate
Revenues") for each title. Management's judgment is required in estimating
Ultimate Revenues and the costs to be incurred throughout the life of each
television program or feature film. These estimates are used to determine the
timing of amortization of capitalized production costs and expensing of
participation and residual costs.
For television programming, our estimate of Ultimate Revenues includes revenues
to be earned within 10 years from the delivery of the first episode, or, if
still in production, five years from the delivery of the most recent episode, if
later. These estimates are based on the past performance of similar television
programs in a market, the performance in the initial markets and future firm
commitments to license programs.
For feature films, our estimate of Ultimate Revenues includes revenues from all
sources that are estimated to be earned within 10 years from the date of a
film's initial release. Prior to the release of feature films, we estimate
Ultimate Revenues based on the historical performance of similar content and
pre-release market research (including test market screenings), as well as
factors relating to the specific film, including the expected number of theaters
and markets in which the original content will be released, the genre of the
original content and the past box office performance of the lead actors and
actresses. For films intended for theatrical release, we believe the performance
during the theatrical exhibition is the most sensitive factor affecting our
estimate of Ultimate Revenues as subsequent markets have historically exhibited
a high correlation to theatrical performance. Upon a film's initial release, we
update our estimate of Ultimate Revenues based on actual and expected future
performance. Our estimates of revenues from succeeding windows and markets are
revised based on historical relationships to theatrical performance and an
analysis of current market trends. We also review and revise estimates of
Ultimate Revenue and participation costs as of each reporting date to reflect
the most current available information.
For acquired film libraries, our estimate of Ultimate Revenues is for a period within 20 years from the date of acquisition.
For programming that is predominantly monetized as part of a film group,
capitalized costs are amortized based on an estimate of the timing of our usage
of and benefit from such programming. Such estimates require management's
judgment and include consideration of factors such as expected revenues to be
derived from the programming, the expected number of future airings, and, for
acquired programming, the length of the license period. If initial airings are
expected to generate higher revenues, an accelerated method of amortization is
used. These estimates are periodically reviewed and updated based on information
available throughout the contractual term or life of each program.
For content that is predominantly monetized on an individual basis, a television
program or feature film is tested for impairment when events or circumstances
indicate that its fair value may be less than its unamortized cost. If the
result of the impairment test indicates that the carrying value exceeds the
estimated fair value, an impairment charge will then be recorded for the amount
of the difference. Content that is predominantly monetized within a film group
is assessed for impairment at the film group level and would similarly be tested
for impairment if circumstances indicate that the fair value of the film group
is less than its unamortized costs. A change in the
II-36
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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)
monetization strategy of content, whether monetized individually or as part of a
film group, will result in a reassessment of the predominant monetization
strategy and may trigger an assessment of the content for impairment. Any
resulting impairment test will be performed either at the individual level, if
the predominant monetization strategy is determined to be individual, or at the
film group level where the future cash flows will be generated. In addition,
unamortized costs for internally-produced or acquired programming that has been
abandoned are written off.
We perform fair value-based impairment tests of goodwill and intangible assets with indefinite lives, comprised primarily of televisionFCC licenses, annually during the fourth quarter and also between annual tests if an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value.FCC Licenses-FCC licenses are tested for impairment at the geographic market level. We consider each geographic market, which is comprised of all of our television stations within that geographic market, to be a single unit of accounting because theFCC licenses at this level represent their highest and best use. AtDecember 31, 2022 , we had 14 television markets withFCC license book values. For our annual impairment test, we perform qualitative assessments for each television market that we estimate has an aggregate fair value ofFCC licenses that significantly exceeds its respective carrying value. For the 2022 annual impairment test, we performed qualitative assessments for nine of our television markets. For each market, we weighed the relative impact of market-specific and macroeconomic factors. The market-specific factors considered include recent projections by geographic market from both independent and internal sources for revenue and operating costs, as well as average market share. We also considered the macroeconomic impact on discount rates and growth rates. Based on the qualitative assessments, considering the aggregation of the relevant factors, we concluded that it is not more likely than not that the fair values of theFCC licenses in each of these television markets are less than their respective carrying values. Therefore, performing a quantitative impairment test on these markets was unnecessary. We performed a quantitative impairment test for theFCC licenses in the remaining five markets. The quantitative impairment test ofFCC licenses calculates an estimated fair value using the Greenfield Discounted Cash Flow Method, which values a hypothetical start-up station in the relevant market by adding discounted cash flows over a five-year build-up period to a residual value. The assumptions for the build-up period include industry projections of overall market revenues; the start-up station's operating costs and capital expenditures, which are based on both industry and internal data; and average market share. The discount rate is determined based on the industry and market-based risk of achieving the projected cash flows, and the residual value is calculated using a long-term growth rate, which is based on projected long-range inflation and industry projections. The discount rate and the long-term growth rate were 8% and 1%, respectively. The impairment tests indicated that the estimated fair values ofFCC licenses in two of the markets were below their respective carrying values. Accordingly, we recorded an impairment charge of$27 million to write down the carrying values of theseFCC licenses to their aggregate estimated fair value of$184 million . The impairment charge, which is included within "Depreciation and amortization" in the Consolidated Statement of Operations and recorded within the TV Media segment, was the result of a higher discount rate utilized in our annual impairment tests, reflecting the impacts of market volatility and higher interest rates. Additionally, the estimated fair values ofFCC licenses in the three remaining markets, which had an aggregate carrying value of$787 million , were each within 10% of their respective carrying values. An increase to the discount rate of 15 basis points, or a decrease to the long-term growth rate of 20 basis points, assuming no changes to other factors, would II-37 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
cause the fair value of FCC licenses in two of the markets to fall below their
carrying values. For the third market, an increase to the discount rate of 26
basis points, or a decrease to the long-term rate of 36 basis points, assuming
no changes to other factors, would cause the fair value to fall below its
carrying value.
The estimated fair values of FCC licenses are highly dependent on the
assumptions of future economic conditions in the individual geographic markets
in which we own and operate television stations. Certain future events and
circumstances, including continued market volatility and increases in interest
rates, or a decline in the local television advertising marketplace could result
in a downward revision to our current assumptions and judgments. Various factors
may contribute to a future decline in an advertising marketplace including
declines in economic conditions; an other-than-temporary decrease in spending by
advertisers in certain industries that have historically represented a
significant portion of television advertising revenues in that market; a shift
by advertisers to competing advertising platforms; changes in consumer behavior;
and/or a change in population size. A further downward revision to the present
value of future cash flows could result in an additional impairment and a
noncash charge would be required. Such a charge could have a material effect on
the Consolidated Statement of Operations and Consolidated Balance Sheet.
Goodwill-Goodwill is tested for impairment at the reporting unit level, which is
an operating segment, or one level below. For our annual impairment test, we
perform a qualitative assessment for each reporting unit that we estimate has a
fair value that significantly exceeds its respective carrying value.
Additionally, we consider the duration of time since a quantitative test was
performed. For the 2022 annual impairment test, we performed qualitative
assessments for all reporting units. For each reporting unit, we weighed the
relative impact of factors that are specific to the reporting unit as well as
industry and macroeconomic factors. The reporting unit specific factors that
were considered included actual and expected financial performance and changes
to the reporting units' carrying amounts since the most recent impairment tests.
For each industry in which the reporting units operate, we considered growth
projections from independent sources and significant developments within the
industry. Our assessment indicated that macroeconomic factors have negatively
impacted inputs used in our most recent impairment tests, including discount
rates, certain industry growth rates, and comparable company trading multiples.
While this indicates that the estimated fair values of our reporting units have
declined, considering the aggregation of all relevant factors, including the
significant headroom in our most recent test performed in January 2022 , which is
described below, we concluded that it is more likely than not that the fair
value of our reporting units continues to be higher than their respective
carrying amounts. Therefore, performing quantitative impairment tests was
unnecessary.
Certain future events and circumstances, including deterioration of market
conditions, further increases in interest rates, prolonged weakness in the
advertising market, a shift by advertisers to competing advertising platforms,
changes in consumer behavior and/or a decrease in audience acceptance of our
content and platforms could result in changes to our assumptions and judgments
used in the goodwill impairment tests. A significant adverse change in these
assumptions could cause the fair values of the reporting units to fall below
their respective carrying values and a noncash impairment charge would be
required. Such a charge could have a material effect on the Consolidated
Statement of Operations and Consolidated Balance Sheet.
The annual test was performed on the six reporting units in place at October 31,
2022 . In the fourth quarter of 2022, as a result of a management reorganization,
the reporting units within our TV Media segment changed from three to two
reporting units. Accordingly, we reallocated goodwill using a relative fair
value approach and performed further qualitative goodwill impairment assessments
on the two reporting units subsequent to the reallocation of goodwill, and
concluded that the fair values of these reporting units continued to exceed
their respective carrying values.
II-38
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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)
In the first quarter of 2022, in connection with changes to our management
structure and the resulting change in operating segments, we reassessed our
reporting units and reallocated goodwill from the four reporting units in place
prior to the realignment to six reporting units, using a relative fair value
approach. We performed goodwill impairment tests as of January 1, 2022 on the
reporting units in place before and after the change.
For these impairment tests, we performed quantitative tests for three of the
reporting units that existed prior to the change and five of the reporting units
in place subsequent to the change. For the quantitative goodwill impairment test
we calculate an estimated fair value to determine whether it exceeds the
carrying value of the respective reporting unit. For one of the quantitative
tests, we estimated fair value based on the traded and transaction values of
comparable businesses, and for the remaining quantitative tests, we estimated
the fair value based on both the present value of future cash flows ("Discounted
Cash Flow Method") and the traded and transaction values of comparable
businesses. The Discounted Cash Flow Method requires us to make various
assumptions regarding the timing and amount of future cash flows, including
growth rates, operating margins and capital expenditures for a projection
period, plus the terminal value of the business at the end of the projection
period. The assumptions about future cash flows are based on our internal
forecasts of the reporting unit, which incorporates our long-term business plans
and historical trends. The terminal value is estimated based on a perpetual
nominal growth rate, which is based on historical and projected inflation and
economic indicators, as well as industry growth projections. A discount rate is
determined for the reporting unit based on the risks of achieving the future
cash flows, including risks applicable to the industry and market as a whole, as
well as the capital structure of comparable entities. We utilized discount rates
ranging from 9% to 13.5% and terminal values that were based on either growth
rates ranging from 1% to 2% or revenue multiples ranging from 1.5x to 2.7x.
Traded and transaction values were determined using revenue and earnings
multiples from publicly traded companies with operations and other
characteristics similar to the respective reporting unit as well as revenue and
earnings multiples from recent transactions of these companies. The selected
multiples consider each reporting unit's relative growth, profitability, size,
and risk relative to the selected publicly traded companies. Based on the
results of these impairment tests, we concluded that the estimated fair values
of the reporting units significantly exceeded their respective carrying values
and, therefore, no impairment charge was required.
For one of the reporting units, we performed a qualitative assessment before and
after the reporting unit change and concluded that it is more likely than not
that the fair value of the reporting unit was higher than its carrying amount.
Legal Matters
Estimates of liabilities related to legal issues and predecessor operations,
including asbestos and environmental matters, require significant judgments by
management. 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 continually evaluate these estimates based on changes
in the relevant facts and circumstances and events that may impact estimates. It
is difficult to predict future asbestos liabilities as events and circumstances
may impact the estimate of our 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. While we believe that our accrual for matters related to our
predecessor operations, including environmental and asbestos, are adequate,
there can be no assurance that circumstances will not change in future periods,
and as a result our actual liabilities may be higher or lower than our accrual.
II-39
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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)
Pensions
Pension benefit obligations and net periodic pension costs are calculated using
many actuarial assumptions. Two key assumptions used in accounting for pension
liabilities and expenses are the discount rate and expected rate of return on
plan assets. The discount rate is determined based on the yield on a portfolio
of high quality bonds, constructed to provide cash flows necessary to meet our
pension plans' expected future benefit payments, as determined for the
accumulated benefit obligation. The expected return on plan assets assumption is
derived using the current and expected asset allocation of the pension plan
assets and considering historical as well as expected returns on various classes
of plan assets. As of December 31, 2022 , changes in actuarial assumptions
resulted in a decrease to accumulated other comprehensive loss compared with the
prior year-end due to an increase in the discount rate, which was partially
offset by the unfavorable performance of pension plan assets. A 25 basis point
change in the discount rate would result in an estimated change to the
accumulated benefit obligation of approximately $80 million and would have an
insignificant impact on 2023 pension expense. A decrease in the expected rate of
return on plan assets would increase pension expense. The estimated impact of a
25 basis point change in the expected rate of return on plan assets is a change
of approximately $6 million to 2023 pension expense.
Income Taxes
We are subject to income taxes in both theU.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and evaluating our income tax positions. When recording an interim worldwide provision for income taxes, an estimated effective tax rate for the year is applied to interim operating results. In the event there is a significant or unusual item recognized in the quarterly operating results, the tax attributable to that item is separately calculated and recorded in the same quarter. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the financial statement carrying amounts and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. We evaluate the realizability of deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. While valuation allowances can require significant judgment, we believe the valuation allowance of$488 million atDecember 31, 2022 properly reduces our deferred tax assets to the amount that is more likely than not to be realized. A number of years may elapse before a tax return containing tax matters for which a reserve has been established is audited and finally resolved. For positions taken in a previously filed tax return or expected to be taken in a future tax return, we evaluate each position to determine whether it is more likely than not that the tax position will be sustained upon examination, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize in the Consolidated Statement of Operations and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, a tax reserve is established and no benefit is recognized. We evaluate our uncertain tax positions quarterly based on many factors, including, changes in tax laws and interpretations, information received from tax authorities, and other changes in facts and circumstances. Our income tax returns are routinely audited byU.S. federal and state as well as foreign tax authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that the reserve for uncertain tax positions of$303 million atDecember 31, 2022 is properly recorded. II-40 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 inFebruary 2020 , three purported CBS stockholders filed separate derivative and/or putative class action lawsuits in theCourt of Chancery of the State of Delaware . InMarch 2020 , the Court consolidated the three lawsuits and appointed Bucks County Employees' Retirement Fund andInternational Union of Operating Engineers ofEastern Pennsylvania andDelaware as co-lead plaintiffs for the consolidated action. InApril 2020 , the lead plaintiffs filed a Verified Consolidated Class Action and Derivative Complaint (as used in this paragraph, the "Complaint") againstShari E. Redstone , NAI,Sumner M. Redstone National Amusements Trust , members of the CBS Board of Directors (comprised ofCandace K. Beinecke ,Barbara M. Byrne ,Gary L. Countryman ,Brian Goldner ,Linda M. Griego ,Robert N. Klieger ,Martha L. Minow ,Susan Schuman ,Frederick O. Terrell andStrauss Zelnick ), former CBS President and Acting Chief Executive OfficerJoseph 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 an Agreement and Plan of Merger, dated as ofAugust 13, 2019 , between CBS and Viacom (as amended, the "Merger Agreement"). The Complaint also alleges waste and unjust enrichment in connection withMr. Ianniello's compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. InJune 2020 , the defendants filed motions to dismiss. InJanuary 2021 , the Court dismissed one disclosure claim, while allowing all other claims against the defendants to proceed. InDecember 2022 , the Court dismissed the fiduciary duty claim againstMr. Klieger . Discovery on the surviving claims is proceeding. A six-day trial is scheduled to begin inJune 2023 . We believe that the remaining claims are without merit and we intend to defend against them vigorously. Beginning inNovember 2019 , four purported Viacom stockholders filed separate putative class action lawsuits in theCourt of Chancery of the State of Delaware . InJanuary 2020 , the Court consolidated the four lawsuits. InFebruary 2020 , the Court appointedCalifornia Public Employees' Retirement System ("CalPERS") as lead plaintiff for the consolidated action. Subsequently, inFebruary 2020 , CalPERS, together with Park Employees' andRetirement Board Employees' Annuity and Benefit Fund of Chicago andLouis 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 ofThomas J. May ,Judith A. McHale ,Ronald L. Nelson andNicole 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. InMay 2020 , the defendants filed motions to dismiss. InDecember 2020 , the Court dismissed the claims againstMr. Bakish , while allowing the claims against the remaining defendants to proceed. Discovery on the surviving claims is proceeding. A six-day trial is scheduled to begin inJuly 2023 . We believe that the remaining claims are without merit and we intend to defend against them vigorously. II-41 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Investigation-Related Matters
As announced inAugust 2018 , the CBS Board of Directors retained two law firms to conduct a full investigation of the allegations in press reports aboutCBS' former Chairman of the Board, President and Chief Executive Officer,Leslie Moonves ,CBS News and cultural issues at CBS. InDecember 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 ofMr. Moonves' employment. InAugust 2018 and inOctober 2018 ,Gene Samit andJohn Lantz , respectively, filed putative class action lawsuits in the U.S 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. InNovember 2018 , the Court entered an order consolidating the two actions. Subsequently, inNovember 2018 , the Court appointedConstruction Laborers Pension Trust for Southern California as the lead plaintiff of the consolidated action. InFebruary 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 betweenSeptember 26, 2016 andDecember 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. InApril 2019 , the defendants filed motions to dismiss this action, which the Court granted in part and denied in part inJanuary 2020 . With the exception of one statement made byMr. Moonves at an industry event inNovember 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 for$14.75 million , which was paid by our insurers. The settlement, which includes no admission of liability or wrongdoing by the Company, was granted final approval by the Court inNovember 2022 . We also received subpoenas or requests for information from theNew York County District Attorney's Office , theNew York City Commission on Human Rights , theNew York State Attorney General's Office and theUnited States Securities and Exchange Commission (the "SEC") regarding the subject matter of the CBS Board of Directors' investigation and related matters, including with respect toCBS' related public disclosures. InNovember 2022 , we entered into an Assurance of Discontinuance with theInvestor Protection Bureau of the New York State Attorney General's Office to resolve that matter. After credits for the settlement amount to be paid in the consolidated federal securities class action discussed above, and certain financial commitments to human resources-related programs made by CBS in connection with an earlier resolution with theCivil Rights Bureau of the New York State Attorney General's Office, the Company has made a payment of$7.25 million , which by agreement with theInvestor Protection Bureau will be distributed in connection with the federal securities class action settlement discussed above. The resolution with theInvestor Protection Bureau includes no admission of liability or wrongdoing by the Company. InDecember 2022 , we received a termination letter from theSEC , indicating that it does not intend to recommend an enforcement action against the Company. We may continue to receive additional related regulatory and investigative inquiries from these and other entities in the future.
Litigation Related to Stock Offerings
InAugust 2021 ,Camelot Event Driven Fund filed a putative securities class action lawsuit in New York Supreme Court, County ofNew York , and inNovember 2021 , an amended complaint was filed that, among other changes, added an additional named plaintiff (as used in this paragraph, 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 inMarch 2021 , and was II-42 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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. In December 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 were
heard in January 2023 . On February 7, 2023 , the Court dismissed all claims
against the Company while allowing the claims against the underwriters to
proceed.
Litigation Related to Television Station Owners
InSeptember 2019 , the Company was added as a defendant in a multi-district putative class action lawsuit filed in theUnited 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 aboutJanuary 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. InOctober 2019 , the Company and other defendants filed a motion to dismiss the matter, which was denied by the Court inNovember 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
InNovember 2021 , theU.S. Department of Justice filed suit in theU.S. District Court for the District of Columbia to block our sale of the Simon & Schuster business toPenguin Random House pursuant to a Share Purchase Agreement (the "Purchase Agreement"), datedNovember 24, 2020 , between the Company, certain of its subsidiaries,Penguin Random House andBertelsmann SE & Co. KGaA . InOctober 2022 , following a bench trial, the Court blocked the sale. InNovember 2022 , we terminated the Purchase Agreement and subsequently received a$200 million termination fee.
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 ofDecember 31, 2022 , we had pending approximately 21,580 asbestos claims, as compared with approximately 27,770 as ofDecember 31, 2021 and 30,710 as ofDecember 31, 2020 . During 2022, we received approximately 2,840 new claims and closed or moved to an inactive docket approximately 9,030 claims. We report claims as closed when we become aware that a dismissal II-43 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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
2022 and 2021 for settlement and defense of asbestos claims after insurance
recoveries and net of tax were approximately $57 million and $63 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. 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. While we believe that our accrual for matters related to our
predecessor operations, including environmental and asbestos, are adequate,
there can be no assurance that circumstances will not change in future periods,
and as a result our actual liabilities may be higher or lower than our accrual.
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.
Market Risk
We are exposed to fluctuations in foreign currency exchange rates and interest rates and use derivative financial instruments to manage this exposure. In accordance with our policy, 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 Risk
We conduct business in various countries outside theU.S. , resulting in exposure to movements in foreign exchange rates when translating from the foreign local currency to theU.S. dollar. In order to hedge anticipated cash flows in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar, foreign currency forward contracts, for periods generally up to 24 months, are used. Additionally, we designate forward contracts used to hedge committed and forecasted foreign currency transactions, including future production costs and programming obligations, as cash flow hedges. Gains or losses on the effective portion of designated cash flow hedges are initially recorded in other comprehensive income (loss) and reclassified to the statement of operations when the hedged item is recognized. Additionally, we enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows. The change in fair value of the non-designated contracts is included in "Other items, net" on the Consolidated Statements of Operations. We manage the use of foreign exchange derivatives centrally. II-44 --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
At December 31, 2022 and 2021, the notional amount of all foreign currency
contracts was $3.06 billion and $1.94 billion , respectively. For 2022, $2.40
billion related to future production costs and $655 million related to our
foreign currency balances and other expected foreign currency cash flows. For
2021, $1.38 billion related to future production costs and $564 million related
to our foreign currency balances and other expected foreign currency cash flows.
Interest Risk
Interest rates on future long-term debt issuances are exposed to risk related to
movements in long-term interest rates. Interest rate hedges may be used to
modify this exposure at our discretion. There were no interest rate hedges
outstanding at
AtDecember 31, 2022 , the carrying value of our outstanding notes and debentures was$15.78 billion and the estimated fair value was$13.9 billion . A 1% increase or decrease in interest rates would decrease or increase the fair value of our notes and debentures by approximately$1.48 billion and$634 million , respectively.
Credit Risk
We continually monitor our positions with, and credit quality of, the financial institutions that are counterparties to our financial instruments. We are exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, we do not anticipate nonperformance by the counterparties. Our receivables do not represent significant concentrations of credit risk atDecember 31, 2022 or 2021, due to the wide variety of customers, markets and geographic areas to which our products and services are sold.
Related Parties
See Note 8 to the consolidated financial statements.
Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted
See Note 1 to the consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required by this item is presented in "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition-Market Risk."
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