Other Related Parties
In the ordinary course of business, we are involved in transactions with our equity-method investees, primarily for the licensing of television and film programming. The following tables present the amounts recorded in our consolidated financial statements related to these transactions.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | $ | 74 | | | $ | 73 | | | $ | 128 | | | $ | 138 | |
| Operating expenses | $ | 1 | | | $ | 4 | | | $ | 6 | | | $ | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At | | At |
| June 30, 2022 | | December 31, 2021 |
| | | | | | | |
| Accounts receivable | | $ | 49 | | | | | $ | 50 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Through the normal course of business, we are involved in transactions with other related parties that have not been material in any of the periods presented.
5) REVENUES
The table below presents our revenues disaggregated into categories based on the nature of such revenues. See Note 13 for revenues by segment disaggregated into these categories.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues by Type: | | | | | | | |
| Advertising | $ | 2,545 | | | $ | 2,599 | | | $ | 5,409 | | | $ | 5,708 | |
| Affiliate and subscription | 2,888 | | | 2,588 | | | 5,728 | | | 5,051 | |
| Theatrical | 764 | | | 134 | | | 895 | | | 135 | |
| Licensing and other | 1,582 | | | 1,243 | | | 3,075 | | | 3,082 | |
| Total Revenues | $ | 7,779 | | | $ | 6,564 | | | $ | 15,107 | | | $ | 13,976 | |
Receivables
Reserves for accounts receivable reflect our expected credit losses based on historical experience as well as current and expected economic conditions. During the first quarter of 2022, following Russia’s invasion of Ukraine, we recorded a charge of $39 million, principally to reserve against amounts due from counterparties in Russia, Belarus and Ukraine. The charge was recorded within “Restructuring and other corporate matters” on the Consolidated Statement of Operations. At June 30, 2022 and December 31, 2021, our allowance for credit losses was $113 million and $80 million, respectively.
Included in “Other assets” on the Consolidated Balance Sheets are noncurrent receivables of $1.61 billion and $1.84 billion at June 30, 2022 and December 31, 2021, respectively. Noncurrent receivables primarily relate to revenues recognized under long-term content licensing arrangements. Revenues from the licensing of content are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition, while the related cash is generally collected over the term of the license period.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Contract Liabilities
Contract liabilities are included within “Deferred revenues” and “Other liabilities” on the Consolidated Balance Sheets and totaled $969 million and $1.20 billion at June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, we recognized revenues of $662 million that were included in deferred revenues at December 31, 2021. For the six months ended June 30, 2021, we recognized revenues of $627 million that were included in deferred revenues at December 31, 2020.
Unrecognized Revenues Under Contract
At June 30, 2022, unrecognized revenues attributable to unsatisfied performance obligations under our long-term contracts were $6.8 billion, of which $2.0 billion is expected to be recognized for the remainder of 2022, $2.4 billion in 2023, $1.2 billion in 2024, and $1.2 billion thereafter. These amounts only include contracts subject to a guaranteed fixed amount or the guaranteed minimum under variable contracts, primarily consisting of television and film licensing contracts and affiliate agreements that are subject to a fixed or guaranteed minimum fee. Such amounts change on a regular basis as we renew existing agreements or enter into new agreements. Unrecognized revenues under contracts disclosed above do not include (i) contracts with an original expected term of one year or less, mainly consisting of advertising contracts, (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage, mainly consisting of affiliate agreements and (iii) long-term licensing agreements for multiple programs for which variable consideration is determined based on the value of the programs delivered to the customer and our right to invoice corresponds with the value delivered.
Performance Obligations Satisfied in Previous Periods
Under certain licensing arrangements, the amount and timing of our revenue recognition is determined based on our licensees’ subsequent sale to its end customers. As a result, under such arrangements we often satisfy our performance obligation of delivery of our content in advance of revenue recognition. For the three months ended June 30, 2022 and 2021, we recognized revenues of $181 million and $104 million, respectively, and for the six months ended June 30, 2022 and 2021, we recognized revenues of $260 million and $240 million, respectively, for licensing to distributors of transactional video-on-demand and electronic sell-through services and other arrangements for licensing of our content for which our performance obligation was satisfied in a prior period.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
6) DEBT
Our debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| At | | At |
| June 30, 2022 | | December 31, 2021 |
| | | | | | | |
7.875% Debentures due 2023 | | $ | 139 | | | | | $ | 139 | | |
7.125% Senior Notes due 2023 | | 35 | | | | | 35 | | |
3.875% Senior Notes due 2024 | | — | | | | | 490 | | |
3.70% Senior Notes due 2024 | | — | | | | | 599 | | |
3.50% Senior Notes due 2025 | | — | | | | | 597 | | |
4.75% Senior Notes due 2025 | | 552 | | | | | 1,242 | | |
4.0% Senior Notes due 2026 | | 794 | | | | | 793 | | |
3.45% Senior Notes due 2026 | | 124 | | | | | 123 | | |
2.90% Senior Notes due 2027 | | 693 | | | | | 692 | | |
3.375% Senior Notes due 2028 | | 496 | | | | | 496 | | |
3.70% Senior Notes due 2028 | | 493 | | | | | 493 | | |
4.20% Senior Notes due 2029 | | 495 | | | | | 494 | | |
7.875% Senior Debentures due 2030 | | 830 | | | | | 830 | | |
4.95% Senior Notes due 2031 | | 1,224 | | | | | 1,223 | | |
4.20% Senior Notes due 2032 | | 973 | | | | | 972 | | |
5.50% Senior Debentures due 2033 | | 427 | | | | | 427 | | |
4.85% Senior Debentures due 2034 | | 87 | | | | | 87 | | |
6.875% Senior Debentures due 2036 | | 1,070 | | | | | 1,070 | | |
6.75% Senior Debentures due 2037 | | 75 | | | | | 75 | | |
5.90% Senior Notes due 2040 | | 298 | | | | | 298 | | |
4.50% Senior Debentures due 2042 | | 45 | | | | | 45 | | |
4.85% Senior Notes due 2042 | | 488 | | | | | 488 | | |
4.375% Senior Debentures due 2043 | | 1,126 | | | | | 1,123 | | |
4.875% Senior Debentures due 2043 | | 18 | | | | | 18 | | |
5.85% Senior Debentures due 2043 | | 1,233 | | | | | 1,233 | | |
5.25% Senior Debentures due 2044 | | 345 | | | | | 345 | | |
4.90% Senior Notes due 2044 | | 541 | | | | | 540 | | |
4.60% Senior Notes due 2045 | | 590 | | | | | 590 | | |
4.95% Senior Notes due 2050 | | 945 | | | | | 944 | | |
5.875% Junior Subordinated Debentures due 2057 | | — | | | | | 514 | | |
6.25% Junior Subordinated Debentures due 2057 | | 643 | | | | | 643 | | |
6.375% Junior Subordinated Debentures due 2062 | | 989 | | | | | — | | |
| Other bank borrowings | | 25 | | | | | 35 | | |
| Obligations under finance leases | | 17 | | | | | 16 | | |
Total debt (a) | | 15,810 | | | | | 17,709 | | |
| | | | | | | |
| Less current portion | | 37 | | | | | 11 | | |
| Total long-term debt, net of current portion | | $ | 15,773 | | | | | $ | 17,698 | | |
(a) At June 30, 2022 and December 31, 2021, the senior and junior subordinated debt balances included (i) a net unamortized discount of $451 million and $466 million, respectively, and (ii) unamortized deferred financing costs of $92 million and $95 million, respectively. The face value of our total debt was $16.35 billion and $18.27 billion at June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, we redeemed senior notes totaling $2.39 billion, prior to maturity, for an aggregate redemption price of $2.49 billion which included second quarter redemptions of $970 million for a redemption price of $1.01 billion. Additionally, in February 2022, we redeemed our $520 million of 5.875% junior subordinated debentures due February 2057 at par. These redemptions resulted in a total pre-tax loss on extinguishment of debt of $47 million and $120 million for the three and six months ended June 30, 2022, respectively.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During the six months ended June 30, 2022, we issued $1.00 billion of 6.375% junior subordinated debentures due 2062. The interest rate on these debentures will reset on March 30, 2027, and every five years thereafter to a fixed rate equal to the 5-year Treasury Rate (as defined pursuant to the terms of the debentures) plus a spread of 3.999% from March 30, 2027, 4.249% from March 30, 2032 and 4.999% from March 30, 2047. These debentures can be called by us at par plus a make whole premium any time before March 30, 2027, or at par on March 30, 2027, or at any interest payment date thereafter.
During the six months ended June 30, 2021, we redeemed senior notes totaling $1.99 billion, prior to maturity, for an aggregate redemption price of $2.11 billion resulting in a pre-tax loss on extinguishment of debt of $128 million.
Our 6.25% junior subordinated debentures due February 2057 accrue interest at the stated fixed rates until February 28, 2027, on which date the rate will switch to a floating rate. Under the terms of the debentures the floating rate is based on three-month LIBOR plus 3.899%, reset quarterly. These debentures can be called by us at par at any time after the expiration of the fixed-rate period.
Commercial Paper
At both June 30, 2022 and December 31, 2021, we had no outstanding commercial paper borrowings.
Credit Facility
At June 30, 2022, we had a $3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”). The Credit Facility is used for general corporate purposes and to support commercial paper borrowings, if any. We may, at our option, also borrow in certain foreign currencies up to specified limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the time of each borrowing and are generally based on either the prime rate in the U.S. or an applicable benchmark rate plus a margin (based on our senior unsecured debt rating), depending on the type and tenor of the loans entered. The benchmark rate for loans denominated in euros, sterling and yen is based on EURIBOR, SONIA and TIBOR rates, respectively. The Credit Facility has one principal financial covenant that requires our Consolidated Total Leverage Ratio to be less than 4.5x (which we may elect to increase to 5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter. The Consolidated Total Leverage Ratio reflects the ratio of our Consolidated Indebtedness at the end of a quarter, to our Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing twelve-month period. On February 14, 2022, we amended our Credit Facility to modify the definition of the Consolidated Total Leverage Ratio in the amended credit agreement to allow unrestricted cash and cash equivalents to be netted against Consolidated Indebtedness through June 2024. We met the covenant as of June 30, 2022.
At June 30, 2022, we had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $3.50 billion.
Other Bank Borrowings
At June 30, 2022 and December 31, 2021, we had bank borrowings under Miramax’s $300 million credit facility, which matures in April 2023, of $25 million and $35 million, respectively, with weighted average interest rates of 4.36% and 3.50%, respectively.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
7) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The carrying value of our financial instruments approximates fair value, except for notes and debentures. At June 30, 2022 and December 31, 2021, the carrying value of our notes and debentures was $15.77 billion and $17.66 billion, respectively, and the fair value, which is determined based on quoted prices in active markets (Level 1 in the fair value hierarchy) was $15.0 billion and $21.5 billion, respectively.
The carrying value of our investments without a readily determinable fair value for which we have no significant influence was $67 million and $59 million at June 30, 2022 and December 31, 2021, respectively. These investments are included in “Other assets” on the Consolidated Balance Sheets.
During the three and six months ended June 30, 2021, we recorded an unrealized loss of $5 million and an unrealized gain of $15 million, respectively, resulting from changes in the fair value of a marketable security. In addition, during the second quarter of 2021 we recognized a gain of $37 million from the sale of an investment without a readily determinable fair value.
Foreign Exchange Contracts
We use derivative financial instruments primarily to modify our exposure to market risks from fluctuations in foreign currency exchange rates. We do not use derivative instruments unless there is an underlying exposure and therefore we do not hold or enter into derivative financial instruments for speculative trading purposes.
Foreign exchange forward contracts have principally been used to hedge projected cash flows, in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar, generally for periods up to 24 months. We designate foreign exchange forward contracts used to hedge committed and forecasted foreign currency transactions as cash flow hedges. Additionally, we enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.
At June 30, 2022 and December 31, 2021, the notional amount of all foreign exchange contracts was $2.41 billion and $1.94 billion, respectively. At June 30, 2022, $1.69 billion related to future production costs and $716 million related to our foreign currency balances and other expected foreign currency cash flows. At December 31, 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.
Gains (losses) recognized on derivative financial instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| 2022 | | 2021 | | 2022 | | 2021 | Financial Statement Account |
| Non-designated foreign exchange contracts | $ | 38 | | | $ | (2) | | | $ | 40 | | | $ | (1) | | Other items, net |
The fair value of our derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Fair Value Measurements
Certain of our assets and liabilities are measured at fair value on a recurring basis. The table below presents our assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting our own assumptions about the assumptions that market participants would use in pricing the asset or liability. All of our assets and liabilities that are measured at fair value on a recurring basis use level 2 inputs. The fair value of foreign currency hedges is determined based on the present value of future cash flows using observable inputs including foreign currency exchange rates. The fair value of deferred compensation liabilities is determined based on the fair value of the investments elected by employees.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | At | | | | | | At | |
| | | June 30, 2022 | | | | December 31, 2021 |
| Assets: | | | | | | | | | | | |
| | | | | | | | | | | |
| Foreign currency hedges | | | | $ | 38 | | | | | | | $ | 23 | | |
| Total Assets | | | | $ | 38 | | | | | | | $ | 23 | | |
| Liabilities: | | | | | | | | | | | |
| Deferred compensation | | | | $ | 328 | | | | | | | $ | 435 | | |
| Foreign currency hedges | | | | 65 | | | | | | | 29 | | |
| Total Liabilities | | | | $ | 393 | | | | | | | $ | 464 | | |
8) VARIABLE INTEREST ENTITIES
In the normal course of business, we enter into joint ventures or make investments with business partners that support our underlying business strategy and provide us the ability to enter new markets to expand the reach of our brands, develop new programming and/or distribute our existing content. In certain instances, an entity in which we make an investment may qualify as a variable interest entity (“VIE”). In determining whether we are the primary beneficiary of a VIE, we assess whether we have the power to direct matters that most significantly impact the activities of the VIE, and have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The following tables present the amounts recorded in our consolidated financial statements related to our consolidated VIEs.
| | | | | | | | | | | | | | | | | | | | | | | |
| | At | | | | At | |
| June 30, 2022 | | December 31, 2021 |
| Total assets | | $ | 1,651 | | | | | $ | 1,578 | | |
| | | | | | | |
| Total liabilities | | $ | 256 | | | | | $ | 184 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | $ | 86 | | | $ | 92 | | | $ | 189 | | | $ | 163 | |
| | | | | | | |
| Operating income (loss) | $ | (27) | | | $ | 3 | | | $ | (55) | | | $ | 8 | |
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
9) STOCKHOLDERS’ EQUITY
Stock Offerings
On March 26, 2021, we completed offerings of 20 million shares of our Class B Common Stock at a price to the public of $85 per share and 10 million shares of 5.75% Series A Mandatory Convertible Preferred Stock at a price to the public and liquidation preference of $100 per share. The net proceeds from the Class B Common Stock offering and the Mandatory Convertible Preferred Stock offering were approximately $1.67 billion and $983 million, respectively, in each case after deducting underwriting discounts, commissions and estimated offering expenses.
Mandatory Convertible Preferred Stock
Unless earlier converted, each share of Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date, expected to be April 1, 2024, into between 1.0013 and 1.1765 shares of our Class B Common Stock, subject to customary antidilution adjustments. The number of shares of Class B Common Stock issuable upon conversion will be determined based on the average of the volume-weighted average price per share of our Class B Common Stock over the 20 consecutive trading day period commencing on, and including, the 21st scheduled trading day immediately preceding April 1, 2024. Holders of the Mandatory Convertible Preferred Stock (“Holders”) have the right to convert all or any portion of their shares of Mandatory Convertible Preferred Stock at any time prior to April 1, 2024 at the minimum conversion rate of 1.0013 shares of our Class B Common Stock. In addition, the conversion rate applicable to such an early conversion may, in certain circumstances, be increased to compensate Holders for certain unpaid accumulated dividends. However, if a fundamental change (as defined in the Certificate of Designations governing the Mandatory Convertible Preferred Stock) occurs on or prior to April 1, 2024, then Holders will, in certain circumstances, be entitled to convert all or a portion of their shares of Mandatory Convertible Preferred Stock at an increased conversion rate for a specified period of time and receive an amount to compensate them for unpaid accumulated dividends and any remaining future scheduled dividend payments.
The Mandatory Convertible Preferred Stock is not redeemable. However, at our option, we may purchase or otherwise acquire (including in an exchange transaction) the Mandatory Convertible Preferred Stock from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, Holders. Holders have no voting rights, with certain exceptions.
If declared, dividends on the Mandatory Convertible Preferred Stock are payable quarterly through April 1, 2024. Dividends on the Mandatory Convertible Preferred Stock accumulate from the most recent dividend payment date, and will be payable on a cumulative basis when, as and if declared by our Board of Directors, or an authorized committee thereof, at an annual rate of 5.75% of the liquidation preference of $100 per share, payable in cash or, subject to certain limitations, by delivery of shares of Class B Common Stock or through any combination of cash and shares of Class B Common Stock, at our election. If we have not declared any portion of the accumulated and unpaid dividends by April 1, 2024, the conversion rate will be adjusted so that Holders receive an additional number of shares of our Class B Common Stock, with certain limitations.
Dividends
We declared cash dividends of $.24 per share on our Class A and Class B Common Stock during each of the three months ended June 30, 2022 and 2021, resulting in total dividends of $160 million and $158 million, respectively. We declared cash dividends of $.48 per share on our Class A and Class B Common Stock during each of the six months ended June 30, 2022 and 2021, resulting in total dividends of $318 million and $310 million, respectively.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During each of the first and second quarters of 2022, we declared a quarterly cash dividend of $1.4375 per share on our Mandatory Convertible Preferred Stock, resulting in total dividends of $14.4 million for the three months ended June 30, 2022, and $28.8 million for the six months ended June 30, 2022. During the second quarter of 2021, we declared a cash dividend of $1.5493 per share on our Mandatory Convertible Preferred Stock, representing a dividend period from March 26, 2021 through July 1, 2021. Accordingly, we recorded dividends on the Mandatory Convertible Preferred Stock of $14.4 million and $15.4 million during the three and six months ended June 30, 2021, respectively.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the changes in the components of accumulated other comprehensive loss.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing Operations | | Discontinued Operations | | | | |
| Cumulative
Translation
Adjustments | | Net Actuarial
Loss and Prior
Service Cost | | Other Comprehensive Income (Loss) (a) | | Accumulated
Other
Comprehensive Loss |
| At December 31, 2021 | | $ | (445) | | | | | $ | (1,434) | | | | | $ | (23) | | | | | $ | (1,902) | | |
Other comprehensive loss before
reclassifications | | (205) | | | | | — | | | | | (6) | | | | | (211) | | |
Reclassifications to net earnings | | — | | | | | 33 | | (b) | | | — | | | | | 33 | | |
| Other comprehensive income (loss) | | (205) | | | | | 33 | | | | | (6) | | | | | (178) | | |
| At June 30, 2022 | | $ | (650) | | | | | $ | (1,401) | | | | | $ | (29) | | | | | $ | (2,080) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing Operations | | Discontinued Operations | | | | |
| Cumulative
Translation
Adjustments | | Net Actuarial
Loss and Prior
Service Cost | | Other Comprehensive Income (Loss) (a) | | Accumulated
Other
Comprehensive Loss |
| At December 31, 2020 | | $ | (303) | | | | | $ | (1,509) | | | | | $ | (20) | | | | | $ | (1,832) | | |
Other comprehensive income (loss)
before reclassifications | | (55) | | | | | — | | | | | 5 | | | | | (50) | | |
Reclassifications to net earnings | | — | | | | | 29 | | (b) | | | — | | | | | 29 | | |
| Other comprehensive income (loss) | | (55) | | | | | 29 | | | | | 5 | | | | | (21) | | |
| At June 30, 2021 | | $ | (358) | | | | | $ | (1,480) | | | | | $ | (15) | | | | | $ | (1,853) | | |
(a) Reflects cumulative translation adjustments.
(b) Reflects amortization of net actuarial losses (see Note 11).
The net actuarial loss and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income (loss) is net of a tax benefit of $10 million for each of the six-month periods ended June 30, 2022 and 2021.
10) INCOME TAXES
The provision/benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the three and six months ended June 30, 2022, we recorded a provision for income taxes of $129 million and $163 million, reflecting effective income tax rates of 24.9% and 16.5%, respectively. Included in the provision for income taxes for the second quarter of 2022 is a net discrete tax benefit of $3 million, which together with a net tax benefit of $23 million on other items identified as affecting the comparability of our results during the period, which include a loss on extinguishment of debt and charges for restructuring and other corporate matters, decreased our effective
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
income tax rate by 0.3 percentage points. The tax provision for the six months ended June 30, 2022 included a net discrete tax benefit of $81 million primarily resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations. This item, together with a net tax benefit of $48 million on other items identified as affecting the comparability of our results during the six-month period, which include a loss on extinguishment of debt, charges for restructuring and other corporate matters, and gains on sales, decreased our effective income tax rate by 7.8 percentage points.
For the three months ended June 30, 2021, we recorded a benefit for income taxes of $34 million, reflecting a negative effective income tax rate of 3.3%, and for the six months ended June 30, 2021, we recorded a provision for income taxes of $192 million, reflecting an effective income tax rate of 8.8%. Included in income taxes for the three and six months ended June 30, 2021 are discrete tax benefits of $268 million and $289 million, respectively, primarily consisting of a benefit of $260 million to remeasure our UK net deferred income tax asset as a result of the enactment during the second quarter of 2021 of an increase in the UK corporate income tax rate from 19% to 25% beginning April 1, 2023, as well as a net tax benefit in connection with the settlement of income tax audits. For the three and six months ended June 30, 2021, the discrete tax benefit in each period, together with a net tax provision of $26 million and $1 million, respectively, on other items identified as affecting the comparability of our results during the period, which include net gains from sales and investments, and restructuring charges in each period, and a loss on extinguishment of debt in the six-month period, reduced our effective income tax rate by 26.3 percentage points and 13.3 percentage points, respectively.
The Company and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and local and foreign jurisdictions. For periods prior to the merger of Viacom Inc. (“Viacom”) with and into CBS Corporation (“CBS”) (the “Merger”), Viacom and CBS filed separate tax returns. For CBS, we are currently under examination by the IRS for the 2017 and 2018 tax years. For Viacom, we are currently under examination by the IRS for the 2016 through 2019 tax years. Various tax years are also currently under examination by state and local and foreign tax authorities. With respect to open tax years in all jurisdictions, we currently do not believe that it is reasonably possible that the reserve for uncertain tax positions will significantly change within the next 12 months; however, it is difficult to predict the final outcome or timing of resolution of any particular tax matter and events could cause our current expectation to change in the future.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
11) PENSION AND OTHER POSTRETIREMENT BENEFITS
The following table presents the components of net periodic cost for our pension and postretirement benefit plans, which are included within “Other items, net” on the Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Three Months Ended June 30, | 2022 | | 2021 | | 2022 | | 2021 |
Components of net periodic cost (a): | | | | | | | |
| Interest cost | $ | 37 | | | $ | 36 | | | $ | 2 | | | $ | 2 | |
| Expected return on plan assets | (43) | | | (47) | | | — | | | — | |
Amortization of actuarial loss (gain) (b) | 25 | | | 23 | | | (4) | | | (4) | |
| | | | | | | |
| | | | | | | |
| Net periodic cost | $ | 19 | | | $ | 12 | | | $ | (2) | | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Six Months Ended June 30, | 2022 | | 2021 | | 2022 | | 2021 |
Components of net periodic cost (a): | | | | | | | |
| Interest cost | $ | 75 | | | $ | 72 | | | $ | 4 | | | $ | 4 | |
| Expected return on plan assets | (86) | | | (94) | | | — | | | — | |
Amortization of actuarial loss (gain) (b) | 49 | | | 47 | | | (7) | | | (7) | |
| | | | | | | |
| | | | | | | |
| Net periodic cost | $ | 38 | | | $ | 25 | | | $ | (3) | | | $ | (3) | |
(a) Amounts reflect our domestic plans only.
(b) Reflects amounts reclassified from accumulated other comprehensive loss to net earnings.
12) REDEEMABLE NONCONTROLLING INTERESTS
We are subject to a redeemable put option, payable in a foreign currency, with respect to an international subsidiary. The put option expires in December 2022 and is classified as “Redeemable noncontrolling interest” on the Consolidated Balance Sheets. The activity reflected within redeemable noncontrolling interest for the six months ended June 30, 2022 and 2021 is presented below.
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
| Beginning balance | $ | 107 | | | $ | 197 | |
| Net earnings | 1 | | | 4 | |
| Distributions | (4) | | | (2) | |
| Translation adjustment | (15) | | | 1 | |
| Redemption value adjustment | 19 | | | (10) | |
| Ending balance | $ | 108 | | | $ | 190 | |
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
13) SEGMENT INFORMATION
The tables below set forth our financial information by reportable segment. Our operating segments, which are the same as our reportable segments, have been determined in accordance with our internal management structure, which is organized based upon products and services. Beginning in 2022, primarily as a result of our increased strategic focus on our direct-to-consumer businesses, we made certain changes to how we manage our businesses and allocate resources that resulted in the changes described below. Prior period results have been recast to conform to these presentation changes.
Management Structure Change
Our management structure has been reorganized to focus on managing our business as the combination of three parts: a traditional media business, a portfolio of global DTC services, and a film studio. As a result, we realigned our operating segments and accordingly, beginning in the first quarter of 2022, and for all periods presented we are reporting results based on the segments in the tables below (see Note 1 for a description of each operating segment). In connection with the management structure change, we also reassessed our reporting units and reallocated goodwill from the reporting units that existed prior to the change, to the new reporting units, using a relative fair value approach. We performed goodwill impairment tests as of January 1, 2022 on both the reporting units in place prior to the change and the new reporting units and concluded that the estimated fair values of each of the reporting units exceeded their respective carrying values and therefore no impairment charge was necessary.
Intercompany License Fees
Concurrent with the change to our operating segments, we changed the way we record intersegment content licensing. Under our previous segment structure, management evaluated the results of our segments including intersegment content licensing at market value as if the sales were to third parties. Therefore, the licensor segment recorded intercompany license fee revenues and profits and the licensee segment recorded production costs in the amount of the license fee charged by the licensor, which generally reflected the cost to the Company plus a margin. The intercompany revenues and the margin embedded in the cost to the licensee were eliminated in consolidation.
Under our new segment structure, management evaluates the results of the segments using an allocation of the total cost of content from the licensor segment to each licensee segment utilizing the content. As a result, content costs are allocated across segments based on the relative value of the distribution windows within each segment. The allocation is recorded by the licensor segment as a reduction of content cost and no intersegment licensing revenues or profits are recorded.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | |
| Advertising | $ | 2,174 | | | $ | 2,303 | | | $ | 4,695 | | | $ | 5,191 | |
| Affiliate and subscription | 2,058 | | | 2,112 | | | 4,156 | | | 4,195 | |
| Licensing and other | 1,024 | | | 804 | | | 2,050 | | | 1,826 | |
| TV Media | 5,256 | | | 5,219 | | | 10,901 | | | 11,212 | |
| Advertising | 363 | | | 291 | | | 710 | | | 509 | |
| Subscription | 830 | | | 476 | | | 1,572 | | | 856 | |
| Direct-to-Consumer | 1,193 | | | 767 | | | 2,282 | | | 1,365 | |
| Advertising | 12 | | | 6 | | | 14 | | | 12 | |
| Theatrical | 764 | | | 134 | | | 895 | | | 135 | |
| Licensing and other | 587 | | | 463 | | | 1,078 | | | 1,316 | |
| Filmed Entertainment | 1,363 | | | 603 | | | 1,987 | | | 1,463 | |
| Eliminations | (33) | | | (25) | | | (63) | | | (64) | |
| Total Revenues | $ | 7,779 | | | $ | 6,564 | | | $ | 15,107 | | | $ | 13,976 | |
Revenues generated between segments are principally from intersegment arrangements for the distribution of content, rental of studio space, and advertising, as well as licensing revenues earned from third parties who license our content to our internal platforms either through a sub-license or co-production arrangement. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Intercompany Revenues: | | | | | | | |
| TV Media | $ | 13 | | | $ | 5 | | | $ | 24 | | | $ | 19 | |
| Direct-to-Consumer | — | | | 1 | | | — | | | 1 | |
| Filmed Entertainment | 20 | | | 19 | | | 39 | | | 44 | |
| Total Intercompany Revenues | $ | 33 | | | $ | 25 | | | $ | 63 | | | $ | 64 | |
We present operating income excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters and net gain on sales, each where applicable (“Adjusted OIBDA”), as the primary measure of profit and loss for our operating segments in accordance with FASB guidance for segment reporting since it is the primary method used by our management. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Adjusted OIBDA: | | | | | | | |
| TV Media | $ | 1,380 | | | $ | 1,504 | | | $ | 2,924 | | | $ | 3,269 | |
| Direct-to-Consumer | (445) | | | (143) | | | (901) | | | (292) | |
| Filmed Entertainment | 181 | | | 52 | | | 144 | | | 231 | |
| Corporate/Eliminations | (112) | | | (124) | | | (216) | | | (240) | |
Stock-based compensation (a) | (41) | | | (49) | | | (75) | | | (101) | |
| Depreciation and amortization | (94) | | | (95) | | | (190) | | | (194) | |
| Restructuring and other corporate matters | (50) | | | (35) | | | (107) | | | (35) | |
| | | | | | | |
| Net gain on sales | — | | | 116 | | | 15 | | | 116 | |
| Operating income | 819 | | | 1,226 | | | 1,594 | | | 2,754 | |
| Interest expense | (230) | | | (243) | | | (470) | | | (502) | |
| Interest income | 19 | | | 13 | | | 40 | | | 26 | |
| Net gains from investments | — | | | 32 | | | — | | | 52 | |
| Loss on extinguishment of debt | (47) | | | — | | | (120) | | | (128) | |
| Other items, net | (42) | | | (10) | | | (55) | | | (29) | |
Earnings from continuing operations before income taxes and
equity in loss of investee companies | 519 | | | 1,018 | | | 989 | | | 2,173 | |
| (Provision) benefit for income taxes | (129) | | | 34 | | | (163) | | | (192) | |
| Equity in loss of investee companies, net of tax | (29) | | | (44) | | | (66) | | | (62) | |
| Net earnings from continuing operations | 361 | | | 1,008 | | | 760 | | | 1,919 | |
| Net earnings from discontinued operations, net of tax | 61 | | | 41 | | | 103 | | | 53 | |
| Net earnings (Paramount and noncontrolling interests) | 422 | | | 1,049 | | | 863 | | | 1,972 | |
| Net earnings attributable to noncontrolling interests | (3) | | | (13) | | | (11) | | | (25) | |
| Net earnings attributable to Paramount | $ | 419 | | | $ | 1,036 | | | $ | 852 | | | $ | 1,947 | |
(a) For the six months ended June 30, 2022, $2 million of stock-based compensation expense is included in restructuring and other corporate matters.
| | | | | | | | | | | | | | | | | | | | | | | |
| At | | At |
| June 30, 2022 | | December 31, 2021 |
| Assets: | | | | | | | |
| TV Media | | $ | 38,019 | | | | | $ | 38,491 | | |
| Direct-to-Consumer | | 6,334 | | | | | 5,545 | | |
Filmed Entertainment | | 7,939 | | | | | 7,472 | | |
| Corporate/Eliminations | | 3,232 | | | | | 5,552 | | |
| Discontinued Operations | | 1,437 | | | | | 1,560 | | |
| Total Assets | | $ | 56,961 | | | | | $ | 58,620 | | |
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
14) COMMITMENTS AND CONTINGENCIES
Guarantees
Letters of Credit and Surety Bonds
We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2022, the outstanding letters of credit and surety bonds approximated $173 million and were not recorded on the Consolidated Balance Sheet.
CBS Television City
In connection with the sale of the CBS Television City property and sound stage operation (“CBS Television City”) in 2019, we guaranteed a specified level of cash flows to be generated by the business during the first five years following the completion of the sale. Included in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet at June 30, 2022 is a liability totaling $51 million, reflecting the present value of the estimated amount remaining under the guarantee obligation.
Lease Guarantees
We have certain indemnification obligations with respect to leases primarily associated with the previously discontinued operations of Famous Players Inc. These lease commitments totaled $41 million at June 30, 2022 and are presented within “Other liabilities” on the Consolidated Balance Sheet. The amount of lease commitments varies over time depending on the expiration or termination of individual underlying leases, or the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We believe our accrual is sufficient to meet any future obligations based on our consideration of available financial information, the lessees’ historical performance in meeting their lease obligations and the underlying economic factors impacting the lessees’ business models.
Other
In the course of our business, we both provide and receive indemnities which are intended to allocate certain risks associated with business transactions. Similarly, we may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. We record a liability for our indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
General
On an ongoing basis, we vigorously defend ourselves in numerous lawsuits and proceedings and respond to various investigations and inquiries from federal, state, local and international authorities (collectively, “litigation”). Litigation may be brought against us without merit, is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the following matters are not likely, in the aggregate, to result in a material adverse effect on our business, financial condition and results of operations.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Stockholder Matters
Litigation Relating to the Merger
Beginning on February 20, 2020, three purported CBS stockholders filed separate derivative and/or putative class action lawsuits in the Court of Chancery of the State of Delaware. On March 31, 2020, the Court consolidated the three lawsuits and appointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs for the consolidated action. On April 14, 2020, the lead plaintiffs filed a Verified Consolidated Class Action and Derivative Complaint (as used in this paragraph, the “Complaint”) against Shari E. Redstone, NAI, Sumner M. Redstone National Amusements Trust, members of the CBS Board of Directors (comprised of Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Robert N. Klieger, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick), former CBS President and Acting Chief Executive Officer Joseph Ianniello and the Company as nominal defendant. The Complaint alleges breaches of fiduciary duties to CBS stockholders in connection with the negotiation and approval of the Agreement and Plan of Merger dated as of August 13, 2019, as amended on October 16, 2019 (the “Merger Agreement”). The Complaint also alleges waste and unjust enrichment in connection with Mr. Ianniello’s compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On June 5, 2020, the defendants filed motions to dismiss. On January 27, 2021, the Court dismissed one disclosure claim, while allowing all other claims against the defendants to proceed. Discovery on the surviving claims is proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Beginning on November 25, 2019, four purported Viacom stockholders filed separate putative class action lawsuits in the Court of Chancery of the State of Delaware. On January 23, 2020, the Court consolidated the four lawsuits. On February 6, 2020, the Court appointed California Public Employees’ Retirement System (“CalPERS”) as lead plaintiff for the consolidated action. On February 28, 2020, CalPERS, together with Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago and Louis M. Wilen, filed a First Amended Verified Class Action Complaint (as used in this paragraph, the “Complaint”) against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the special transaction committee of the Viacom Board of Directors (comprised of Thomas J. May, Judith A. McHale, Ronald L. Nelson and Nicole Seligman) and our President and Chief Executive Officer and director, Robert M. Bakish. The Complaint alleges breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On May 22, 2020, the defendants filed motions to dismiss. On December 29, 2020, the Court dismissed the claims against Mr. Bakish, while allowing the claims against the remaining defendants to proceed. Discovery on the surviving claims is proceeding. We believe that the remaining claims are without merit and we intend to defend against them vigorously.
Investigation-Related Matters
As announced on August 1, 2018, the CBS Board of Directors retained two law firms to conduct a full investigation of the allegations in press reports about CBS’ former Chairman of the Board, President and Chief Executive Officer, Leslie Moonves, CBS News and cultural issues at CBS. On December 17, 2018, the CBS Board of Directors announced the completion of its investigation, certain findings of the investigation and the CBS Board of Directors’ determination, with respect to the termination of Mr. Moonves’ employment. We have received subpoenas or requests for information from the New York County District Attorney’s Office, the New York City Commission on Human Rights, the New York State Attorney General’s Office and the United States Securities and Exchange Commission regarding the subject matter of this investigation and related matters, including with respect to CBS’ related public disclosures. We may continue to receive additional related regulatory and investigative inquiries from these and other entities in the future. We are cooperating with these inquiries.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
On August 27, 2018 and on October 1, 2018, Gene Samit and John Lantz, respectively, filed putative class action lawsuits in the United States District Court for the Southern District of New York, individually and on behalf of others similarly situated, for claims that are similar to those alleged in the amended complaint described below. On November 6, 2018, the Court entered an order consolidating the two actions. On November 30, 2018, the Court appointed Construction Laborers Pension Trust for Southern California as the lead plaintiff of the consolidated action. On February 11, 2019, the lead plaintiff filed a consolidated amended putative class action complaint against CBS, certain current and former senior executives and members of the CBS Board of Directors. The consolidated action is stated to be on behalf of purchasers of CBS Class A Common Stock and Class B Common Stock between September 26, 2016 and December 4, 2018. This action seeks to recover damages arising during this time period allegedly caused by the defendants’ purported violations of the federal securities laws, including by allegedly making materially false and misleading statements or failing to disclose material information, and seeks costs and expenses as well as remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On April 12, 2019, the defendants filed motions to dismiss this action, which the Court granted in part and denied in part on January 15, 2020. With the exception of one statement made by Mr. Moonves at an industry event in November 2017, in which he allegedly was acting as the agent of CBS, all claims as to all other allegedly false and misleading statements were dismissed. We reached an agreement with the plaintiffs to settle the lawsuit. The settlement, which includes no admission of liability or wrongdoing by the Company, was granted preliminary approval by the Court on May 13, 2022. All amounts payable by the Company under the settlement will be paid by the Company’s insurers.
Litigation Related to Stock Offerings
On August 13, 2021, Camelot Event Driven Fund filed a putative securities class action lawsuit in New York Supreme Court, County of New York, and on November 5, 2021, an amended complaint was filed that, among other changes, added an additional named plaintiff (the “Complaint”). The Complaint is purportedly on behalf of investors who purchased shares of the Company’s Class B Common Stock and 5.75% Series A Mandatory Convertible Preferred Stock pursuant to public securities offerings completed in March 2021, and was filed against the Company, certain senior executives, members of our Board of Directors, and the underwriters involved in the offerings. The Complaint asserts violations of federal securities law and alleges that the offering documents contained material misstatements and omissions, including through an alleged failure to adequately disclose certain total return swap transactions involving Archegos Capital Management referenced to our securities and related alleged risks to the Company’s stock price. On December 22, 2021, the plaintiffs filed a stipulation seeking the voluntary dismissal without prejudice of the outside director defendants from the lawsuit, which the Court subsequently ordered. On the same date, the defendants filed motions to dismiss the lawsuit, which are pending. The complaint seeks unspecified compensatory damages, as well as other relief. We believe that the claims are without merit and intend to defend against them vigorously.
Litigation Related to Television Station Owners
On September 9, 2019, the Company was added as a defendant in a multi-district putative class action lawsuit filed in the United States District Court for the Northern District of Illinois. The lawsuit was filed by parties that claim to have purchased broadcast television spot advertising beginning on or about January 1, 2014 on television stations owned by one or more of the defendant television station owners and alleges the sharing of allegedly competitively sensitive information among such television stations in alleged violation of the Sherman Antitrust Act. The action, which names the Company among fourteen total defendants, seeks monetary damages, attorneys’ fees, costs and interest as well as injunctions against the allegedly unlawful conduct. On October 8, 2019, the Company and other defendants filed a motion to dismiss the matter, which was denied by the Court on November 6, 2020. We have reached an agreement in principle with the plaintiffs to settle the lawsuit. The settlement, which will include no admission of liability or wrongdoing by the Company, will be subject to Court approval.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Litigation Related to the Proposed Sale of Simon & Schuster
On November 2, 2021, the U.S. Department of Justice (the “DOJ”) filed suit in the United States District Court for the District of Columbia to block our sale of the Simon & Schuster business to Penguin Random House (the “Transaction”) pursuant to a Share Purchase Agreement (“Purchase Agreement”), dated November 24, 2020, between the Company, certain of its subsidiaries, Penguin Random House and Bertelsmann SE & Co. KGaA. The DOJ asserts that the sale of Simon & Schuster would reduce competition for the acquisition of titles. The Purchase Agreement contains customary representations and warranties and covenants, including commitments on the part of Penguin Random House to take all necessary steps to obtain any required regulatory approvals and to defend any litigation that would delay or prevent consummation, and also provides for a $200 million termination fee payable to the Company in certain circumstances in the event the Transaction does not close for regulatory reasons. The trial commenced on August 1, 2022 and is expected to conclude on or about August 18, 2022. We and the other defendants believe the DOJ’s claims are without merit, and we intend to defend against them vigorously.
Claims Related to Former Businesses
Asbestos
We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. We are typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of our products is the basis of a claim. Claims against us in which a product has been identified most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. We do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2022, we had pending approximately 26,790 asbestos claims, as compared with approximately 27,770 as of December 31, 2021. During the second quarter of 2022, we received approximately 670 new claims and closed or moved to an inactive docket approximately 640 claims. We report claims as closed when we become aware that a dismissal order has been entered by a court or when we have reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claims, the quality of evidence supporting the claims and other factors. Our total costs for the years 2021 and 2020 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $63 million and $35 million, respectively. Our costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of pending claims against us are non-cancer claims. It is difficult to predict future asbestos liabilities, as events and circumstances may impact the estimate of our asbestos liabilities, including, among others, the number and types of claims and average cost to resolve such claims. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and when the amount of the loss can be
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
reasonably estimated. We believe that our accrual and insurance are sufficient to cover our asbestos liabilities. Our liability estimate is based upon many factors, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims, as well as consultation with a third party firm on trends that may impact our future asbestos liability.
Other
From time to time we receive claims from federal and state environmental regulatory agencies and other entities asserting that we are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations. In addition, from time to time we receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations and predecessors.
15) SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental Cash Flow Information
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
| Cash paid for interest | $ | 474 | | | $ | 506 | |
| | | |
| Cash paid for income taxes: | | | |
| Continuing operations | $ | 79 | | | $ | 144 | |
| Discontinued operations | $ | 10 | | | $ | 38 | |
| | | |
| Noncash additions to operating lease assets | $ | 96 | | | $ | 28 | |
Lease Income
We enter into operating leases for the use of our owned production facilities and office buildings. Lease payments received under these agreements consist of fixed payments for the rental of space and certain building operating costs, as well as variable payments based on usage of production facilities and services, and escalating costs of building operations. We recorded total lease income, including both fixed and variable amounts, of $19 million and $34 million for the three and six months ended June 30, 2022, respectively, and $35 million and $71 million for the three and six months ended June 30, 2021, respectively. The lower lease income for the three and six months ended June 30, 2022 compared with the same periods in 2021 is the result of the sales of a production facility and an office building during the fourth quarter of 2021.
PARAMOUNT GLOBAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Restructuring and Other Corporate Matters
During the three and six months ended June 30, 2022 and 2021, we recorded the following costs associated with restructuring and other corporate matters.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Severance | $ | 10 | | | $ | — | | | $ | 28 | | | $ | — | |
| Exit costs | — | | | 35 | | | — | | | 35 | |
| Restructuring charges | 10 | | | 35 | | | 28 | | | 35 | |
| | | | | | | |
| Other corporate matters | 40 | | | — | | | 79 | | | — | |
| Restructuring and other corporate matters | $ | 50 | | | $ | 35 | | | $ | 107 | | | $ | 35 | |
During the three and six months ended June 30, 2022, we recorded restructuring charges of $10 million and $28 million, respectively, consisting of severance costs primarily associated with changes in management related to the realignment of our operating segments. The restructuring charges for the six-month period were comprised of $18 million recorded within the Filmed Entertainment segment, $9 million recorded within the TV Media segment, and $1 million recorded within the Direct-to-Consumer segment.
During the second quarter of 2021, we recorded charges of $35 million within the TV Media segment for the impairment of lease assets that we determined we would not use and began actively marketing for sublease. This determination was made in connection with cost-transformation initiatives related to the Merger. The impairment was the result of a decline in market conditions since inception of these leases and reflects the difference between the estimated fair values, which were determined based on the expected discounted future cash flows of the lease assets, and the carrying values.
At June 30, 2022 and December 31, 2021, our restructuring liability was $139 million and $190 million, respectively, and was recorded in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheets. During the six months ended June 30, 2022, we made payments for restructuring of $67 million. The liability at June 30, 2022, which principally relates to severance payments, is expected to be substantially paid by the end of 2023.
In addition, for the six months ended June 30, 2022, we recorded charges for other corporate matters of $79 million, consisting of $39 million recorded during the first quarter, following Russia’s invasion of Ukraine, principally to reserve against amounts due from counterparties in Russia, Belarus and Ukraine, and $40 million recorded during the second quarter associated with litigation described under Legal Matters—Stockholder Matters in Note 14.