PARAMOUNT GLOBAL Management's discussion and analysis of the results of operations and financial condition ofViacomCBS Inc. should be read in conjunction with the consolidated financial statements and related notes inViacomCBS Inc.'s Annual Report filed on Form 10-K for the fiscal year endedDecember 31, 2019 . References in this document to "ViacomCBS ," the "Company," "we," "us" and "our" refer toViacomCBS Inc. Significant components of management's discussion and analysis of results of operations and financial condition include: • Overview-Summary ofViacomCBS and our business and operational highlights. • Consolidated Results of Operations-Analysis of our results on a consolidated basis for the three and six months endedJune 30, 2020 compared with the three and six months endedJune 30, 2019 .
• Segment Results of Operations-Analysis of our results on a reportable
segment basis for the three and six months ended
with the three and six months ended
• Liquidity and Capital Resources-Discussion of our cash flows for the six
months ended
2019 and of our outstanding debt, commitments and contingencies existing
as of
• Legal Matters-Discussion of legal matters to which we are involved.
Overview
ViacomCBS is a leading global media and entertainment company that creates content and experiences for audiences worldwide. Merger with Viacom Inc. OnDecember 4, 2019 , Viacom Inc. ("Viacom") merged with and intoCBS Corporation ("CBS"), withCBS continuing as the surviving company (the "Merger"). At the effective time of the Merger, the combined company changed its name toViacomCBS Inc. The Merger has been accounted for as a transaction between entities under common control asNational Amusements, Inc. ("NAI") was the controlling stockholder of each ofCBS and Viacom (and remains the controlling stockholder ofViacomCBS ). Upon the closing of the Merger, the net assets of Viacom were combined with those ofCBS at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented. Impact of COVID-19 The coronavirus disease ("COVID-19") pandemic has negatively impacted, and is expected to continue to impact, the macroeconomic environment inthe United States and globally, as well as our business, financial condition and results of operations. As a result of COVID-19, we have experienced a material negative impact on our advertising revenues because of weakness in the advertising market as advertisers have sought to reduce their own costs in response to the pandemic's impact on their businesses, and because of the cancellation or postponement of sporting events for which we have broadcast rights, such as theNCAA Division I Men's Basketball Championship (the "NCAA Tournament") and professional golf tournaments. We are not able to predict whether future sporting events will be canceled or postponed, or whether advertising revenues from these broadcasts, or advertising budgets and the advertising market generally, will return or be comparable to historical levels. While we expect this negative impact to continue in the second half of the year, we expect the rate of decline in advertising revenues will improve from the second quarter.
COVID-19 has also led to a temporary shutdown of production of our television and film programming, which resulted in the abandonment of certain program materials that were not complete, delays in deliveries 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)
programming to third parties, and fewer original programs and live events airing
on our broadcast and cable networks. While production has begun on a limited
basis, we are not able to predict when production will fully resume, or the
impact of incremental costs required to adhere to new health and safety
protocols. We may also experience lower demand for the licensing of our
programming in the near term as licensees implement financial austerity measures
and aim to reduce costs. As a result, content licensing and advertising revenues
have been and may continue to be negatively impacted in the near to medium term.
In addition, our theatrical revenues have been negatively impacted by the
closure or reduction in capacity of movie theaters that show our films, either
voluntarily or as a result of government orders or restrictions on public
gatherings in response to COVID-19, which has impacted our theatrical release
strategy for several films in 2020. As a result, we did not release any films in
the second quarter of 2020 and postponed two significant theatrical releases
from 2020 to 2021. We are not able to predict when movie theaters will reopen at
scale, whether consumers will return to movie theaters (even upon their
reopening) at the same levels they previously did, or whether revenues from
theatrical releases will be comparable to historical levels.
COVID-19 could also have a negative impact on our affiliate revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors ("MVPDs") and virtual MVPDs.
The continuing impact of COVID-19 could be material to our business, financial condition and results of operations. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Due to the evolving and uncertain nature of the pandemic, we are not able to estimate the full extent of the impact on our business, financial condition and results of operations, particularly over the near to medium term. While COVID-19 has negatively impacted parts of our business, we have seen increased viewership across our broadcast, cable and digital properties and are utilizing our deep library of content to mitigate its impact. We are also working proactively to offset a portion of the revenue losses through cost-savings initiatives. In addition, results for the second half of the year are expected to benefit from increased political advertising revenues associated with theU.S. Presidential election. We have taken steps to strengthen our financial position during this period of market uncertainty, such as the issuance of long-term debt and redemption of near-term debt discussed under "Liquidity and Capital Resources," and we will continue to actively monitor the potential impact of COVID-19 and related events on the commercial paper and credit markets. -35- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operational Highlights - Three Months Ended June 30, 2020 versus Three Months
Ended June 30, 2019
Consolidated results of operations Increase/(Decrease)
Three Months Ended June 30, 2020 2019 $ %
GAAP:
Revenues $ 6,275 $ 7,143 $ (868 ) (12 )%
Operating income $ 1,286 $ 1,446 $ (160 ) (11 )%
Net earnings from continuing operations
attributable to ViacomCBS $ 478 $ 971 $ (493 ) (51 )%
Diluted EPS from continuing operations
attributable to ViacomCBS $ .77 $ 1.57 $ (.80 ) (51 )%
Net cash flow provided by operating
activities $ 795 $ 260 $ 535 206 %
Non-GAAP: (a)
Adjusted OIBDA $ 1,689 $ 1,562 $ 127 8 %
Adjusted net earnings from continuing
operations
attributable to ViacomCBS $ 769 $ 912 $ (143 ) (16 )%
Adjusted diluted EPS from continuing
operations
attributable to ViacomCBS $ 1.25 $ 1.48 $ (.23 ) (16 )%
Free cash flow $ 714 $ 185 $ 529 286 %
(a) See "Reconciliation of Non-GAAP Measures" and "Free Cash Flow" for
reconciliations of non-GAAP results to the most directly comparable financial
measures in accordance with accounting principles generally accepted in the
United States ("GAAP").
For the three months ended June 30, 2020 , revenues decreased 12% to $6.28
billion , driven by the adverse effects of COVID-19 on our business, including
weak demand in the advertising market, the closure of movie theaters throughout
the second quarter, and the cancellation and postponement of professional golf
tournaments. The decline in revenues also reflected the comparison against the
broadcast of the national semifinals and championship games of the NCAA
Tournament on CBS in the second quarter of 2019. These NCAA Tournament games are
broadcast on CBS every other year through 2032 under agreements with the NCAA
and Turner Broadcasting System, Inc. ("Turner"). These decreases were partially
offset by growth from our streaming services, including CBS All Access, Pluto TV
and the Showtime streaming subscription offering ("Showtime OTT"), as well as
BET+, which launched in September 2019 . Revenues from our domestic streaming and
digital video business grew 25% to $489 million for the three months ended
June 30, 2020 . Content licensing revenues for the three months ended June 30,
2020 were relatively flat compared with the same prior-year period, as the
licensing of the domestic streaming rights to South Park was offset by a lower
volume of licensing in the second quarter of 2020 as a result of the benefit to
the prior-year period from several significant licensing agreements for library
programming, the timing of the delivery of programming produced for third
parties, and production shutdowns because of COVID-19.
Operating income for the three months ended June 30, 2020 decreased 11% from the
same prior-year period. This comparison was impacted by items identified as
affecting comparability, including programming, restructuring and impairment
charges and costs associated with other corporate matters. See "Reconciliation
of Non-GAAP Measures." Adjusted operating income before depreciation and
amortization ("Adjusted OIBDA") increased 8% as the revenue decline was more
than offset by lower programming and distribution costs mainly as a result of
production shutdowns and the absence of theatrical releases during the quarter,
lower advertising and promotion costs from the broadcast of fewer original
programs and lower employee expenses reflecting the benefit from restructuring
activities.
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Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the three months ended June 30, 2020 , net earnings from continuing
operations attributable to ViacomCBS and diluted earnings per share ("EPS") from
continuing operations each decreased 51% from the same prior-year period. These
comparisons were impacted by the aforementioned items affecting comparability,
including a loss on extinguishment of debt of $103 million in 2020 and gains
relating to investments in the 2020 and 2019 periods. Adjusted net earnings from
continuing operations attributable to ViacomCBS and adjusted diluted EPS each
decreased 16%, as the growth in Adjusted OIBDA was more than offset by the
noncontrolling interest's share of profit from the licensing of South Park in
2020. Adjusted OIBDA, adjusted net earnings from continuing operations
attributable to ViacomCBS and adjusted diluted EPS from continuing operations
are non-GAAP financial measures. See "Reconciliation of Non-GAAP Measures" for
details of the items excluded from financial results, and reconciliations of
adjusted results to the most directly comparable financial measures in
accordance with GAAP.
Operational Highlights - Six Months Ended June 30, 2020 versus Six Months Ended
June 30, 2019
Consolidated results of operations Increase/(Decrease)
Six Months Ended June 30, 2020 2019 $ %
GAAP:
Revenues $ 12,944 $ 14,243 $ (1,299 ) (9 )%
Operating income $ 2,203 $ 3,250 $ (1,047 ) (32 )%
Net earnings from continuing operations
attributable to ViacomCBS $ 986 $ 2,917 $ (1,931 ) (66 )%
Diluted EPS from continuing operations
attributable to ViacomCBS $ 1.60 $ 4.73 $ (3.13 ) (66 )%
Net cash flow provided by operating
activities $ 1,151 $ 1,189 $ (38 ) (3 )%
Non-GAAP: (a)
Adjusted OIBDA $ 2,952 $ 3,101 $ (149 ) (5 )%
Adjusted net earnings from continuing
operations
attributable to ViacomCBS $ 1,468 $ 1,810 $ (342 ) (19 )%
Adjusted diluted EPS from continuing
operations
attributable to ViacomCBS $ 2.38 $ 2.93 $ (.55 ) (19 )%
Free cash flow $ 1,019 $ 1,047 $ (28 ) (3 )%
(a) See "Reconciliation of Non-GAAP Measures" and "Free Cash Flow" for
reconciliations of non-GAAP results to the most directly comparable financial
measures in accordance with GAAP.
For the six months ended June 30, 2020 , revenues decreased 9% to $12.94 billion ,
driven by the adverse effects of COVID-19 on our business as well as the
comparison against CBS' broadcasts of Super Bowl LIII and the NCAA Tournament in
the first half of 2019. The Super Bowl is broadcast on the CBS Television
Network on a rotating basis with other networks through the 2022 season under
the current contract with the National Football League ("NFL") and the 2020 NCAA
Tournament, which was scheduled to be broadcast on CBS in the first quarter of
2020, was canceled as a result of concerns about COVID-19. These decreases were
partially offset by growth from our streaming services, including CBS All
Access, Pluto TV, Showtime OTT, and BET+. Revenues from our domestic streaming
and digital video business grew 37% to $960 million for the six months ended
June 30, 2020 .
Operating income for the six months ended June 30, 2020 decreased 32% from the
same prior-year period. This comparison was impacted by items identified as
affecting comparability, including programming, restructuring and impairment
charges and costs for other corporate matters, as well as a gain on the sale of
assets in the first quarter of 2019. See "Reconciliation of Non-GAAP Measures."
Adjusted OIBDA decreased 5%, primarily reflecting the decline in revenues,
partially offset by lower operating expenses, as a result of production
shutdowns, the absence
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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 2020 period of certain major sporting events and theatrical film releases, and the benefit from restructuring activities.
For the six months endedJune 30, 2020 , net earnings from continuing operations attributable toViacomCBS and diluted EPS from continuing operations each decreased 66% from the same prior-year period. These comparisons were impacted by items identified as affecting comparability, including the aforementioned items, a loss on extinguishment of debt of$103 million , as well as discrete tax items of$800 million in 2019, principally related to tax benefits from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations and the bankruptcy of an investee. Adjusted net earnings from continuing operations attributable toViacomCBS and diluted EPS from continuing operations each decreased 19%, reflecting the lower Adjusted OIBDA and the noncontrolling interest's share of profit from the licensing of South Park during the second quarter of 2020. Adjusted OIBDA, adjusted net earnings from continuing operations attributable toViacomCBS and adjusted diluted EPS from continuing operations are non-GAAP financial measures. See "Reconciliation of Non-GAAP Measures" for details of the items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP. We generated operating cash flow of$1.15 billion for the six months endedJune 30, 2020 compared with$1.19 billion for the six months endedJune 30, 2019 . Free cash flow for the six months endedJune 30, 2020 was$1.02 billion compared with$1.05 billion for the same prior-year period. These decreases primarily reflect lower revenues, including from the impact of COVID-19 and the comparison against the broadcast of theSuper Bowl in the first quarter of 2019, and higher payments for restructuring and merger-related costs. These decreases were offset by lower programming and production spending resulting from COVID-19 related production shutdowns and lower payments for income taxes in the first half of 2020. Operating cash flow and free cash flow for the six months endedJune 30, 2020 and 2019 included payments for restructuring and merger-related costs of$351 million and$101 million , respectively. Free cash flow is a non-GAAP financial measure. See "Free Cash Flow" for a reconciliation of net cash flow provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow. Reconciliation of Non-GAAP Measures Results for the three and six months endedJune 30, 2020 and 2019 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 toViacomCBS and adjusted diluted EPS from continuing operations (together, the "adjusted measures") exclude the impact of these items and are measures of performance not calculated in accordance with GAAP. We use these measures to, among other things, evaluate our operating performance. These measures are among the primary measures used by management for planning and forecasting of future periods, and they are important indicators of our operational strength and business performance. In addition, we use Adjusted OIBDA to, among other things, value prospective acquisitions. We believe these measures are relevant and useful for investors because they allow investors to view performance in a manner similar to the method used by our management; provide a clearer perspective on our underlying performance; and make it easier for investors, analysts and peers to compare our operating performance to other companies in our industry and to compare our year-over-year results. Because the adjusted measures are measures of performance not calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings from continuing operations before income taxes, (provision) benefit for income taxes, net earnings from continuing operations attributable toViacomCBS or diluted EPS from continuing operations, as applicable, as indicators of operating performance. -38- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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.
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Operating income (GAAP) $ 1,286 $ 1,446 $ 2,203 $ 3,250
Depreciation and amortization (a) 124 109 237 215
Restructuring and other corporate matters (b) 158 7 391 185
Programming charges (b) 121 - 121 -
Gain on sale of assets (b) - - - (549 )
Adjusted OIBDA (Non-GAAP) $ 1,689 $ 1,562 $ 2,952 $ 3,101
(a) The three and six months ended June 30, 2020 include an impairment charge
for FCC licenses of $25 million and the six months ended June 30, 2020 also
includes accelerated depreciation of $12 million for technology that was
abandoned in connection with synergy plans related to the Merger.
(b) See notes on the following tables for additional information on items
affecting comparability.
Three Months Ended June 30, 2020
Net Earnings from
Continuing
Earnings from Continuing Operations
Operations Before Income Provision for Income Attributable to Diluted EPS from Continuing
Taxes Taxes ViacomCBS Operations
Reported (GAAP) $ 937 $ (202 ) $ 478 $ .77
Items affecting comparability:
Restructuring and other
corporate matters (a) 158 (34 ) 124 .20
Impairment charge (b) 25 (6 ) 19 .03
Programming charges (c) 121 (29 ) 92 .15
Gains from investments (d) (32 ) 8 (24 ) (.03 )
Loss on extinguishment of debt 103 (24 ) 79 .13
Discrete tax items - 1 1 -
Adjusted (Non-GAAP) $ 1,312 $ (286 ) $ 769 $ 1.25
(a) Reflects severance, exit costs and other costs related to the Merger and a
charge to write down property and equipment classified as held for sale.
(b) Reflects a charge to reduce the carrying values of FCC licenses in two
markets to their fair values.
(c) Programming charges primarily related to the abandonment of certain
incomplete programs resulting from COVID-19 related production shutdowns.
(d) Reflects an increase to the carrying value of an equity security based on
the market price of a similar security.
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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)
Three
Months Ended
Net Earnings from
Continuing
Earnings from Continuing Operations
Operations Before Income Provision forIncome Attributable to Diluted EPS from Continuing
Taxes Taxes ViacomCBS Operations
Reported (GAAP) $ 1,239 $ (241 ) $ 971 $ 1.57
Items affecting comparability:
Restructuring and other
corporate matters (a) 7 (2 ) 5 .01
Gains from investments (b) (39 ) 7 (32 ) (.05 )
Discrete tax items (c) - (32 ) (32 ) (.05 )
Adjusted (Non-GAAP) $ 1,207 $ (268 ) $ 912 $ 1.48
(a) Reflects professional fees associated with legal proceedings involving the
Company and other corporate matters.
(b) Reflects a gain on marketable securities of $28 million and a gain of $11
million on the sale of an international joint venture.
(c) Primarily reflects a tax benefit related to the bankruptcy of an investee.
Six Months Ended June 30, 2020
Net Earnings from
Continuing
Earnings from Continuing Operations
Operations Before Income Provision for Attributable to Diluted EPS from Continuing
Taxes Income Taxes ViacomCBS Operations
Reported (GAAP) $ 1,594 $ (339 ) $ 986 $ 1.60
Items affecting comparability:
Restructuring and other
corporate matters (a) 391 (81 ) 310 .50
Impairment charge (b) 25 (6 ) 19 .03
Depreciation of abandoned
technology (c) 12 (3 ) 9 .01
Programming charges (d) 121 (29 ) 92 .15
Gains from investments (e) (32 ) 8 (24 ) (.04 )
Loss on extinguishment of debt 103 (24 ) 79 .13
Discrete tax items - (3 ) (3 ) -
Adjusted (Non-GAAP) $ 2,214 $ (477 ) $ 1,468 $ 2.38
(a) Reflects severance, exit costs and other costs related to the Merger and a
charge to write down property and equipment classified as held for sale.
(b) Reflects a charge to reduce the carrying values of FCC licenses in two
markets to their fair values.
(c) Reflects accelerated depreciation for technology that was abandoned in
connection with synergy plans related to the Merger.
(d) Programming charges primarily related to the abandonment of certain
incomplete programs resulting from COVID-19 related production shutdowns.
(e) Reflects an increase to the carrying value of an equity security based on
the market price of a similar security.
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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)
Six Months Ended
Net Earnings from
Continuing
Earnings from Continuing Operations
Operations Before Income Benefit (Provision) for Income Attributable to Diluted EPS from Continuing
Taxes Taxes ViacomCBS Operations
Reported (GAAP) $ 2,832 $ 135 $ 2,917 $ 4.73
Items affecting comparability:
Restructuring and other
corporate matters (a) 185 (45 ) 140 .23
Gain on sale of assets (b) (549 ) 163 (386 ) (.63 )
Gains from investments (c) (77 ) 16 (61 ) (.10 )
Discrete tax items (d) - (800 ) (800 ) (1.30 )
Adjusted (Non-GAAP) $ 2,391 $ (531 ) $ 1,810 $ 2.93
(a) Reflects severance, exit costs, costs associated with the settlement of a
commercial dispute, and other legal proceedings involving the Company.
(b) Reflects a gain on the sale of the CBS Television City property and sound
stage operation ("CBS Television City").
(c) Reflects a gain on marketable securities of $66 million and a gain of $11
million on the sale of an international joint venture.
(d) Reflects a deferred tax benefit of $768 million resulting from the transfer
of intangible assets between our subsidiaries in connection with a
reorganization of our international operations and a net tax benefit of $32
million principally related to the bankruptcy of an investee.
Consolidated Results of Operations
Three and Six Months Ended
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