UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For fiscal year ended December 31, 2019
| OR | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from to | ||
Commission File Number 001-09553
(Exact name of registrant as specified in its charter)
| 04-2949533 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
| 1515 Broadway | ||||
| New York, | New York | 10036 | ||
(212) 258-6000
(Address, including zip code, and telephone numbers, including
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered | ||
| Class A Common Stock, $0.001 par value | VIACA | |||
| Class B Common Stock, $0.001 par value | VIAC | |||
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act of 1933). Yes x☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes x☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o☐ No x☒
As of June 30, 2017,28, 2019, which was the last business day of the registrant’s most recently completed second fiscal quarter, the market value of the shares of CBS Corporationthe registrant’s Class A Common Stock, $0.001 par value (“Class A Common Stock”), held by non-affiliates was approximately $500,071,692$243,415,727 (based upon the closing price of $64.81$50.04 per share as reported by the New York Stock Exchange on that date) and the market value of the shares of CBS Corporationthe registrant’s Class B Common Stock, $0.001 par value (“Class B Common Stock”), held by non-affiliates was approximately $22,432,425,432$16,424,348,923 (based upon the closing price of $63.78$49.90 per share as reported by the New York Stock Exchange on that date); and the aggregate market value of the shares of both Class A Common Stock and Class B Common Stock held by non-affiliates was $22,932,497,124.$16,667,764,650.
As of February 12, 2018, 37,572,43414, 2020, 52,268,438 shares of Class A Common Stock and 345,147,497561,471,552 shares of Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of CBS Corporation’sViacomCBS Inc.’s Notice of 20182020 Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended (Part III).
VIACOMCBS INC.
TABLE OF CONTENTS
| Page | ||||
| PART I | ||||
| Item 1. | I-2 | |||
| Item 1A. | I-25 | |||
| Item 1B. | I-39 | |||
| Item 2. | I-39 | |||
| Item 3. | I-40 | |||
| Item 4. | I-40 | |||
I-40 | ||||
I-41 | ||||
| PART II | ||||
| Item 5. | II-1 | |||
| Item 6. | II-3 | |||
| Item 7. | II-4 | |||
| Item 8. | II-47 | |||
| Item 9. | II-113 | |||
| Item 9A. | II-113 | |||
| Item 9B. | II-113 | |||
| PART III | ||||
| Item 10. | III-1 | |||
| Item 11. | III-1 | |||
| Item 12. | III-1 | |||
| Item 13. | III-1 | |||
| Item 14. | III-1 | |||
| PART IV | ||||
| Item 15. | IV-1 | |||
| Item 16. | IV-1 | |||
PART I
| Item 1. | Business. |
ViacomCBS Inc. (“ViacomCBS”) is a massleading global media and entertainment company with operations inthat creates content and experiences for audiences worldwide. We operate through the following four segments:
| • |
| • |
| • |
| • | Publishing. Our Publishing segment publishes and distributes Simon & Schuster |
For the year ended December 31, 2017,2019, contributions to the Company’sour consolidated revenues from itsour segments were as follows: TV Entertainment 67% 43%, Cable Networks 18% 45%, Publishing 6%Filmed Entertainment 10% and Local Media 12%Publishing 3%.
Owners of our Class A Common Stock are entitled to one vote per share. Our Class B Common Stock does not have voting rights. ViacomCBS Class A and Class B Common Stock are listed on The Company generated approximately 15% of its total revenues from international regions in 2017. For the year ended December 31, 2017, approximately 51% and 14% of total international revenues of approximately $2.02 billion were generated in Europe and Canada, respectively.Nasdaq Stock Market LLC.
As of December 31, 2017,2019, National Amusements, Inc. (“NAI”), a closely held corporation that owns and operates approximately 945 movie screens in the U.S., the United Kingdom (“U.K.”UK”) and South America and manages 2additional movie screens in South America, directly or indirectly owned approximately 79.5%79.4% of the Company’sour voting Class A Common Stock, and approximately 10.2% of the Company’sour Class A Common Stock and Class B Common Stock on a combined basis. Owners of the Company’s Class A Common Stock are entitled to one vote per share. The Company’s Class B Common Stock does not have voting rights. NAI is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.
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name to “ViacomCBS Inc.” Unless the context requires otherwise, references in this document to “ViacomCBS,” “Company,” “we,” “us” and “our” mean ViacomCBS Inc. and our consolidated subsidiaries, to “CBS” mean CBS Corporation and its Website address is www.cbscorporation.com.consolidated subsidiaries prior to the Merger and to “Viacom” mean Viacom Inc. and its consolidated subsidiaries prior to the Merger.
The CBS Television Network, through CBS Entertainment™Entertainment™, CBS News® and CBS Sports®, distributes a comprehensive schedule of news and public affairs broadcasts, sports and entertainment programming to more than 200 domestic television station affiliates reaching throughout the U.S., including 15 of the Company’sour owned and operated television stations, and to affiliated stations in certain U.S. territories.
The CBS Television Network primarily derives revenuesrevenue from the sale of advertising time for its network broadcasts. A significant portion of the sale of advertising spots for the network’s non-sports programming occurs annually generally during May through July in the industry’s upfront advertising market for the upcomingbroadcasts and affiliation fees from television broadcast season, which runs for one year generally commencing in mid-September. Advertisers purchase the remaining advertising spots closer to the broadcast of the related programming in the scatter advertising market. Overall advertising revenue for the network is also impacted by audience ratings for its programming. The Company offers dynamic advertising insertions forstations affiliated with the CBS Television Network’s on-demand programming which allow the Company to change advertisements at any time within such programming and offer advertisers greater audience reach. In addition, the CBS Television Network’s revenues include station affiliation fees.Network.
CBS Entertainment is responsible for acquiring or developing and scheduling the entertainment programming presented on the CBS Television Network, which includes primetime comedy and drama series, reality‑based programming, specials, children’s programs, daytime dramas, game shows and late-night programs such as The Late Show with Stephen Colbert. During 2019, the CBS Television Network broadcast the Tony Awards®, the Kennedy Center Honors and the GrammyAwards®. CBS won 21 awards at the 46th Annual Daytime Emmy® Awards in May 2019.
CBS News operates a worldwide news organization, providing the CBS Television
Network and CBS News Radio™Radio® with regularly scheduled news and public affairs broadcasts, including 60 Minutes, 48 Hours, CBS Evening News, CBS This Morning, CBS Sunday Morning and Face the Nation as well as special reports. CBS News also provides CBS Newspath®, a television news syndication service that offers daily news coverage, sports highlights and news features to the CBS Television Network affiliates and other subscribers worldwide.
CBS Sports broadcasts on the television network include The NFL Today; certain PGA Tour Golf Tournaments,golf tournaments, the Masters and the PGA Championship; certain games from the NCAA Division I Men’s Basketball Tournament through 2032;and certain regular-season men’s college basketball games;games, including games from the Big Ten Conference; regular-season college football games, including games from the Southeastern ConferenceConference; and the NFL’s American Football Conference (AFC)(“AFC”) regular-season, post-season wild card playoff, divisional playoff and championship games. In 2017,2019, the CBS Television Network broadcast certain AFC games under itsour agreement with the NFL to broadcast the AFC package through the 2022 season, which also includes certain National Football Conference regular season games and the Super Bowl, which is broadcast on the CBS Television Network on a rotating basis with other networks. The Company’sOur most recent Super Bowl broadcast was in 2016February 2019 and theour next Super Bowl broadcast will be in 2019. The Company produced and broadcast certain NFL Thursday Night Football games for the 2017 season.February 2021.
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CBS Television Network content also is exhibited via the internet,Internet, including through CBS.com™; CBSSports.com™, CBSSports.com® and related software applications (“apps”); CBSN,the Company’slive digital streaming advertiser-supported news network available 24 hours a day, seven days a week; CBS All Access, the Company’s digital streaming subscription service which includes a commercial-free option for on-demand content; and digital televisionour streaming services, such as DIRECTV NOW, fuboTV,CBSN and CBS All Access, which are further described below; and virtual MVPDs, such as AT&T TV Now, Hulu with Live TV PlayStation Vue and YouTube TV.CBS All Accessoffersbothcurrent and library programming as well as original series, such as The Good Fight, Star Trek: Discovery and No Activity, and CBSN’s live and original reporting. Live, local NFL games broadcast by the CBS Television Network are streamed on certain CBS All Access platforms under the Company’s multi-year deal with the NFL. Digital streaming services such as CBS All Access and CBSN are also known as “over-the-top,” “OTT” or “direct-to-consumer” services which provide video content via the internet to users without payment to a traditional MVPD. CBS All Access and CBSN are available at CBS.com and CBSNews.com™, respectively, and/or through CBS apps on multiple digital platforms, including Android, iOS, Amazon Fire and Windows 10 mobile platforms, and Amazon Fire TV, Android TV, Apple TV, Amazon Channels, Chromecast, PlayStation, Roku, Samsung Smart TVs and Xbox connected device platforms, among others. During 2017, the CBS Television Network broadcast the Tony Awards®, the Kennedy Center Honors, and the GrammyAwards®. The Company won 18 awards at the 44th Annual Daytime Emmy® Awards in May 2017.
The CW, a broadcast network and the Company’sour 50/50 joint venture with Warner Bros. Entertainment, airs programming, including Jane the Virgin, Crazy Ex-Girlfriend, Dynasty, Supergirl Charmedand The Flash.Flash. Eight of the Company’sour owned television stations are affiliates of The CW. Certain of The CW’s series are streamed on Netflix, a subscription video-on-demand service. The CW programming isservice (“SVOD”), and are also available via The CW app on multiple digital platforms, including Amazon Fire TV, Apple TV, Chromecast, Roku, Xbox and mobile devices.platforms.
CBS Television Studios CBS Studios International and CBS Television Distribution produce, acquire and/or distribute programming, worldwide, including series, specials, news and public affairs, and generate revenue principally from the licensing and distribution of such programming. The programming is produced primarily for broadcast on network television, exhibition on basic cable and premium subscription services, streaming services or distribution via first‑runfirst-run syndication. First-run syndication is programming exhibited on television stations without prior exhibition on a network or cable service. The CompanyWe subsequently distributesdistribute programming after its initial exhibition on a network, basic cable network or premium subscription service for domestic exhibition on television stations, cable networks or streaming services (known as “off-network syndicated programming”). Off-network syndicated programming and first‑run syndicated programming distributed domestically, as well as programming distributed internationally, can sometimes be sold in successive cycles of sales known as “first cycle,”cycle” sales, “second cycle” sales, and so on, which may occur on exclusive or non-exclusive bases. Generally, license fees may decrease with successive sales cycles due to increased program exhibitions.
Programming that wasour production group produced or co-produced by the Company’s production group and is broadcast on network television includes, among others, Seal TeamFBI (CBS), NCIS (CBS), Bull (CBS), Kevin Can Wait (CBS), Madam Secretary (CBS), Scorpion (CBS), Criminal Minds Evil (CBS) and Jane the VirginNancy Drew (The CW). Generally, a network will license a specified number of episodes for broadcast on the network in the U.S. during a license period. Remaining distribution rights, including international and/or off‑network syndication rights, are typically retained by the Company or, in the case of co-productions, distribution rights are shared with the co-producer for U.S. or international markets. The network license fee for a series episode is normally lower than the costs of producing the episode; however, the Company’s objective is to recoup its costs and earn a profit through various forms of distribution, including international licensing, domestic syndication and digital streaming of episodes. Generally, international sales of network series are made within one year of the U.S. network run and series must have a network run of at least three or four years to be successfully sold in domestic off-network syndication; however, increasingly, these time frames are being shortened, particularly for sales to digital streaming services. In off-network syndication, the Company distributeswe distribute series, such as Hawaii Five-O, Criminal Minds, Blue Bloods Elementary, NCIS, NCIS: Los Angeles and NCIS: New Orleans as well as a library of older television programs. The CompanyWe also producesproduce and/or distributesdistribute first-run syndicated series such asWheel of Fortune, Jeopardy!, Entertainment Tonight, Inside Edition, Dr. Phil, The Doctors, Rachael Ray, Hot Bench and Judge Judy and produces produce several series for streaming on CBS All Access, includingThe Good Fight, Star Trek: Discovery, Why Women Kill and No Activity for streaming on CBS All AccessStar Trek: Picard. The CompanyWe also distributesdistribute syndicated and other programming internationally.
CBS Interactive generates revenue principally from the sale of advertising and sponsorships, in addition to subscription fees, derivedlicense fees and e-commerce activities.
CBS Interactive operates CBS.com, the online destination for CBS Television Network programming. Further extending the CBS.com experience, we offer a CBS app for on-demand streaming of various programs from searchour current network and commerce partners, licensing fees, subscriptions,library programming to users on multiple digital platforms. CBS Interactive operates CBSNews.com, the online destination for CBS News content, and offers an app for on-demand screening of current and library news programming and the content published on the website. CBS Interactive also operates CBSSportsDigital™, the online destination for CBS Sports content, including CBSSports.com, which provides sports content, fantasy sports, and community and e-commerce activities,features, and a related app for on-demand viewing of certain sports events broadcast on CBS and other paid services. Advertising spending on the internet, as in traditional media, fluctuates significantly with economic conditions. In addition, online marketing spending follows seasonal consumer behavior throughout the calendar year to reflect trends during the calendar year.sports information; Max Preps; and 247Sports.
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CBS Interactive also owns and operates other digital properties, including: CNET,, one of the preeminent digital properties for technology and consumer electronics information and featuring news, reviews, downloads and instructional and entertaining video and audio shows about technology; information;CNET en Espanol®, which delivers CNET.com’s information in the U.S. to Spanish speakers; ; TVGuide Digital™,which provides comprehensive information about television programming; Digital™; GameSpot, a leading gaming information digital property providing video game reviews®; Last.fm®; and previews, news, eSports, Webcasts, videos, and game downloads; CBSSports Digital™, which provides sports content, fantasy sports, community and e‑commerce features, and also owns and operates MaxPreps; 247Sports; Scout; Last.fm, which is a music recommendation, discovery and social networking property; MetroLyrics.com, which is one of the most popular databases for song lyrics online; and TV.com, which is a destination for entertainment and community around television where visitors can watch videos and discuss and obtain information about television shows across all networks. During the first quarter of 2018, the Company expects to launch CBS Sports HQ™, a live digital streaming advertiser-supported sports news and highlights network available 24 hours a day, 7 days a week.®.
Under CBS Interactive, also operates CBS.comViacom Digital Studios (“VDS”) and its international extension, Viacom Digital Studios International, produces original content for consumption across leading social platforms to build engagement with certain of our Cable Networks brands. VidCon®, an innovative conference and festival celebrating online video, drives additional growth at VDS and our live events business.
Our CBS-branded streaming subscription services and advertiser-supported services feature general entertainment, news, sports and/or children’s programming and generate revenue from subscription fees and the online destination for CBS Television Network programming. Further extending the CBS.com experience, the Company offers a CBS app for on-demand streamingsale of various programs from the Company’s current networkadvertising on such services, respectively. The services are offered to customers through mobile and library programming to users on multiple digital platforms, including Android, iOS, Amazon Fireconnected devices and Windows 10 mobile platforms, and Amazon Fire TV, Android TV, Apple TV, Amazon Channels, Chromecast, PlayStation, Roku, Samsung Smart TVs and Xbox connected device platforms, among others.third-party platforms. The below-described services are operated under CBS Interactive operates in collaboration with our other businesses.
CBS All Access, the Company’s digital is a streaming subscription service, which includes a commercial-free option for on-demand content. CBS All Access offers an extensive on-demand selection of both current and library programming and original series, such as The Good Fight, Star Trek: Discovery, Star Trek: Picard, Why Women Kill and No Activity, CBSN’sThe Twilight Zone series; and CBSN’s live and original news reporting and our other streaming services, as described further below, as well as the ability to stream live programming from local CBS Television Stations and certain CBS television station affiliates. Also, live, localAll NFL games broadcast by the CBS Television Network as well as other CBS Television Network programming are streamed on certain CBS All Access platforms. CBS All Access platforms. CBS All Access also offers children’s programming, including original series and select Nickelodeon programming. CBS All Access is available at CBS.com and on the multiple digital platforms described aboveand through CBS apps in the U.S. and Canada. A version of CBS appAll Access has launched internationally in Canada and 10 All Access in Australia includes programming from our Network 10 channels and certain of our other programming.
CBSN is scheduled to commence during the first half of 2018 in Canada. CBS Interactive also operates CBSN, a streaming live, digital streaming advertiser-supported news network available 24 hours a day, seven days a week. week (“24/7”). Local versions of CBSN complement CBSN and stream local news from our owned television stations in major markets, including New York, Los Angeles, Philadelphia, San Francisco, Boston and Minneapolis. CBSN is available at CBSNews.com and on the multiple digital platforms described above through the CBS News app. app and through CBS Television Stations’ websites and mobile apps.
CBS Sports HQ is a streaming live, advertiser-supported sports news and highlights service available 24/7; and ET Live is a streaming advertiser-supported service based on the Entertainment Tonight brand covering entertainment stories and trends available 24/7.
Through the CBS Audience Network™Network™, the Company deliverswe deliver video content from itsour digital properties and television stations and affiliated television stations under an advertiser-supported distribution model to third-party digital properties. The growing slate of the Company’sour content available online includes full episodes, clips and highlights based on CBS, CBS Sports Network and Showtime Networksour programming as well as original made-for-the-Webmade-for-the-web content.
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annually, highlighted by Division I college football and basketball hockeygames, including games from the Big East Conference and lacrosse, as well asMountain West Conference. WNBA games and professional bull riding (PBR), professional lacrosse (MLL), arena football (AFL), Tough Mudder, CrossFit and various styles of motor sports events (including asphalt, dirt, and off road racing).events. In addition, the network showcases a variety of original programming, including documentaries, features and studio shows, highlighted by NFL Monday QB,That Other Pre-Game Show (TOPS), Inside College Basketball, Inside College Football, Time to Schein and a first of its kind all-female panel sports talk show, We Need to Talk. Talk. CBS Sports Network also provides ancillary coverage for CBS Sports relating to major events, such as the NCAA Division I Men’s Basketball Tournament, Masters Tournament and PGA Championship, and for Showtime Networks relating toShowtime Championship Boxing. Boxing. CBS Sports Network produces weekday simulcasts of the radio shows The Morning Show withBoomer and Gio, Tiki and Tierney and commencing in January 2018, The Jim Rome Show. Further, CBS Sports Network televises a diverse slate of additional programming under the CBS Sports Spectacular™ brand, including mixed martial arts, skiing, bowling, surfing, boxing, horse racing, volleyball and cheerleading, among other events. CBS Sports Network had approximately 52 million subscribers as of December 31, 2017. The network derives its revenues from subscription fees and the sale of advertising. CBS Sports Network has secured carriage arrangements with the top MVPDs. The Company also has agreements for the digital streaming of CBS Sports Network programming on several digital streaming services, including fuboTV, Hulu with Live TV, PlayStation Vue and YouTube TV.
The terms and favorable renewal of agreements with distributors for the distribution of the Company’s subscription program services are important to the Company. The effects of industry consolidation and other marketplace factors make it more difficult to reach and maintain favorable terms and positioning, which could increase costs and have an adverse effect on revenues.
Our television stations are located in the 56 largest, and 15 of the top 20, television markets in the U.S. The Company ownsWe own multiple television stations within the same designated market area (“DMA”) in 10 major markets. These multiple station markets are: New York (market #1), Los Angeles (market #2), Philadelphia (market #4), Dallas-Fort Worth (market #5), San Francisco-Oakland-San Jose (market #8)#6), Boston (market #10)#9), Detroit (market #14), Miami-Ft. Lauderdale (market #16), Sacramento-Stockton-Modesto (market #20), and Pittsburgh (market #24). This group ofOur television stations enables the Companyenable us to reach a wide audience within and across geographically diverse markets in the U.S. The stations produce news and broadcast public affairs, sports and other programming to serve their local markets and offer CBS, The CW or MyNetworkTV programming and syndicated programming.
Television Stations, Local Websites and CBS Local Digital Media WebsitesCBSN Streaming Services
The following table sets forth information regarding the Company’sour owned television stations and related CBS Local Digital Media Websites,local websites and CBSN streaming services, as of February 14, 2018,18, 2020, within U.S. television markets:
Television Market and Market Rank(1) | Stations | Type | Network Affiliation | Local Websites and | |||
| New York, NY (#1) | WCBS‑TV | UHF | CBS | newyork.cbslocal.com | |||
| WLNY‑TV | UHF | Independent | CBSN New York | ||||
Los Angeles, CA (#2) | KCAL‑TV | VHF | Independent | losangeles.cbslocal.com | |||
| KCBS‑TV | UHF | CBS | CBSN Los Angeles | ||||
| Chicago, IL (#3) | WBBM‑TV | VHF | CBS | chicago.cbslocal.com | |||
| Philadelphia, PA (#4) | KYW‑TV | UHF | CBS | philadelphia.cbslocal.com | |||
| WPSG‑TV | UHF | The CW | CBSN Philly | ||||
| Dallas‑Fort Worth, TX (#5) | KTVT‑TV | UHF | CBS | dfw.cbslocal.com | |||
| KTXA‑TV | UHF | Independent | |||||
| San Francisco, CA | KPIX‑TV | UHF | CBS | sanfrancisco.cbslocal.com | |||
| KBCW‑TV | UHF | The CW | CBSN Bay Area | ||||
| Boston, MA (#9) | WBZ-TV | UHF | CBS | boston.cbslocal.com | |||
| WSBK-TV | UHF | MyNetworkTV | CBSN Boston | ||||
| Atlanta, GA | WUPA-TV | UHF | The CW | atlanta.cbslocal.com | |||
| UHF | |||||||
| tampa.cbslocal.com | |||||||
| VHF | The CW | seattle.cbslocal.com | |||||
| Detroit, MI (#14) | WKBD‑TV | UHF | The CW | detroit.cbslocal.com | |||
| WWJ‑TV | UHF | CBS | |||||
| Minneapolis, MN (#15) | WCCO‑TV | UHF | CBS | minnesota.cbslocal.com | |||
KCCW‑TV(3) | VHF | CBS | CBSN Minnesota | ||||
| Miami-Ft. Lauderdale, FL (#16) | WFOR‑TV | UHF | CBS | miami.cbslocal.com | |||
| WBFS‑TV | UHF | MyNetworkTV | |||||
| Denver, CO (#17) | KCNC‑TV | UHF | CBS | denver.cbslocal.com | |||
| Sacramento, CA (#20) | KOVR-TV | UHF | CBS | sacramento.cbslocal.com | |||
| KMAX-TV | UHF | The CW | |||||
| Pittsburgh, PA (#24) | KDKA-TV | UHF | CBS | pittsburgh.cbslocal.com | |||
| WPCW-TV | VHF | The CW | |||||
| Indianapolis, IN | WBXI-CA(4) | UHF | Independent | ||||
| Baltimore, MD (#26) | WJZ‑TV | VHF | CBS | baltimore.cbslocal.com | |||
| (1) | Television market (DMA) rankings based on Nielsen Media Research Local Market Universe Estimates, September |
| (2) | Our television stations’ |
| (3) | KCCW-TV is operated as a satellite station of WCCO-TV. |
| (4) | WBXI-CA is a Class A low power television station. Class A low power television stations do not implicate the FCC’s ownership rules. |
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CABLE NETWORKS
Overview
Our Cable Networks segment provides entertainment content, services and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers. The Cable Networks segment also delivers advertising and marketing services, including those under our advanced marketing solutions portfolio, which both utilizes advanced addressable video inventory to allow dynamic ad insertion and advanced targeting, and provides our marketing partners with a variety of consulting and creative services and associated activations. The Cable Networks segment also licenses its brands and properties for consumer products and recreation experiences, produces live events and creates original programming for third-party distributors.
Our Cable Networks segment includes our premium subscription cable networks, Showtime, The Movie Channel and Flix; our basic cable networks, including Nickelodeon, MTV, BET, Comedy Central,Paramount Network, Nick Jr., VH1, TV Land, CMT, Pop TVandSmithsonian Channel; and the international extensions of our multimedia brands, and our program services created specifically for international audiences such as public service broadcaster (“PSB”) Channel 5® and Milkshake!® in the UK, Televisión Federal S.A., or Telefe®, in Argentina, COLORS® in India, Paramount Channel™ in various countries and international broadcast network Network 10® in Australia.
Our Cable Networks segment also develops and operates an extensive portfolio of digital and mobile experiences, including our streaming subscription offering of Showtime (“Showtime OTT”), Noggin, Nickelodeon’s preschool streaming subscription service, BET+, a subscription streaming service focused on Black audiences and consumers of Black culture, and Smithsonian Channel Plus.
Our studio production business is a global network of production studios producing premium episodic and film content across both our owned and operated platforms and for third parties. This business is primarily driven by Paramount Television Studios, Awesomeness, Nickelodeon, MTV and Comedy Central and utilizes our considerable intellectual property library to create long-form episodic content for third-party platforms.
Our Cable Networks segment’s revenues are generated primarily from affiliate revenues comprised of fees from MVPDs and virtual MVPDs for carriage of our cable networks and subscription fees from our streaming services; advertising sales; and the licensing of its content and brands. In 2019, our Cable Networks segment affiliate revenues, advertising revenues and content licensing revenues were approximately 49%, 41% and 10%, respectively, of total revenues for this segment. Our Cable Networks segment generated 45%, 46% and 47% of our consolidated revenues in 2019, 2018 and 2017, respectively.
Our most significant Cable Networks brands are discussed below.
Our three commercial-free, premium subscription program services in the U.S. are Showtime (including Showtime OTT), which offers original scripted and unscripted series, recently released and other theatrical feature films, documentaries, sports-related programming, comedy and other specials, and special events; The Movie Channel, which offers recently released and other theatrical feature films and related programming; and Flix, which offers theatrical feature films primarily from the last several decades.
Programming highlights in 2019 included Showtime original series Billions, Ray Donovan, The L Word: Generation Q and Shameless, limited series The Loudest Voice, documentary features including Hitsville: The Story
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of Motown, documentary series including The Circus: Inside the Wildest Political Show on Earth, and various sports-related programs and documentary series including Inside the NFL. As of December 31, 2019, subscriptions to Showtime (including Showtime OTT) totaled approximately 27 million in the U.S., certain U.S. territories and Bermuda.
Showtime OTT allows subscribers to view on-demand programming as well as the live telecast of the east and west coast feeds of Showtime, and is available for purchase (without an MVPD video subscription) at showtime.com™, through the Showtime app and from multiple digital platforms. Showtime Anytime®, an authenticated version of Showtime, is available onlineand, via certain Internet-connected devices, through the Showtime Anytime app, free of charge to Showtime subscribers as part of their Showtime subscription through participating distributors.
Showtime Networks also produces and/or provides special events on a pay-per-view basis available for purchase by both Showtime subscribers and non-subscribers through the Showtimeapp and third-party distributors, including the Manny Pacquiao vs. Adrien Broner boxing match in January 2019.
Nickelodeon, now in its 40th year, is one of the most globally recognized and widely distributed multimedia entertainment brands for kids and family. Nickelodeon has been the number-one-rated ad-supported basic cable network for 24 consecutive years among kids 2 to 11. Nickelodeon features leading original and licensed series for kids across animation, live-action and preschool genres, and during the evening and overnight hours, the linear cable channel airs as Nick at Nite and features licensed family comedies. Nick Jr. entertains and educates preschoolers, engaging them with characters they love, building their imaginations and gaining key cognitive and social-emotional skills. Other Nickelodeon brands include TeenNick, Nicktoons and Nick Music.
Programming highlights in 2019 included Ryan’s Mystery Playdate, SpongeBob SquarePants, PAW Patrol, The Loud House, The Casagrandes, Henry Danger, Bubble Guppies, Blue’s Clues & You and Are You Smarter Than a 5th Grader? with John Cena and tentpole events such as Kids’ Choice Awards.
Nickelodeon is a key part of our global consumer products licensing business, licenses its brands for recreation experiences such as hotels and theme parks, and has numerous live and location-based experiences, such as JoJo Siwa’s D.R.E.A.M. The Tour, a multi-city live concert tour, its SlimeFest music festival in Chicago, multiple PAW Patrol live tours around the world, and Kids’ Choice Awards events in various international markets. In 2019, we acquired the entity holding global intellectual property rights to the Garfield franchise, including related to content, consumer products and location-based experiences. Noggin, Nickelodeon’s preschool subscription streaming service featuring over 1,000 full-length library episodes, interactive videos and short-form educational content, has an Amazon Prime Video Channel. In partnership with Paramount, Nickelodeon Movies™ produces branded films based on some of Nick’s most iconic franchises and characters.
Awesomeness creates programming for various social and SVOD platforms and produces premium original series and films through its Emmy®-winning dedicated television and film studios. Awesomeness’ portfolio is strengthened by a branded content sales team, a creator network, a creative agency and a roster of talent relationships. Programming highlights in 2019 included PEN15, which was nominated for a 2019 Emmy® for outstanding writing for a comedy series,season two of Light as a Feather on Hulu, and The Perfect Date and Trinkets on Netflix.
MTV is the leading global youth media brand, with operations spanning cable and mobile networks, live events, theatrical films and MTV Studios.
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Programming highlights in 2019 included new series launches The Hills: New Beginnings and Double Shot at Love with DJ Pauly D and Vinny, returning favorites Teen Mom, MTV Floribama Shore, Ridiculousness, Wild ‘N Out, Are You The One?, Siesta Key, The Challenge franchise and Jersey Shore: Family Vacation. The signature MTV hit Jersey Shore format has been adapted for our international audiences, with multiple versions around the world, including as Geordie Shore in the UK (now in its 20th season) and Acapulco Shore in Mexico, and some of our international programming formats have been imported to the U.S., such as Ex on the Beach,which originated in the UK and has become a global franchise with 14 local adaptations airing worldwide.
MTV’s signature programming event, the MTV Video Music Awards, in 2019 drew 5.5 million viewers across its live linear simulcast and 269 million video views from the launch of the VMA website through the day of the show. MTV’s annual tentpole programming events also include the MTV European Music Awards, MTV Movie and TV Awards, MTV MIAWs (celebrating the best in Latin music and the digital world of the millennial generation) and MTV Fandom Awards. In July 2019, MTV hosted its 13th annual Isle of MTVMalta concert and Malta Music Week events.
BET is a leading consumer brand in the urban marketplace, and the nation’s leading provider of entertainment, music, news and public affairs programming to African American audiences. Other BET brands include BET Her, the first network designed for black women, delivering a wide variety of culturally relevant programming, BET Gospel, featuring gospel music and spiritual programming, and BET Hip Hop, spotlighting hip hop music programming and performances.
Programming highlights in 2019 included new series launches American Soul and Boomerang, and returning favorites such as Martin, House of Payne and Meet the Browns. BET’s tentpoles and live events in 2019 included the seventh annual BET Experience, BET’s weekend-long celebration of music, entertainment and Black culture featuring the 2019 BET Awards, which aired as the number one cable awards show for the fifth consecutive year among adults 18 to 49; Black Girls Rock; and BET Hip Hop Awards. BET’s programming received seven NAACP Image Awards nominations and two wins in 2019.
BET has a multi-year content partnership with award-winning writer, director, producer, actor and playwright Tyler Perry, that extends through 2024 and spans television, film and short-form video. In October 2019, The Oval and Sistas premiered, the first two series in the multi-year partnership. In 2019, BET and Tyler Perry launched BET+, an online SVOD service focused on Black audiences and consumers of Black culture and featuring more than 1,000 hours of advertising-free premium content, including original programming from Tyler Perry and exclusive series and other content from leading Black content creators.
Comedy Central is a leading destination for comedic talent and all things comedy, providing viewers access to a world of funny, provocative and relevant comedy, ranging from award-winning late-night, scripted and animated series, to stand-up specials, short-form and sketch.
Programming highlights in 2019 included the launch of South Side, the network’s highest-rated series premiere since 2012 among African Americans 18 to 49; returning hits The Daily Show with Trevor Noah, Drunk History and digital original Hack Into Broad City, each of which received several Emmy® nominations for outstanding series in their respective categories in 2019, South Park, which was renewed in September 2019 for three additional seasons, and the premieres of the critically-acclaimed scripted series The Other Two and sketch comedy Alternatino with Arturo Castro.
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Comedy Central also produces nationwide stand-up events and festivals, operates a Grammy Award-winning record label, produces a global podcast network and operates Comedy Central Radio on SiriusXM. In May 2019, Comedy Central launched Comedy Central Productions, a new studio-production arm partnering with comedy’s best writers, producers and on-screen talent to develop and distribute compelling, premium comedy content on all platforms. In June 2019, Comedy Central hosted its third annual Clusterfest, a three-day festival in San Francisco featuring world-class standup comedy, live music and experiential activities. Internationally, Comedy Central hosted the experiential events FriendsFest and Comedy Central Fest in a number of international markets.
Comedy Central’s strategic partnership with Trevor Noah’s production company, Day Zero Productions, gives us exclusive “first-look” rights on all projects developed by Day Zero Productions across television, feature films, digital and short-form video content.
Paramount Network is a premium entertainment destination targeting adults 18 to 49 with original scripted and non-scripted series inspired by over a century of cinema, with stories that are immersive, inclusive and deeply personal. Programming highlights in 2019 included Yellowstone, starring Kevin Costner and written and directed by critically-acclaimed screenwriter Taylor Sheridan, which in its second season was cable’s most-watched scripted cable series of the summer. The network also featured the premiere of competition series The Last Cowboy, I Am Patrick Swayze, the most-watched episode of the network’s I Am documentary series, and new episodes of Ink Master, Bar Rescue and Bellator MMA.
VH1 is a leading pop culture brand for adults 18 to 49 with an array of digital channels and services, including the VH1 app, VH1.com and @VH1. Programming highlights in 2019 included the critically-acclaimed original series RuPaul’s Drag Race, which received 14 Emmy® nominations and won four, including outstanding competition program and outstanding host; new series Girls’ Cruise with Lil’ Kim; and returning hits Love & Hip Hop, Black Ink Crew and Basketball Wives.
TV Land features a mix of original programming, classic and contemporary television shows and specials that appeal to adults aged 25 to 54. Programming highlights in 2019 included the sixth season of Darren Star’s hit original series Younger, which was the number one rated ad-supported cable original sitcom among female viewers 18 to 49 and 25 to 54 for the third consecutive year.
CMT is a leading country music and lifestyle destination, offering a mix of original series, music events and specials. Programming highlights in 2019 included the launch of Racing Wives; returning favorite Dallas Cowboys
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Cheerleaders; and tentpole events and music programming such as the CMT Music Awards, CMT Artists of the Year, CMTHot 20 Countdown and CMT Crossroads.
Smithsonian Channel features series and documentaries of a cultural, historical, and scientific nature. Smithsonian Channel content is available via MVPDs and virtual MVPDs in the U.S. and versions of Smithsonian Channel are distributed in Canada, Singapore, Brazil, Latin America, Africa, Asia and the UK. The website SmithsonianChannel.com™ and various apps promote Smithsonian Channelprogramming and provide information and entertainment services. Smithsonian Channel Plus is a streaming subscription service that allows subscribers to view on-demand programming, including 4K Ultra HD series and documentaries.
Pop TV is a general entertainment basic cable service focused on producing and licensing popular culture programming, such as the Emmy®-nominated original series Schitt’s Creek and Critics Choice Award®-nominated original series One Day at a Time, and licensed CBS programming, including NCIS: New Orleans and Scorpion. Pop TV is also available via the Pop Now app.
Network 10 is one of the three major free-to-air commercial broadcast networks in Australia. Network 10 includes the channels 10™, 10 Bold™ and 10 Peach™, which broadcast a mix of entertainment, drama, news and sports programming, such as Australian Survivor, Have You Been Paying Attention? and The Australian Formula 1 Grand Prix. Network 10 also includes the digital platforms 10 Play™, 10 Daily™ as well as 10 All Access, our streaming subscription service in Australia featuring Network 10 programming as well as our other programming.
Channel 5, a free-to-air PSB in the UK, and its affiliated channels air a broad mix of popular content, including factual programming, entertainment, reality, sports, acquired and original drama, and preschool programming through its award-winning Milkshake! brand. Programming highlights in 2019 included new dramas 15 Days, Blood and Agatha and the Truth of Murder, documentaries including RTS Programme Award winner The Abused and Suicidal: In Our Own Words, and critically acclaimed factual shows such as Critical Condition and Warship: Life at Sea.
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Telefe is a leading free-to-air channel and one of the biggest content producers in Argentina, with 11 studios and more than 3,500 hours of content produced each year. Telefe studios co-produced four films in 2019. Programming highlights in 2019 included La Voz Argentina (a local version of The Voice), Por el Mundo, 100 Días Para Enamorarse, PH: Podemos Hablar, Pequeña Victoria and Quien Quiere Ser Millonario (local version of Who Wants to be a Millionaire).
Paramount+ is an advertising-free, premium video-on-demand service, featuring films from Paramount Pictures and hundreds of television episodes from ViacomCBS’ library. Available as an authenticated service or to customers of select subscription service providers, as of December 2019, Paramount+ was available in Sweden, Denmark, Norway, Finland, Hungary, Poland and across Latin America.
COLORS is a highly-rated Hindi-language general entertainment pay television channel operated by our Viacom18joint venture in India. COLORS is available in India and over 120 additional countries, including in the U.S. as Aapka Colors. COLORSalso extends to the English language through COLORS Infinity, an English general entertainment channel, six Indian regional languages and two Hindi channels, COLORS Rishtey and COLORS Cineplex in the entertainment and movie space, respectively. Programming highlights in 2019 included the first season of Dance Deewane, a dance reality show; returning seasons of Bigg Boss, Fear Factor: Khatron Ke Khiladi, Naagin, Rising Star (India’s first-ever live singing reality show) and India’s Got Talent; and the 19th edition of the International Indian Film Academy (IIFA) Awards, Bollywood’s biggest awards extravaganza.
Viacom18 Studios, Viacom18’s filmed entertainment business, includes Viacom18 Motion Pictures, a fully-integrated motion pictures studio, and Tipping Point, a digital content unit. Viacom18 Motion Pictures also partners with Paramount to market and distribute Paramount films for theatrical exhibition in the Indian sub-continent.
Pluto TV is a leading free streaming TV platform in the U.S. Pluto TV is available across mobile devices, desktops, streaming players and game consoles and is integrated across a growing number of Smart TVs and other video and broadband platforms.
With more than 22 million monthly active users in the U.S., the majority of whom are on connected TVs, and over 175 content partners, Pluto TV offers over 250 live linear channels and thousands of hours of on-demand content, including movies, news, sports, general entertainment, African Americans, kids and digital series. In July 2019, Pluto
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TV launched Pluto TV Latino, a suite of 22 channels streaming over 4,000 hours of programming in Spanish and Portuguese, including hit TV series and movies, sports, reality, lifestyle and more. In addition, Pluto TV is available in the UK, Germany, Austria and Switzerland, and plans to expand to Latin America and additional territories.
FILMED ENTERTAINMENT
Overview
Our Filmed Entertainment segment develops, produces, finances, acquires and distributes films, television programming and other entertainment content in various markets and media worldwide through its Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios divisions. It partners on various projects with key ViacomCBS brands, including Nickelodeon Movies, MTV Films® and BET Films™.
Films produced, acquired and/or distributed by the Filmed Entertainment segment are generally first exhibited theatrically in domestic and/or international markets and then released in various markets through airlines and hotels, electronic sell-through, DVDs and Blu-ray discs, transactional video-on-demand (“TVOD”), pay television, SVOD, basic cable television, free television and free video-on-demand (“FVOD”).
Our Filmed Entertainment segment’s revenues are generated primarily from the release and/or distribution of films theatrically, the release and/or distribution of film and television product through home entertainment, the licensing of film and television product to television and digital platforms and other ancillary activities. In 2019, our Filmed Entertainment segment licensing revenues, home entertainment revenues and theatrical revenues were approximately 57%, 21% and 18%, respectively, of total revenues for this segment. Our Filmed Entertainment segment generated 10%, 11% and 12% of our consolidated revenues in 2019, 2018 and 2017, respectively.
Paramount Pictures is a major global producer and distributor of filmed entertainment and has an extensive library consisting of approximately 1,300 film titles produced by Paramount, acquired rights to approximately 2,100 additional films and a number of television programs. Paramount’s library includes many Academy Award winners, including Titanic, Braveheart, Forrest Gump, The Godfather, The Godfather Part II and Wings, which won the first Academy Award ever awarded for Best Picture in 1929. The Paramount library also includes other Academy Award Best Picture nominees such as Arrival, Fences, The Big Short, Selma and The Wolf of Wall Street, classics such as The Ten Commandments, Breakfast at Tiffany’s and Sunset Boulevard, and a number of successful franchises such as Mission: Impossible, Transformers, Star Trek and Paranormal Activity. In 2019, Paramount’s theatrical releases included Terminator: Dark Fate, Rocketman, Gemini Man, Pet Sematary, Crawl and Playing with Fire.
Paramount Players aims to expand Paramount’s slate of films by partnering with our Cable Networks brands to develop, produce and release distinctive feature films that showcase the network brands to movie audiences worldwide. Paramount Players also focuses on modest budget films of specific genres for target audiences. In 2019, Paramount
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Players produced Dora and the Lost City of Gold, a live-action adaptation of the classic Nickelodeon series Dora the Explorer,co-produced with Nickelodeon Movies.
Paramount Animation creates high-quality animated films and aims to release one to two titles per year. In 2019, Paramount Animation released Wonder Park, a film about the adventures of a young girl in a magical amusement park.
Paramount Television Studios develops and finances a wide range of original, premium television content across all types of media platforms for distribution worldwide. Paramount Television Studios’ productions include Tom Clancy’s Jack Ryan for Amazon; 13 Reasons Why for Netflix; The Alienist and The Angel of Darkness for TNT; Catch-22 for Hulu; Defending Jacob forApple; Boomerang and First Wives Club for BET and BET+, respectively; and Berlin Station forEPIX. In 2019, Paramount Television Studios’ programming received seven Emmy® nominations.
Film Production, Distribution and Financing
Paramount produces many of the films it releases and also acquires films for distribution from third parties. In some cases, Paramount co-finances and/or co-distributes films with third parties, including other studios. Paramount also enters into film-specific financing and slate financing arrangements from time to time under which third parties participate in the financing of the costs of a film or group of films in exchange for an economic participation and a partial copyright interest. Paramountdistributes films worldwide or in select territories or media, and may engage third-party distributors for certain pictures in certain territories.
Paramount has several multi-picture production, distribution and financing relationships, including its agreement with Skydance Productions (“Skydance”), under which Paramountand Skydance produce and finance certain films, and Paramount has a first look on Skydance-initiated projects. Paramount also has an agreement with Hasbro Inc. (“Hasbro”) involving the production, financing and distribution of live action and animated films based on Hasbro’s expansive list of properties. In December 2019, in connection with ViacomCBS’ entry into an agreement to acquire a 49% interest in Miramax, Paramount and Miramax entered into first-look, co-financing and distribution agreements under which they will collaborate on production and financing of new film and television projects, and Paramountwill distribute such new projects, as well as Miramax library content.
Domestically, Paramount generally performs marketing and distribution services for theatrical releases and sales and marketing services for its home entertainment releases. Paramount has an agreement with Universal Studios for certain back-office and distribution services for all physical DVD and Blu-ray discs released by Paramount in the U.S. and Canada. Paramount also distributes CBS’ television and other library content and Nickelodeon television shows on DVD and Blu-ray disc on a worldwide basis. Internationally, Paramount generally distributes its theatrical releases through its own international affiliates or, in territories where it does not have an operating presence, through United International Pictures, a joint venture with Universal Studios. For home entertainment releases, Paramount’s physical DVD and Blu-ray discs are distributed in certain international territories by Universal Pictures Home
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Entertainment and in certain other territories by Paramount licensees. Paramount also distributes films and television shows domestically and internationally on electronic sell-through, TVOD, SVOD, FVOD and television platforms. In the first domestic pay television distribution window, Paramount’s feature films initially theatrically released in the U.S. are generally exhibited on EPIX.
Producing, marketing and distributing films and television programming can involve significant costs, and the timing of a film’s release can cause our financial results to vary. For example, marketing costs are generally incurred before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows, and are expensed as incurred. As a result, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition, and recoupment of investment as well as profitability for the film may not be realized until well after its theatrical release. Therefore, the results of the Filmed Entertainment segment can be volatile as films work their way through the various distribution windows.
PUBLISHING
Our Publishing segment consists of Simon & Schuster, which publishes and distributes adult and children’s consumer books in printed, digital and audio formats in the U.S. and internationally. Its digital formats include electronic books and audio books.
Simon & Schuster’s major adult imprints include Simon & Schuster, Scribner, Atria Books and Gallery Books. Simon & Schuster’s major children’s imprints include Simon & Schuster Books For Young Readers™, Aladdin® and Little Simon®. Simon & Schuster also develops special imprints and publishes titles based on the products of certain of our businesses as well as those of third parties and distributes products for other publishers. Simon & Schuster distributes its products directly and through third parties. Simon & Schusteralso delivers content and promotes its products on its own websites, social media, and general Internet sites as well as those dedicated to individual titles. International publishing includes the international distribution of English-language titles through Simon & Schuster in the UK, Canada, Australia and India and other distributors, as well as the publication of locally originated titles by its international companies.
In 2019, Simon & Schuster had 200 New York Times bestsellers in hardcover, paperback, audio and combined print and ebook formats, collectively, including 21 New York Times #1 bestsellers. Best-selling titles in 2019 included Howard Stern Comes Again by Howard Stern, The Institute by Stephen King and The Pioneers by David McCullough. Best-selling children’s titles included Dork Diaries 14: Tales from a Not-So-Best Friend Forever by Rachel Renée Russell and Red Scrolls of Magic by Cassandra Clare. Simon & Schuster Digital™, through SimonandSchuster.com, publishes original content, builds reader communities and promotes and sells Simon & Schuster’s books over the Internet.
Our Publishing segment’s revenues are generated from the publishing and distribution of consumer books in print, digital and audio formats. In 2019, the sale of digital content represented approximately 25% of Publishing’s revenues. Our Publishing segment generated 3% of our consolidated revenues in each of 2019, 2018 and 2017.
REVENUES
Our TV Entertainment, Cable Networks, Filmed Entertainment and Publishing segments generate advertising revenues, affiliate revenues, content licensing revenues, theatrical revenues and publishing revenues. For additional information regarding our sources of revenues, see “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition – Consolidated Results of Operations – 2019 vs. 2018 – Revenues” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements.” For information regarding seasonal factors affecting our revenues, see “Item 1A. Risk Factors – Our revenues, expenses and operating
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results may vary based on the timing, mix, number and availability of our films and other programming and on seasonal factors.”
Advertising
Advertising revenues are generated primarily from the sale of advertising spots on the CBS Television Network, our basic cable networks and our television stations, as well as on our ad-supported streaming services, including CBS All Access and Pluto TV, and on our websites. Our advertising revenues include integrated marketing services, which provide unique branded content and custom sponsorship opportunities to our advertisers, as well as advanced marketing solutions, including addressable video and brand solutions.
Affiliate
Affiliate revenues are principally comprised of fees received from MVPDs and virtual MVPDs for carriage of our cable networks, fees received from television stations affiliated with the CBS Television Network, fees for authorizing the MVPDs’ and virtual MVPDs’ carriage of our owned television stations, and subscription fees for our streaming services.
Content Licensing
Content licensing revenues are principally comprised of fees from the licensing of exhibition rights for our internally-produced television and film programming to television stations, cable networks and SVOD and FVOD services; home entertainment revenues, which are derived from the sale and distribution of our content through DVDs and Blu-ray discs to wholesale and retail partners, as well as from the viewing of our content on a transactional basis through TVOD and electronic sell-through services; fees from the use of our trademarks and brands for consumer products, recreation and live events, and fees from the distribution of third-party programming.
Theatrical
Theatrical revenues are principally comprised of the worldwide theatrical distribution of films through audience ticket sales.
Publishing
Publishing revenues are principally comprised of the domestic and international publishing and distribution of consumer books in printed, digital and audio formats.
COMPETITION
All of our businesses operate in highly competitive environments, and compete for creative talent and intellectual property, as well as audience and distribution of our content.
Our TV Entertainment, Cable Networks and Filmed Entertainment segments compete with a variety of media companies that have substantial resources to produce and acquire content worldwide, including broadcast networks, basic and premium cable networks, streaming services, film and television studios, production groups, independent producers and syndicators, television stations and television station groups. These segments compete with other content creators for creative talent including producers, directors, actors and writers, as well as for new program ideas and intellectual property and for the acquisition of popular programming. Similarly, our Publishing segment competes with large publishers for the rights to works by authors, and competition is particularly strong for well-known authors and public personalities.
Our businesses also face significant competition for audience share from various sources. Our Filmed Entertainment segment competes for audiences for its theatrical films with releases by other major film studios, television producers and streaming services as well as with other forms of entertainment and consumer spending
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outlets. Our TV Entertainment and Cable Networks segments compete for audiences and advertising revenues primarily with other cable and broadcast television networks; social media platforms; websites, apps and other online experiences; radio programming; and print media. In addition, our television and basic cable networks businesses face increasing competition from technologies providing digital audio and visual content in ways that allow audiences to consume content of their choosing while avoiding traditional commercial advertising. Moreover, our businesses face competition from the many other entertainment options available to consumers including video games, sports, travel and outdoor recreation.
We also face competition for distribution of our content. Our TV Entertainment and Cable Networks segments compete for distribution of our program services (and receipt of related fees) with other broadcast networks, cable networks and programmers. The CBS Television Network also competes with other broadcast networks to secure affiliations with independently owned television stations to ensure the effective distribution of network programming nationwide. Our TV Entertainment, Cable Networks and Filmed Entertainment segments compete with studios and other producers of entertainment content for distribution on third party platforms. Our Publishing segment competes with large publishers for sales to retailers, and mass merchandisers and on-line retailers have contributed to a general trend toward consolidation in the retail channel. In addition, the growth of the electronic book market has impacted print book retailers and wholesalers, and could result in a reduction of these channels for the sales and marketing of our books.
For additional information regarding competition, see “Item 1A. Risk Factors – Our businesses operate in industries that are highly competitive and swiftly consolidating.”
ENVIRONMENTAL, SOCIAL AND GOVERNANCE STRATEGY
ViacomCBS is committed to responsible and sustainable business practices, which strengthen our ability to innovate and better serve our partners, audiences and stockholders. We are proactively identifying, measuring and mapping the environmental, social and governance (“ESG”) impacts of our global operations and are working to manage and report on various non-financial ESG impacts in an effort to transparently address them with stakeholders.
As content creators, we are passionate about entertaining and informing the world and are committed to our legacy of creating lasting impact through our work. From groundbreaking HIV awareness initiatives to campaigns supporting education, the empowerment of women and youth, health issues and the military, veterans and their families, we have always strived to be at the forefront of championing the causes that matter to our audiences. Today, we continue to leverage our brands and our global reach to amplify the efforts of those who are working to make positive changes in their communities. Striving to be a good corporate citizen and to make a positive impact in communities around the world is fundamental to what we do every day. Below are just a few examples of our efforts:
We continue to use the immense power of our media platforms to heighten social awareness on important issues through our award-winning CBS Cares public service announcement (“PSA”) campaigns. In 2019, the CBS Television Network scheduled CBS Cares PSAs with an estimated value of $276 million and featuring a wide array of CBS talent on a variety of important topics such as heritage and history months, child advocacy, empowerment of women and girls, support for the military, veterans and their families, and health awareness. Examples include:
| • | We and Girls Inc. created a PSA that aired in-game during the CBS Television Network’s Super Bowl LIII coverage, and post-game on the CBS Sports Network. Featuring the voiceover of CBS This Morning’s Gayle King and players from the NY Giants, the PSA encourages girls to believe they can succeed at the highest levels. |
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We produce and air annual PSAs as part of our commitment to honor the victims of the Holocaust on International Holocaust Remembrance Day.
We and the Association of National Advertisers again teamed up for a multi-pronged partnership in support of the #SeeHer initiative to accurately portray girls and women in media. Supporting PSAs ran in primetime as part of Women’s History Month and featured Norah O’Donnell, Gayle King, Tea Leoni, Carrie Ann Inaba and others.
CBS Cares tackled the issue of sexual harassment, by continuing to air PSAs featuring Bridget Moynahan, Daniela Ruah and Aisha Tyler.
PSAs featuring Shemar Moore, Aisha Tyler, Sara Gilbert and Sheryl Underwood continued to air, teaching children about the importance of other cultures, races and religions, and emphasizing that we are all enriched by our differences.
Get Schooled inspires and empowers students nationwide to thrive in high school, college and their first jobs through a unique blend of powerful digital content, gamification and personalized support. In its 10-year history, Get Schooled has partnered with over 15,000 educators and their students, and has been recognized by Fast Company as a “Most Innovative Company.”
The Company’sSave The Music Foundation helps kids, schools, and communities realize their full potential through the power of making music. Founded in 1997, Save The Music partners with school districts and raises funds to restore music programs in public schools. Since inception, we have donated over $58 million worth of new musical instruments and technology to 2,159 schools in 276 school districts around the country, impacting the lives of countless students.
Beyond the Backpack is a celebration of Nickelodeon’s curriculum-based preschool properties. The initiative champions kindergarten and pre-k readiness by providing fun, simple and unique tools to address the five areas identified as critical to educational success: Family Engagement, Health & Wellness, Literacy Skills, Social & Emotional Skills, and STEAM (Science, Technology, Engineering, Arts and Math) Skills. Beyond the Backpack reinforces the academic community’s view that parents and caregivers are their child's first teachers and that it is never too early to start getting ready. In 2019, Nickelodeon donated 75,000 printed toolkits and 2,500 backpacks full of school supplies.
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Paramount has a long and proud tradition of giving back with a corporate social responsibility program focused on four key initiatives: supporting public education; protecting the environment; combating HIV/AIDS; and promoting volunteerism. By offering employee engagement opportunities, coupled with financial and in-kind contributions, Paramount supports numerous local, national, and global non-profit organizations. Kindergarten to Cap & Gown - Paramount’s signature education program - mentors students through their educational experience, targeting four partner schools in Paramount’s Los Angeles neighborhood.
In 2019, Paramount Network debuted the first installments of Take Action - a short-form digital documentary series addressing important social issues related to our content themes. We believe that stories of individual volunteers and activists have the power to connect us, inspire action and, ultimately, create real change. Each film includes a call-to-action, partnering with a nonprofit organization to give the audience the opportunity to learn more and take action themselves.
The MTV Staying Alive Foundation produces multi-award-winning, impactful behavior change campaigns to further its purpose of storytelling to save lives and enable young people to make empowered, informed choices about their health and wellbeing.
Our robust Veterans Network (“VetNet”) engages in multiple programs and supports numerous veteran-related causes. Among its activities in 2019, VetNet worked with our legal teams to provide more than 4,000 hours of critical, pro-bono legal assistance to more than 200 veterans and their families, representing approximately $1.5 million of legal fees donated; hosted a virtual career advice event for veterans in partnership with American Corporate Partners; worked with partners to provide mentorship and internships for 850 veterans; and collected more than 100,000 donations, including toys for veteran families and toiletries for the homeless.
REGULATION AND PROTECTION OF OUR INTELLECTUAL PROPERTY
We are, fundamentally, a content company, so the trademark, copyright, patent and other intellectual property laws that protect our brands and content are of paramount importance to us. Our businesses and the intellectual property they create or acquire are either subject to orand affected by laws and regulations of U.S. federal, state and local governmental authorities, inas well as laws and regulations of countries other than the U.S. and of national, regionalpan-national bodies such as the European Union (“EU”). The laws and local authorities in foreign countries. The rules, regulations policies and procedures affecting theseour businesses are constantly subject to change. The descriptions which followchange, as are summaries and should be read in conjunction with the texts of the statutes, rulesprotections that those laws and regulations described herein.afford us. The descriptions dodiscussion below describes certain, but not purport to describe all, present and proposed statutes, ruleslaws and regulations affecting the Company’sour businesses.
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FCC and PrivacySimilar Regulation
Under the Communications Act, the FCC also regulates certain aspects of the operation of MVPDs and certain other electronic media that compete with broadcast stations.stations and cable programming.
We provide below a brief summary of certain laws and FCC regulations under which we operate.
License Renewals. Television broadcast licenses are typically granted for standard terms of eight years. The Communications Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity and, with respect to the station, there have been no serious violations by the licensee of either the Communications Act or the FCC’s rules and regulations and there have been no other violations by the licensee of the Communications Act or the FCC’s rules and regulations that, taken together, constitute a pattern of abuse. The Company hasWe have no pending renewal applications.applications, but we will be filing renewal applications with respect to all of our stations on a staggered basis between 2020 and 2023. A station remains authorized to operate while its license renewal application is pending.
License Assignments.Assignments and Transfers of Licensee Control. The Communications Act requires prior FCC approval for the assignment of a license or transfer of control of an FCC licensee. Third parties may oppose the Company’sour applications to assign, acquire, or transfer or acquirecontrol of broadcast licenses.
Ownership Regulation. The Communications Act and FCC rules and regulations limit the ability of individuals and entities to have certain official positions or ownership interests, known as “attributable” interests, above specific levels in broadcast stations as well as in other specified mass media entities.stations. In seeking FCC approval for the acquisition of a broadcast station license, the acquiring person or entity must demonstrate that the acquisition complies with the FCC’s ownership rules or that a waiver of the rules is in the public interest.
Local Television Ownership. Under the The FCC’s local television ownership rule one partylimits the number of full-power television stations that may own up to two television stationsbe commonly owned in the same DMA, so long asDMA. For example, common ownership of two full-power stations in a market generally is allowed only if at least eight independently owned and operating full-power stations will remain in the market following the acquisition of the second station, and if at least one of the two stations is not amongoutside of the top-four ranked stations in the market based on audience share asshare.
Dual Network Rule. The dual network rule prohibits any of the date an application for approval of an acquisition is filed with the FCC. In addition, the FCC will consider whether to permit acquisitions of a second top-four ranked television station in the same market on a case-by-case basis if doing so would serve the public interest, conveniencefour major networks, ABC, CBS, FOX and necessity. “Satellite” television stations that simply rebroadcast the programming of a “parent” television station are exemptNBC, from the local television ownership rule if located in the same DMA as the “parent” station.combining or being under common control.
Television National Audience Reach Limitation. Under the national television ownership rule, one party may not own television stations whichthat reach more than 39% of all U.S. television households. In April 2017, thehouseholds, although under current FCC reinstated the UHF discount, pursuant to whichrules a UHF television station is attributed with reaching only 50% of the television households in its market. In December 2017, the FCC issued a Notice of Proposed Rulemaking pursuant to which it will consider modifying, retaining or eliminating the 39% national television audience reach limitation and/or the UHF
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discount. The CompanyWe currently ownsown and operatesoperate television stations that reach approximately 38% or 25% of all U.S. television households not taking into account the UHF discount.on an undiscounted or discounted basis, respectively.
Alien Ownership. In general, the Communications Act prohibitsrestricts foreign individuals or entities from collectively owning more than 25% of theour voting power or equity of the Company.equity. FCC approval is required to exceed the 25% threshold. The FCC has recently approved foreign ownership levels of up to 100% in certain instances, subsequent to its review and approval of specific, named foreign individuals.
Cable and Satellite Carriage of Television Broadcast Stations. The 1992 CableCommunications Act and implementing FCC regulations govern the retransmission of commercial television stations by cable television operators. Every three years, a television station must elect, with respect to cable systems within its DMA, either “must carry” status, pursuant to which the cable system’s carriage of the station is mandatory, or “retransmission consent,” pursuant to which the station gives up its right to mandatory carriage and secures instead the right to negotiate consideration in return for consenting to carriage. The Company’s owned television stations have elected the retransmission consent option in substantially all cases and, since 2006, the Company has implemented a systematic process of seeking monetary consideration for its retransmission consent.
National Broadband Plan. Congress passed legislation in February 2012 authorizingPlan/Post-Auction Repack. In 2017, the FCC to conductconcluded a series of voluntary auctions to reclaimrepurpose certain spectrum then utilized by broadcast television stations to provide additional spectrum for use by wireless broadband services. As part of these auctions, which commenced in 2016 and concluded in March 2017, the Company surrendered the spectrum for KCCO-TV, which was a satellite television station of the Company’s television station, WCCO-TV, in Minneapolis. The FCC has mandated that certain television stations that continueare continuing to operate subsequent to these auctions must change their operations after the auctions may have to change channels as the FCC “repacks” the remaining spectrum dedicated to broadcast television use. The legislation providesCongress provided that the FCC will assist television stations in retaining their current coverage areas no UHF band stations will be forced into the VHF band and established a fund was established to at least partially reimburse broadcasters for reasonable relocation expenses relating to the spectrum‑repacking.spectrum-repacking. Certain broadcast television stations, including some of those owned by us, are in the process of undertaking this repacking process and seeking reimbursement of associated costs.
Program Regulation. The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material between the hours of 6 a.m. and 10 p.m. The FCC’s maximum forfeiture penalty per station for broadcasting indecent or profane programming is approximately $415,000 per indecent or profane utterance, with a maximum forfeiture exposure of approximately $3.83 million for any continuing violation arising from a single act or failure to act. FCC regulations also prohibit broadcast television stations and cable networks from transmitting or causing the transmission of Emergency Alert System (“EAS”) tones in the absence of an actual emergency, authorized test of the EAS, or a qualified public service announcement. In September 2019, the FCC issued a Notice of Apparent Liability for Forfeiture finding that a CBS Television Network program broadcast in April 2018 violated the EAS rule and imposed a forfeiture of $272,000, which we timely paid.
Broadcast Transmission Standard. In November 2017, the FCC adopted an Order authorizingrules to permit television broadcasters to voluntarily begin broadcasting inbroadcast using the “Next Generation” broadcast television transmission standard developed by the Advanced Television Systems Committee, Inc., also called “ATSC 3.0,3.0.” Those full-service television stations using the new standard are subject to certain requirements, including the obligation of high power television stations to continue broadcasting a generally identical program stream in the current ATSC 1.0 broadcast standard. The ATSC 3.0 standard can be used to offer better picture quality and improved mobile broadcast viewing. A television station converting to ATSC 3.0 operation will incur significant costs in equipment purchases and upgrades and will requireupgrades. In addition, consumers may be required to obtain new television sets or other equipment to be able to viewthat are capable of receiving ATSC 3.0 broadcasts. ItWe are participating in various ATSC 3.0 testing with other broadcasters, but it is too early to predict any impact of this technical standard on our operations.
Children’s Programming. Our business is subject to various regulations, both in the U.S. and abroad, applicable to children’s programming. Since 1990, federal legislation and rules of the FCC have limited the amount and content
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of commercial matter that may be shown on broadcast television stations and cable channels during programming designed for children 12 years of age and younger, and since 2006 the FCC has limited the display of certain commercial website addresses during children’s programming. Moreover, each of our broadcast television stations is required to air, in general, three hours per week of educational and informational programming (“E/I programming”) designed for children 16 years of age and younger, with at least two of those three hours appearing on the station’s primary program stream. The FCC made certain modifications to its E/I programming rules in 2019, which provided additional flexibility to broadcasters with respect to certain aspects of these rules.
In addition, some policymakers have sought limitations on food and beverage marketing in media popular with children and teens. For example, restrictions on the television advertising of foods high in fat, salt and sugar (“HFSS”) to children aged 15 and under have been in place in the UK since 2007. The UK government is currently considering tighter controls, including a ban on all HFSS advertising before 9:00 p.m. Various laws with similar objectives have also been enacted in Ireland, Turkey, Mexico, Chile, Peru, Taiwan and South Korea, and significant pressure for similar restrictions continues to be felt globally, most acutely in Australia, Brazil, Canada, Colombia, India, Hungary, Singapore, South Africa and France. The implementation of these or similar limitations and restrictions could have a negative impact on our Cable Networks advertising revenues, particularly for our networks with programming for children and teens.
Certain Other Regulations Affecting Our Business
Global Data Protection Laws and Children’s Privacy Laws. A number of data protection laws impact, or may impact, the manner in which ViacomCBS collects, processes and transfers personal data. In the EU, the General Data Protection Regulation (“GDPR”) mandates data protection compliance obligations and authorizes significant fines for noncompliance, requiring significant compliance resources and efforts on our part. Further, a number of other regions where we do business, including the U.S., Asia and Latin America, have enacted or are considering new data protection regulations that may impact our business activities that involve the processing of personal data. For example, in the U.S., the California Consumer Privacy Act, which went into effect on January 1, 2020, creates a host of new obligations for businesses regarding how they handle the personal information of California residents, including creating new data access, data deletion and opt out rights. In addition, some of the mechanisms ViacomCBS relies upon for the transfer of personal data from the EU to the U.S., such as utilizing standard contractual clauses approved by the European Commission (“EC”), have been subject to legal challenges, and the EU-U.S. Privacy Shield framework, which permits the transfer of personal data from the EU to the U.S., is subject to review by the relevant EU and U.S. authorities. The outcomes of these proceedings are uncertain and may require changes to our international data transfer mechanisms.
In addition, we are subject to other laws and regulations intended specifically to protect the interests of children, including the privacy of minors online. The U.S. Children’s Online Privacy Protection Act (“COPPA”) limits the collection by operators of websites or online services of personal information online from children under the age of 13. In July 2019, the Federal Trade Commission initiated a review of its regulations implementing COPPA, which we anticipate will be updated to address changes in technology. In the EU, GDPR also limits our ability to process data from children under the age of 16. Such regulations also restrict the types of advertising we are able to sell on these sites and apps and impose strict liability on us for certain actions of ViacomCBS, advertisers and other third parties, which could affect advertising demand and pricing. State and federal policymakers are also considering regulatory and legislative methods to protect consumer privacy on the Internet, and these efforts have focused particular attention on children and teens.
Compliance with enhanced data protection laws, which may be inconsistent with one another, requires additional resources and efforts on our part, and noncompliance with personal data protection regulations could result in increased regulatory enforcement and significant monetary fines.
EU Commission’s Digital Single Market Strategy. The EU continues to pursue its Digital Single Market (“DSM”) Strategy, which contains a broad range of proposals designed to create a more complete EU-wide market for digital goods and services, several of which are likely to impact ViacomCBS’ businesses.
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In November 2018, the EU adopted a number of reforms to the Audiovisual Media Services Directive (the “AVMSD”), which sets content and advertising rules for European broadcasters. The AVMSD applies the country-of-origin principle to linear and non-linear TV services, enabling cross-border broadcasts from a single regulatory jurisdiction, and sets compulsory minimum pan-EU content and advertising rules that Member States may choose to exceed. These reforms include a mandatory quota for European works on on-demand audiovisual services platforms, the option for EU states to introduce levies on the revenues of audiovisual media-service providers, and liberalized rules governing the scheduling of advertising on linear broadcasters. Member States have until September 2020 to transpose the reforms into national law. These changes could impact revenues for the VCNI television channels business in Europe and affiliate deals with platforms for both film and TV distribution.
In June 2019, two new EU directives became effective and may impact the way we acquire and distribute content online. The Copyright Directive introduced a requirement to agree to terms for the carriage of copyrighted content on online platforms (or to remove content in the absence of such agreement), and also granted rights to authors and performers to “fair and proportionate” remuneration, greater transparency and a right to revoke agreements if their work is not adequately exploited. The Online Broadcasting Directive extends the system of mandatory collective exercise of cable retransmission rights to other forms of retransmission including Internet protocol television and mobile, thereby potentially reducing the control that rights owners have over online distribution. EU states have until June 2021 to transpose these Directives into national law, if similar provisions do not already exist.
In 2020, the EU will evaluate the impact of the ATSC 3.0 transition by television stations2018 EC Geo-blocking Regulation that prohibits unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment. As part of its evaluation, it will consider whether the scope of the regulation should be extended to services that offer audio-visual and other copyrighted content, which may impact content owners’ ability to distribute on an exclusive, territorial basis within the EU.
Restrictions on Content Distribution. In addition to the EU, numerous countries around the world impose restrictions on the Company’s operations.amount and nature of content that may be distributed in that country. Such regulations in China have the greatest impact, as only 34 foreign films, as selected by relevant authorities in China, may be distributed annually on a revenue share basis based on box office performance. In addition, in September 2018, China’s film and television regulator, the National Administration of TV and Radio, published proposed regulations that would severely limit the streaming and broadcasting of foreign film and television content in China, further reducing foreign access to the Chinese market.
UK Regulations Affecting Channel 5 Business. As a PSB in the UK, Channel 5 is subject to certain UK Office of Communications (“OFCOM”) broadcasting regulations that impose detailed obligations, including mandating the proportion of total programming and programming during peak hours that must be original productions, the hours devoted to news and current affairs and the proportion of commissioned programming that must be made by independent producers. Channel 5 has also undertaken to air a certain amount of UK-originated children’s programming. Like all UK broadcasters, Channel 5 must abide by the OFCOM Broadcasting Code, which contains content and scheduling regulations relating to harm and offense, protection of individuals under the age of 18, privacy, fairness and product placement, and by OFCOM’s Code on the Scheduling of Television Advertising, which contains regulations on the amount and scheduling of advertising.
Protecting our Content from Copyright Theft
The unauthorized reproduction, distribution, exhibition or other exploitation of copyrighted material interferes with the market for copyrighted works and disrupts our ability to distribute and monetize our content. The theft of films, television, books and other entertainment content presents a significant challenge to our industry, and we take a number of steps to address this concern. Where possible, we use technological protection tools, such as encryption, to protect our content. We are actively engaged in enforcement and other activities to protect our intellectual property, including: monitoring online destinations that distribute or otherwise infringe our content and sending takedown or cease and desist notices in appropriate circumstances; using filtering technologies employed by some user-generated content sites; and pursuing litigation and referrals to law enforcement with respect to websites and other online platforms that distribute or facilitate the distribution and exploitation of our content without authorization. Through
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partnerships with various organizations, we also are actively involved in educational outreach to the creative community, state and federal government officials and other stakeholders in an effort to marshal greater resources to combat copyright theft. Additionally, we participate in various industry-wide enforcement initiatives, public relations programs and legislative activities on a worldwide basis. We have had notable success with site-blocking efforts in parts of Europe and Asia, which can be effective in diverting consumers from piracy platforms to legitimate platforms.
Notwithstanding these efforts and the many legal protections that exist to combat piracy, the proliferation of content theft and technological tools with which to carry it out continue to be a challenge. The failure to maintain enhanced legal protections and enforcement tools and to update those tools as threats evolve could make it more difficult for us to adequately protect our intellectual property, which could negatively impact its value and further increase the costs of enforcing our rights as we continue to expend substantial resources to protect our content.
INTELLECTUAL PROPERTY
EMPLOYEES
CAUTIONARY STATEMENT CONCERNING FORWARD‑LOOKINGFORWARD-LOOKING STATEMENTS
This document,Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” and the documents incorporated by reference into this Annual Report on Form 10-K, containcontains both historical and forward-looking statements. All statements other thanthat are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are not based on historical facts, but rather reflect the Company’sour current expectations concerning future results, and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “may,” “could,” “estimate” or other similar words or phrases. Similarly, statements that describe the Company’s objectives, plans orand goals, are or may be forward-looking statements. These forward-looking statementsand involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause the actualfuture results, performance or achievements of the Company to be different from any future results, performance and achievements expressed or implied by these statements. More information about thesediffer. These risks, uncertainties and other factors is set forthare discussed in “Item 1A. Risk Factors” below. AdditionalOther risks, uncertainties and other factorsor updates to the risks discussed below, may be described in our news releases and filings with the Company’s filings made under the securities laws. There may be additional risks, uncertaintiesSEC, including but not limited to our reports on Form 10-Q and factors that the Company does not currently view as material or that are not necessarily known.Form 8-K. The forward-looking statements included in this document are made only made as of the date of this document, and the Company doeswe do not undertakehave any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.
A wide range of factors couldrisks may affect itsour business, financial condition or results of operations, now and financial results. The factorsin the future. We consider the risks described below are considered to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our business, financial condition or results of operations.
Risks Relating to ViacomCBS’ Business and Industry
Changes in consumer behavior, as well as evolving technologies, distribution platforms and packaging, may negatively affect our business, financial condition or results of operations
The ways in which consumers view content, and technology and business models in our industry continue to evolve rapidly, and new distribution platforms, as well as increased competition from new entrants and emerging technologies, have added to the Company’s future results. Past financial performance may not be a reliable indicatorcomplexity of future performancemaintaining predictable revenue streams.
Technological advancements have driven changes in consumer behavior and historical trends should not be usedempowered consumers to anticipate results or trends in future periods.seek more control over when, where and how they consume content and have affected the options available to advertisers for reaching their target audiences. The following discussionevolution of risk factors should be read in conjunction with “Item 7. Management’s Discussionconsumer preferences towards digital services and Analysis of Results of Operations and Financial Condition”other subscription services, and the consolidatedsubstantial increase in availability of programming without advertising or adequate methodologies for audience measurement, may continue to have an adverse effect on our business, financial statementscondition or results of operations. Examples of the foregoing include the convergence of television telecasts and related notes in “Item 8. Financial Statements and Supplementary Data”digital delivery of this Form 10-K.
In addition, consumers are increasingly using time-shifting and advertising-blocking technologies that enable users to fast-forward or circumvent advertisements, such as DVRs, or increase the sharing of subscription content and reduce the licensingdemand for electronic sell-through, DVD and Blu-ray disc products. Substantial use of rightsthese technologies could impact the attractiveness of our programming to the associated intellectual property, depend primarily upon their acceptanceadvertisers, adversely affecting our advertising revenue. Our business also may be adversely affected by the public,use of antennas (and their integration with set-top boxes or other consumer devices) to access broadcast signals to avoid subscriptions and live and stored video streaming boxes and services, which is difficultdeliver unauthorized copies of copyrighted content, including those emanating from other countries in various languages.
In response to predict. The commercial successperceived consumer demand, distributors of aprogramming and program or motion picture also depends upon the quality and acceptance of other competing programs and motion pictures released into the marketplaceservices are continuing to develop alternative offerings for consumers, including “skinny bundles,” smaller, often customizable programming packages delivered at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditionslower costs than traditional offerings; SVOD and other tangiblesubscription services; ad-supported FVOD services developed by television manufacturers, cable providers and intangible factors, allothers; and original programming hosted on mobile and social media platforms. Also, the impact of which are difficult to predict. Rating points are also factors that are weighed when determining the advertising rates that the Company receives. The use of evolving ratings technologies and measurements, and viewershiptechnological changes on platforms or devices, such as tablets, smart phones and other mobile devices, that is not being measured, could have an impact on the Company’s program ratings and advertising revenues. For example, while C-7, a current television industry ratings system, measures live commercial viewing plus seven days of digital video recorder (“DVR”) and video-on-demand playback, the viewership occurring on subsequent days of DVR and video‑on‑demand playback and online and mobile viewership are excluded from C-7 and other subsequent ratings. Also, consumer viewership of OTT services continuesMVPDs may adversely affect our cable networks’ ability to grow revenue. If these alternative offerings continue to gain traction and is under measured. Low ratings canour networks and brands are not included in those packages and services, or if consumers increasingly favor alternative offerings over traditional broadcast television and cable subscriptions, we may continue to experience a decline in viewership and ultimately demand for our programming, which could lead to lower pricingrevenues. These changing distribution models may also impact our ability to negotiate carriage deals on terms favorable to us, thereby having an adverse effect on our business, financial condition or results of operations.
In order to respond to these developments, we regularly consider and advertising spending. For example,from time to time implement changes to our business models and strategies to remain competitive, and there can be no assurance that any replacement programming onwe will successfully anticipate or respond to these developments, that we will not experience disruption as we respond to such developments, or that the Company’s television stationsbusiness models we develop will generate the same level ofbe as profitable as our current business models.
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Our advertising revenues or profitability as previous programming. In addition, the success of the Company’s cable networkshave been and Simon & Schuster is similarly dependent onmay continue to be adversely impacted by changes in consumers’ content viewership, deficiencies in audience acceptance of its programmingmeasurement and publications, respectively. The theatrical success of a motion picture, based in large part upon audience acceptance, is a significant factor in determining the revenues it is likely to generate in home entertainment sales, licensing fees and other exploitation during the various other distribution windows. Consequently, low public acceptance of the Company’s content, including its television and OTT programs, motion pictures and publications, will have an adverse effect on the Company’s results of operations. In addition, any decreased popularity of programming for which the Company has incurred significant commitments could have an adverse effect on its profitability. Programming and talent commitments of the Company, estimated to aggregate approximately $10.41 billion as of December 31, 2017, primarily included $7.30 billion for sports programming rights, $2.44 billion relating to the production and licensing of television and film programming, and $672 million for talent contracts with $794 million of these amounts payable in and after 2023. A shortfall, now or in the future, in the expected popularity of the sports events for which the Company has acquired rights, or in the programming the Company expects to distribute, could lead to decreased profitability or losses for a significant period of time.advertising market conditions
Consumers are increasingly turning to online sources for viewing and purchasing content, and an increasing number of companies offer SVOD services, including some that offer exclusive high-quality original video programming delivered directly to consumers over the Company’s programming, the inability of the Company to retain the rights to popular programming, increasing audience fragmentation caused by new program channels and the proliferation of media formats, including the internet and video‑on‑demand and the deployment of portable digital video devices andInternet. Consumers are also using new technologies whichthat allow consumerscustomers to live stream and time shift programming, make and store digital copies and skip or fast‑forwardfast-forward through advertisements. The increasing number of entertainment choices available to consumers has intensified audience fragmentation and reduced the viewing of content through traditional MVPDs and virtual MVPDs, which has caused, and likely will continue to cause, audience ratings declines for our cable networks and may adversely affect the pricing and volume of advertising. In addition, the pricing and volume of advertising may be affected by shifts in spending toward digital and mobile offerings, , which can deliver targeted advertising promptly, from more traditional media, or toward newer ways of purchasing advertising, such as through automated purchasing, dynamic advertising insertion, third parties selling local advertising spots and advertising exchanges, some or all of which may not be as beneficial to the Companyus as traditional advertising methods. Any
In addition, advertising sales are largely dependent on audience measurement, and the results of audience measurement techniques can vary for a variety of reasons, including the platforms on which viewing is measured and variations in the statistical sampling methods used. The use of evolving ratings technologies and measurements, and viewership on platforms or devices, such as tablets, smart phones and other mobile devices, that are not being fully measured, could have an impact on our program ratings and advertising revenues. Also, consumer viewership of streaming services continues to grow and is under measured. Low ratings can lead to lower pricing and advertising spending. While Nielsen’s statistical sampling method is the primary measurement technique used in our television advertising sales, we measure and monetize our campaign reach and frequency on and across digital platforms based on other third-party data as well as first-party data using a variety of methods, including the number of impressions served and demographics. In addition, multi-platform campaign verification remains in its infancy, and viewership on tablets, smartphones and other mobile devices, which continues to grow rapidly, still is not measured by any one consistently applied method. These variations and changes could have a significant effect on our advertising revenues. There can be no assurance that any replacement programming on our television stations will generate the same level of revenues or profitability as previous programming.
The strength of the advertising market can fluctuate in response to the economic prospects of specific advertisers or industries, advertisers’ current spending priorities and the economy in general or the economy of any individual geographic market, particularly a major market, such as Los Angeles or New York, in which we own and operate sizeable businesses, and this may adversely affect our advertising revenues. Natural and other disasters, acts of terrorism, political uncertainty or hostilities could lead to a reduction in domestic and international advertising expenditures as a result of disrupted programming and services, uninterrupted news coverage and economic uncertainty. In addition, advertising expenditures by companies in certain sectors of the economy, including the financial, pharmaceutical and automotive segments, represent a significant portion of our advertising revenues. Any political, economic, social or technological change resulting in a reduction in these sectors’ advertising expenditures may adversely affect our revenue. Our ability to generate advertising revenue is also dependent on demand for our content, the consumers in our targeted demographics, advertising rates and results observed by advertisers. These factors could have an adverse effect on the Company’s revenues andour business, financial condition or results of operations.
Our ability to maintain attractive brands and our reputation, and to create popular programming and other content, tentpole and other live events and consumer products are key to the success of our business and our ability to generate revenues. The production and distribution of television and other programming, films and other entertainment content
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and the licensing of rights to the associated intellectual property is inherently risky because the revenues we derive from various sources primarily depend on our ability to satisfy consumer tastes and expectations in a consistent manner. The popularity of our content is affected by our ability to maintain or develop our strong brand awareness and reputation and to target key audiences, and by the Companyquality and attractiveness of competing entertainment content and the availability of alternative forms of entertainment and leisure time activities, including online, mobile and other offerings. Audience tastes change frequently and it is a challenge to Obtain, Createanticipate what offerings will be successful at any point in time. We invest substantial capital in creating and Retainpromoting our content, including in the Rights Relatedproduction of original content on our networks, in our films, in our television production business and in our publications, before learning the extent to Popular Programming Could Adversely Affectwhich it will garner critical success and popularity with consumers.
In our Cable Networks and TV Entertainment businesses, the Company’s Revenues
Increased costs for programming, films and other rights, and judgments we make on the potential performance of our content, may adversely affect our business, financial condition or results of operations
In our TV Entertainment and Cable Networks segments, we produce a significant amount of original programming and other content and we invest significant resources in our brands, in part with the aim of developing higher quality and quantity of original content, and we also derive a portion of its revenuesour revenue from the exploitation of itsour extensive library of television programming. Generally, aIn our Filmed Entertainment segment, we invest significant amounts in the production, marketing and distribution of films and television series. We also acquire programming, films and television series, must haveas well as a network runvariety of at least three digital content and other ancillary rights such as consumer and home entertainment product offerings, and we pay license fees, royalties and/or four years to be successfully soldcontingent compensation in domestic syndication, however, increasingly,connection with these time frames are being shortened. If the content of its television programming library ceases to be widely accepted by audiences or is not continuously replenished with popular content, the Company’s revenues could be adversely affected. The Company obtains a significant portion of its popular programming from third parties.acquired rights. For example, some of CBS Television Network’s most widely viewed broadcasts, including golf’s Masters Tournament, the PGA Championship, NFL games, NCAA Division I Men’s Basketball Tournament games and series such as The Big Bang TheoryYoung Sheldon, are made available based upon programming rights of varying duration that the Company haswe have negotiated with third parties. In addition, Showtime Networks enters into commitments to acquireWe also license various music rights to certainfrom the major record companies, music publishers and performing rights organizations.
Our investments in original and acquired programming for Showtime, The Movie Channelare significant and Flix from motion picture producersinvolve complex negotiations with numerous third parties, and other suppliers for varying durations. CBS Films competes for compelling source material for andrapid changes in consumer behavior have increased the talent necessary to produce motion pictures, as well asrisk associated with other buyers for the acquisitionsuccess of third‑party produced motion pictures.all kinds of programming. Competition for popular programming that is licensed from third partiescontent is intense, and we may have to increase the Companyprice we are willing to pay for talent and intellectual property rights, which may result in significantly increased costs. Further, increased competition in the market for development and production of original programming, such as from Amazon, Apple, Facebook, Hulu, Netflix and YouTube, and streaming services by large entertainment companies, increases our content costs as they introduce different ways of compensating talent and approaching production. We may be outbid by itsour competitors for the rights to new, popular programming or in connection with the renewalrenewals of popular programming that we currently licensedlicense. Finally, certain of our counterparties and vendors may encounter financial and operational pressures, which could result in increased costs to us or delays in production. As such, there can be no assurance that we will recoup our investments in programming, films and other content when the content is broadcast or distributed. If our content offerings cease to be widely accepted by the Company. The Company’s failure to obtainaudiences or retain rights toare not continuously replenished with popular content, our revenues could be adversely affect the Company’s revenues.affected.
The accounting for the expenses we incur in connection with our programming and films requires that we make judgments about their potential success and useful life. We initially estimate the ultimate revenues of a television program or film and then update our estimate of ultimate revenues based on expected future and actual results, including following a television program’s initial broadcast or a film’s initial theatrical release. If our estimates prove to be incorrect or are reduced, it may result in decreased profitability as DVRs, that enable users to fast-forward or skip advertisements or increase the sharing of subscription content; systems that allow users to access copyrighted producta result of the Company over the internet or other media; and portable digital devices and systems that enable users to view programming or store or make portable copies of programming, may cause changes in consumer behavior that could affect the attractivenessaccelerated recognition of the Company’s offerings to advertisers and adversely affect its revenues. Also, the growing uses of antennas (and their integration with set-top boxes expense and/or other consumer devices) to access broadcast signals to avoid subscriptions, user-generated content sites and live and stored video streaming sites, which deliver unauthorized copies of copyrighted content, including those emanating from other countries in various languages, may adversely impact the Company’s businesses. In addition, further increases in the use of internet-connected television or other digital devices, which allow users to consume content on-demand and in remote locations while avoiding traditional commercial advertisements or subscription payments, could adversely affect the Company’s television broadcasting advertising and subscription revenues. Users who reduce, cancel or never had cable television subscription services are also known as “cord-shavers,” “cord-cutters” or “cord-nevers,” respectively. Cable providers and DBS operators are developing new techniques that allow them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the divisionwrite-down of the television marketplace into more specialized niche audiences. More television and video programming options increase competition for viewers and competitors targeting programming to narrowly defined audiences may gain an advantage over the Company for television advertising and subscription revenues. Television manufacturers, cable providers and others are developing and offering technology to enable viewers to locate digital copies of programming from the internet to view on television monitors or other devices, which could diminish viewershipvalue of the Company’s programming. Generally, changing consumer behavior may impact the Company’s traditional distribution methods,asset. Similarly, if we determine it is no longer advantageous for example, by reducing viewership of its programming (including motion pictures), the demand for DVD and Blu-ray Disc product and/us to air a program on our broadcast or the desire to see motion pictures in theaters, which could have an adverse impact on the Company’s revenues and profitability. Also, the impact of technological changes on traditional distributors of video programming may adversely affect the Company’s cable networks’ ability to grow revenue. Anticipating and adapting to changes in technology and the consumption of content on a timely basis and exploiting new sources of revenue from these changes will affect the Company’s ability to continue to increase its revenue.
The Company’s Businesses Operateloss of key talent could adversely affect our business, financial condition or results of operations
Our business depends upon the continued efforts, abilities and expertise of not only our corporate and divisional executive teams, but also the various creative talent and entertainment personalities with whom we work. For example, we employ or contract with several entertainment personalities with loyal audiences and we produce films with highly regarded directors, producers, writers, actors and other talent. These individuals are important to achieving the success of our programs, films and other content. There can be no assurance that these individuals will remain with us or will retain their current appeal, or that the costs associated with retaining them or new talent will be reasonable. If we fail to retain these individuals on current terms or if our entertainment personalities lose their current appeal or we fail to attract new talent, our business, financial condition or results of operations could be adversely affected.
Our businesses operate in Highly Competitiveindustries that are highly competitive and Consolidating Industriesswiftly consolidating
Our ability to obtain widespread distribution on favorable terms, which contributes to our ability to attract audiences and, in turn, advertisers, is adversely affected by the consolidation of advertising agencies, programmers, content providers, distributors (including telecom companies) and television service providers. This consolidation reduces the number of distributors with whom we negotiate and increases the negotiating leverage and market power of the combined companies. In addition, consolidation in the film business may adversely affect the distribution of our films on various platforms. Consolidation among book retailers and the growth of online sales and electronic books sales have resulted in increased competition for limited physical shelf space for our publications and for the attention of consumers online.
In addition, our competitors generally include market participants with interests in multiple media businesses that are often vertically integrated, whereas our Cable Networks business generally relies on distribution relationships with third parties. As more cable and satellite operators, Internet service providers, telecom companies and other content distributors, aggregators and search providers create or acquire their own content, they may have significant
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competitive advantages, which could adversely affect our ability to negotiate favorable terms for distribution or otherwise compete effectively in the delivery marketplace. Our competitors could also have preferential access to important technologies, customer data or other competitive information, as well as significant financial resources.
This competition and consolidation could result in lower ratings and advertising, and subscriptionlower affiliate and other revenues, orand increased content costs and promotional and other expenses, negatively affecting our ability to generate revenues and consequently, lower earnings and cash flow for the Company. The Company cannotprofitability. There can be assuredno assurance that itwe will be able to compete successfully in the future against existing new or potentialnew competitors, or that competition andor consolidation in the marketplace will not have a materialan adverse effect on itsour business, financial condition or results of operations.
Because we derive a significant portion of our revenues from a limited number of distributors, the loss of affiliation and distribution agreements, renewal on less favorable terms or adverse interpretations could have a significant adverse effect on our business, financial condition or results of operations
A significant portion of our revenues, particularly from Cable Networks and TV Entertainment, are attributable to agreements with MVPDs and virtual MVPDs, and other distributors of our programming and program services. These agreements generally have fixed terms that vary by market and distributor, and there can be no assurance that these agreements will be renewed in the future, or renewed on favorable terms, including but not limited to those related to pricing and programming tiers. We may also be unable to modify existing agreements with terms that have over time become less favorable. The Lossloss of Affiliation Agreementsexisting packaging, positioning, pricing or Retransmission Agreementsother marketing opportunities and the loss of carriage on cable and satellite programming tiers or Renewalsthe failure to renew our agreements with any distributor, or renew or modify them on Less Favorable Terms Could Materially Adversely Affectfavorable terms, could reduce the Company’s Resultsdistribution of Operationsour programming and program services and decrease the potential audience for our programs, thereby negatively affecting our growth prospects and revenues from both affiliate fees and advertising.
The CBS Television Network provides its affiliates with up to approximately 98 hours of regularly scheduled programming per week. In return, the CBS Television Network’s affiliated stations broadcast network-inserted commercials during that programming and pay the Companyus station affiliation fees. Loss of station affiliation agreements of the CBS Television Network could adversely affect the Company’sour results of operations by reducing the reach of the Company’sour programming and therefore itsour attractiveness to advertisers, and renewal of these affiliation agreements on less favorable terms may also adversely affect the Company’sour results of operations. Also, consolidation among television station group owners could increase their negotiating leverage. The non-renewal or termination of retransmission agreements with MVPDs or continued distribution on less favorable terms, could also adversely affect the Company’s revenues and its ability to distribute its network programming to a nationwide audience and affect the Company’s ability to sell advertising, which could have a material adverse effect on the Company’s results of operations. Showtime Networks, CBS Sports Network and Smithsonian Networks are also dependent upon the maintenance of distribution agreements with MVPDs and other third-party digital platforms and there can be no assurance that these agreements will be renewed in the future on terms acceptable to such programmers. The loss of one or more of these arrangements could reduce the distribution of Showtime Networks’, CBS Sports Network’s and Smithsonian Networks’ program services and reduce revenues from subscriber fees and advertising, as applicable. Further, the loss of favorable packaging, positioning, pricing or other marketing opportunities with any distributor could reduce revenues from subscriber fees. Also, consolidation
Consolidation among MVPDs and increased vertical integration of such distributors into the cable or broadcast network business have provided more leverage to these distributors and could adversely affect the Company’sour ability to maintain or obtain distribution for itsour network programming or distribution and/or marketing of itsour subscription program services on favorable or commercially reasonable terms, or at all. Also, consolidation among television station group owners could increase their negotiating leverage. Moreover, competitive pressures faced by MVPDs, particularly in light of the lower retail prices of streaming services, could adversely affect the terms of our renewals with MVPDs. In addition, MVPDs and digital streaming services continue to develop alternative offerings for consumers, including “skinny bundles,bundles.” which are generally smaller than the traditional program package or may allow the consumer to customize its package of program services. To the extent these packages do not include the Company’s
our programming and become widely accepted in lieu of traditional program packages, the Companywe could experience a decline in affiliate and subscription revenues.
These factors could have an adverse effect on our business, financial condition or results of operations.
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The integration of the CBS and Viacom businesses may not be successful or may be more difficult, time consuming or costly than expected. Synergies and other benefits may not be realized within the expected time frames, or at all.Operating costs, customer loss and business disruption may be greater than expected and revenues may be lower than expected following the Merger. Our ongoing investment in new businesses, products, services and technologies present many risks, and we may not realize the financial and strategic goals we had contemplated.
Our ability to realize the anticipated benefits of the Merger will depend, to a large extent, on our ability to integrate the businesses of the combined companies in a manner that facilitates growth opportunities and achieves the projected standalone cost savings and revenue growth trends that have been identified without adversely affecting current revenues and investments in future growth. The failure to meet the challenges involved in combining CBS’ and Viacom’s businesses following the Merger and to realize the anticipated benefits of the Merger, including expected synergies, could cause an interruption of, or a loss of momentum in, the activities of ViacomCBS and could adversely affect the results of operations of ViacomCBS. The overall combination of our businesses may also result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customer and other business relationships. The difficulties of combining the operations of the companies include, among others:
the diversion of management attention to integration matters;
difficulties in integrating operations and systems, including administrative and information technology infrastructure and financial reporting and internal control systems;
challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
difficulties in integrating employees and attracting and retaining key personnel, including talent;
challenges in retaining existing, and obtaining new customers, viewers, suppliers, distributors, licensors, employees and others, including material content providers, studios, producers, directors, actors, authors and other talent, and advertisers;
difficulties in achieving anticipated cost savings, synergies, business opportunities, financing plans and growth prospects from the combination;
difficulties in managing the expanded operations of a license period, mix, numbersignificantly larger and availabilitymore complex company;
challenges in continuing to develop valuable and widely accepted content and technologies;
contingent liabilities that are larger than expected; and
potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Merger.
In addition, even if our operations are integrated successfully, the full benefits of the Company’s television programming and motion pictures, as applicable, whichMerger may cause operating results to increasenot be realized, including, among others, the synergies, cost savings or decrease during a period and create non-comparable results relative tosales or growth opportunities that are expected. These benefits may not be achieved within the corresponding periodanticipated time frame or at all. Further, additional unanticipated costs may be incurred in the prior year. integration of our businesses. Many of these factors are outside of our control, and any one of them could result in lower revenues, higher costs and diversion of management time and energy, which could materially impact our business, financial condition and results of operations.
In addition, advertisingthe past, we have acquired and invested, and expect to continue to acquire and invest, in new businesses, products, services and technologies as part of our ongoing strategic initiatives. Such acquisitions and strategic initiatives may involve significant risks and uncertainties, including the types described above as well as insufficient revenues from such investments to offset any new liabilities assumed and expenses associated with the new
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investments, unidentified issues not discovered in even-numbered years benefit from advertising placed by candidates for political offices. The effectsour due diligence that could cause us to fail to realize the anticipated benefits of such seasonality make it difficultinvestments and incur unanticipated liabilities and a failure to estimate future operating results based onsuccessfully further develop an acquired business or technology. Because new investments are inherently risky, and the previousanticipated benefits or value of these investments may not materialize, no assurance can be given that such investments and other strategic initiatives will not adversely affect our business, financial condition or results of any specific quarter and may adversely affect operating results.operations.
Networks, cloud services, information systems and other technologies, including technology systems used in connection with the production and distribution of our programming, films and other content by us or our third-party providers (“Systems”), are importantcritical to the Company’sour business activities. Despite the Company’s security measuresactivities, and disaster recovery planning, networkshutdowns or service disruptions of, and information systems‑related events, such ascybersecurity attacks on, these Systems pose increasing risks. Such shutdowns, disruptions and attacks may be caused by third-party hacking of computers and Systems; dissemination of computer compromises, cyber threats, security breaches, viruses, orworms, malware, ransomware and other destructive or disruptive software, process breakdowns, employee or partner error or malicious orsoftware; denial of service attacks and other activities,bad acts; human error; and power outages, terrorism, natural disasters, extreme weather, terrorist attacks or other disasterssimilar events. Shutdowns, disruptions and attacks could have an adverse impact on us, our business partners, employees, advertisers, viewers and users of our content offerings, including degradation or disruption of service, loss of data and damage to equipment and data. Steps we take to add software and hardware, upgrade our Systems and network infrastructure, and improve the stability and efficiency of our Systems may not be sufficient to avoid shutdowns, disruptions and attacks. Significant events could result in a disruption or degradation of our operations and reduction of our revenues, the Company’s services and operations,loss of or damage to equipmentthe integrity of data used by management to make decisions and data,operate our businesses, viewer or advertiser dissatisfaction or a loss of viewers or advertisers, and customerdamage to our reputation or advertiser dissatisfaction. These eventsbrands.
We operate communications and computer hardware Systems located both in our facilities and that of third-party providers. In addition, we use third-party “cloud” computing services in connection with our business operations. We also use content delivery networks to help us stream programming, films and other content in high volume to viewers and users of our online, mobile and app offerings over the internet. Problems faced by us, our hosting providers, our third-party “cloud” computing or other network providers, including technological or business-related disruptions, as well as cybersecurity attacks and regulatory interference, could also result in a disruption of our operations and reduction of our revenues, adversely impact the improper disclosureexperience of our viewers and users, and could damage our reputation and brands.
We are subject to risks caused by the misappropriation, misuse, falsification or intentional or accidental release or loss of business or personal data confidentialor programming content maintained in our or our third-party providers’ Systems, including proprietary and personal information (of third parties, employees and users of our online, mobile and app offerings), business information including intellectual property, or other proprietaryconfidential information. Outside parties may attempt to penetrate our Systems or those of our third-party providers or fraudulently induce employees, business partners or users of our online, mobile and app offerings to disclose sensitive or confidential information in order to gain access to our data or our subscribers’ or users’ data, or our programming. The number and sophistication of attempted and successful information security breaches in the U.S. and elsewhere have increased in recent years, and because of our prominence, we and/or third-party providers we use may be a particularly attractive target for such attacks. Because the techniques used to obtain unauthorized access to, or disable, degrade or sabotage, these Systems change frequently and often are not recognized until launched, we may be unable to anticipate these techniques, implement adequate security measures or remediate any intrusion on a timely or effective basis. Moreover, the development and maintenance of security measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite our efforts, the possibility of these events occurring cannot be eliminated.
If a material breach of our Systems or those of our third-party providers occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose subscribers, viewers, advertisers and other
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business partners, and users of our online, mobile and app offerings; and our reputation, brands and credibility could be damaged; and we could be required to expend significant amounts of money and other resources to repair or replace such Systems or to comply with regulatory requirements. We could also be subject to actions by regulatory authorities and claims asserted in private litigation. The costs relating to any data breach could be material, and we may not have adequate insurance coverage to compensate us for any losses associated with such events.
Each of these factors could have an adverse effect on our reputation, business, financial condition or results of operations.
We are subject to complex, often inconsistent and potentially costly laws, rules, regulations, industry standards and contractual obligations relating to privacy and personal data protection
We are subject to laws, rules and regulations in the U.S. and in other countries relating to privacy and the collection, use and security of personal data. In the EU, for example, the GDPR mandates data protection compliance obligations and authorizes significant fines for noncompliance, requiring significant compliance resources and efforts on our part. Further, a number of other regions where we do business have enacted or are considering new data protection regulations that may impact our business activities. In the U.S., the California Consumer Privacy Act, which went into effect on January 1, 2020, creates a host of new obligations for businesses regarding how they handle the personal information of California residents. We are also subject to laws and regulations intended specifically to protect the interests of children and the privacy of minors online, including throughCOPPA in the U.S. and the GDPR in the EU, and we have been required to limit some functionality on our websites and apps as a result of these regulations. Such regulations also restrict the types of advertising we are able to sell on these sites and apps and impose strict liability on us for certain actions of ViacomCBS, advertisers and other third parties, which receive any of such information on a confidential basis for business purposescould affect advertising demand and could be subject to any of these events, and damage the Company’s reputation and require the Companypricing. We will continue to expend resources to remedy anycomply with data protection and privacy standards imposed by law, industry standards or contractual obligations, which may be inconsistent with one another, and despite such breaches. The occurrenceefforts we may face regulatory and other legal actions. See “Regulation and Protection of anyour Intellectual Property—Certain Other Regulations Affecting Our Business—Global Data Protection Laws and Children’s Privacy Laws.”
Each of these eventsfactors could have a materialan adverse effect on the Company’sour reputation, business, andfinancial condition or results of operations.
The U.S.failure, destruction and/or breach of satellites and facilities that we depend upon to distribute our programming could adversely affect our business, financial condition or results of operations
We use satellite systems, fiber and other countries where the Company operates experience slowdownsmethods to transmit our programs and volatilities in their economies from timeprogram services to time. A downturn could lead to lower consumerbroadcast television and business spending for the Company’s products and services, particularly if customers, including advertisers, subscribers, licensees, retailers, theatercable television operators and other consumersdistributors worldwide. The distribution facilities include uplinks, communications satellites and downlinks. Notwithstanding certain back-up and redundant systems, transmissions may be disrupted as a result of power outages, natural disasters, extreme weather, terrorist attacks, cyber attacks, failures or impairments of communications satellites or on-ground uplinks or downlinks used to transmit programming or other similar events. Currently, there are a limited number of communications satellites available for the transmission of programming, and if a disruption occurs, we may not be able to secure alternate distribution facilities in a timely manner. There can be no assurance that such failure or disruption would not have an adverse effect on our business, financial condition or results of operations.
Theft of our content, including digital copyright theft and other unauthorized uses of our content, reduces revenue received from legitimate distribution of our programming, films, books and other entertainment content and adversely affects our business, financial condition or results of operations
The success of our businesses depends in part on our ability to maintain and monetize our intellectual property rights. We are fundamentally a content company and theft of our content - specifically, the infringement of our films and home entertainment products, television programming, digital content, books and other intellectual property rights - affects us and the value of our content. Intellectual property theft is particularly prevalent in many parts of the Company’sworld that either lack effective laws and technical protection measures similar to those existing in the U.S. and Europe or
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lack effective enforcement of such measures, or both. Such foreign copyright theft often creates a supply of pirated content offerings and services, reduce demands for the Company’s products and services. In addition, in unfavorable economic environments, the Company’s customers may have difficulties obtaining capital at adequate or historical levels to finance their ongoing business and operations and may face insolvency, allmajor markets as well. The interpretation of which could impair their ability to make timely payments and continue operations, including distribution of the Company’s content. The Company is unable to predict the duration and severity of weakened economic conditions and such conditions and resultant effects could adversely impact the Company’s businesses, operating results, and financial condition.
Content theft is made easier by the wide availability of higher bandwidth and reduced storage costs, with respect to its content, including for all types of creative talent, including actors, authors, writers and producers, composers and publishers of music, as well as for marketingtools that undermine encryption and distribution. An increaseother security features and enable infringers to cloak their identities online. We and our numerous production and distribution partners operate various technology systems in any of these costs and
Copyright theft has an adverse effect on our business because it reduces the revenue that we are able to receive from the legitimate sale and distribution of our content, undermines lawful distribution channels, reduces the public’s and some affiliate partners’ perceived value of our content and inhibits our ability to recoup or profit from the costs incurred to create such content. While legal protections exist, piracy and technological tools with which to engage in copyright theft continue to escalate, evolve and present challenges for enforcement. We are actively engaged in enforcement and other activities to protect our intellectual property, and it is likely that we will continue to expend substantial resources in connection with these efforts. Efforts to prevent the unauthorized reproduction, distribution and exhibition of our content may leadaffect our profitability and may not be successful in preventing harm to decreased profitability.our business and may have an adverse effect on our business, financial condition or results of operations.
Our businesses operate and Related Financing Costshave audiences, customers and partners worldwide, and we are focused on expanding our international operations in key markets, some of which are emerging markets. For that reason, economic conditions in many different markets around the world affect a number of aspects of our businesses, in particular revenues in both domestic and international markets derived from advertising sales, theatrical releases, home entertainment distribution, television licensing and sales of consumer products. Economic conditions in each market can also impact our audience’s discretionary spending and therefore their willingness to access our content, as well as the businesses of our partners who purchase advertising on our networks, causing them to reduce their spending on advertising. We may also be subject to longer payment cycles. In addition, as we have expanded our international operations, our exposure to foreign currency fluctuations against the U.S. dollar (compared to, for example, the Company
Our businesses are also exposed to certain political risks inherent in conducting a global business, including retaliatory actions by governments reacting to changes in the U.S. and other countries, including in connection with trade negotiations; issues related to the presence of corruption in certain markets willand enforcement of anti-corruption laws and regulations; increased risk of political instability in some markets as well as conflict and sanctions preventing us from accessing those markets; escalating trade, immigration and nuclear disputes; wars, acts of terrorism or other hostilities; and other political, economic or other uncertainties.
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The UK left the EU on January 31, 2020. It is now in a ‘transition period’ scheduled to end on December 31, 2020 that allows the negotiation of a future UK-EU trade relationship while remaining part of the EU Single Market. Depending on the ultimate terms of a trade deal, the UK could lose access to the single EU market and to the global trade deals negotiated by the EU on behalf of its members. It is possible that the UK could revert to World Trade Organization terms if no deal is reached. The effects of Brexit and the on-going trade negotiations may continue to beadversely affect business activity, political stability and economic and market conditions in the UK, the Eurozone, the EU and elsewhere and contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro and the British Pound. A new trade deal, or no deal at all, could lead to additional political, legal and economic instability and uncertainty in the EU, including changes in the regulatory environment, which could impact our ability to use UK law under “country of origin” rules for programming in the EU, potential trade barriers between the UK and the EU and between the UK and other countries, and potential content production quota regulations. Given that a reliable sourceportion of financing forour business is conducted in the Company. In addition, the Company’s access to and cost of borrowing can be affected by the Company’s short- and long-term debt ratings assigned by ratings agencies. These factors,EU, including the tighteningUK, any of creditthese effects of Brexit and a trade deal, and others we cannot anticipate, could have an adverse effect on our business, financial condition or results of operations.
These political and economic risks could create instability in any of the markets where our businesses derive revenues, which could result in a reduction of revenue or loss of investment that adversely affects our businesses, financial condition or results of operations.
Changes in U.S. or foreign laws or regulations may have an adverse effect on our business, financial condition or results of operations
Our program services, filmed entertainment and online, mobile and app properties are subject to a decreasevariety of laws and regulations, both in the Company’s debt ratings, could adversely affectU.S. and/or in the Company’s abilityforeign jurisdictions in which we or our partners operate, including relating to obtain cost‑effective financing.intellectual property, content regulation, user privacy, data protection, anti-corruption, repatriation of profits, tax regimes, quotas, tariffs or other trade barriers, currency exchange controls, operating license and permit requirements, restrictions on foreign ownership or investment, export and market access restrictions, and exceptions and limitations on copyright and censorship, among others.
The television broadcasting and distribution industries in the U.S. are highly regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC. The television broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. For example, the Company iswe are required to obtain licenses from the FCC to operate itsour television stations. The CompanyIt cannot be assured that the FCC will approve itsour future renewal applications or that the renewals will be for full terms or will not include conditions or qualifications. The non-renewal, or renewal with substantial conditions or modifications, of one or more of the Company’sour licenses could have a material adverse effect on the Company’sour revenues. The CompanyWe must also comply with extensive FCC regulations and policies in the ownership and operation of itsour television stations and itsour television networks. FCC regulationsnetworks, which prohibit the common ownership of two or more than one of the top four television networks ABC, CBS, FOX and NBC, and limit the number of television stations that a licensee can own in a market and the number of television stations that can be owned nationwide,in the U.S., which could restrict the Company’sour ability to consummate future transactions and in certain circumstances could require itus to divest some television stations. Our programming directed towards children is subject to a number of additional regulations. For example, privacy regulations make it difficult to measure online viewership by children. The threat of regulatory action or increased scrutiny that deters certain advertisers from advertising or reaching their intended audiences could adversely affect advertising revenue.
The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations, and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation and ownership of the Company’sour television properties. For example, from time to time, proposals have been advanced in the U.S. Congress and at the FCC to require television stations to provide advertising time to political candidates for free or at a reduced charge. Any restrictions on political or other advertising may adversely affect the Company’sour advertising revenues. Changes to the media ownership and other FCC rules may affect the competitive landscape in ways that could increase the competition faced by the Company.us. Proposals have also been advanced from time to time before the U.S. Congress and the FCC to extend the program access rules (currently applicable only to those cable program services which also own or are owned in whole or in part by cable distribution or telephone company systems) to all cable program services. The Company’sOur ability to
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obtain the most favorable terms available for itsour content could be adversely affected should such an extension be enacted into law. Congress authorized the FCC to conduct voluntary auctions to reclaim spectrum utilized by broadcast television stations to provide additional spectrum for wireless broadband services. The television stations that will continue their operations after the auctions, which commenced in 2016 and concluded in March 2017, may have to change channels as the FCC “repacks” the remaining spectrum dedicated to broadcast television use. Congress allocated funds that will at least partially reimburse the costs related to stations repacking. It is difficult to predict the outcomelikelihood or impact of any proposed actions by the FCC’s actionsU.S. Congress or their effect, if any,the FCC on our television properties.
Laws in some non-U.S. jurisdictions differ in significant respects from those in the Company’s broadcasting properties.U.S., and the enforcement of such laws can be inconsistent and unpredictable, which could impact our ability to expand our operations and undertake activities that we believe are beneficial to our business. In addition, changes in or new interpretations of international laws and regulations governing the broadcast and distribution of content, competition and the internet,Internet, including those affecting data privacy,, as well as the new EU law requiring 30% local content on SVOD services and proposed amendments to the law governing territorial exclusivity of the distribution of content in Europe, may have an adverse impact on the Company’sour international businesses and internetdigital properties. The Company
Our businesses are also subject to laws and regulations in the U.S. and internationally governing the collection, use, sharing, protection and retention of personal data, which has implications for how such data is unablemanaged. For example, GDPR expands the regulation of personal data processing throughout the EU and significantly increases penalties for non-compliance. Complying with these laws and regulations could be costly, require us to predictchange our business practices, or limit or restrict aspects of our business in a manner adverse to our business operations. Many of these laws and regulations continue to evolve, and substantial uncertainty surrounds their scope and application. Our failure to comply could result in exposure to enforcement by U.S. or foreign governments, as well as significant negative publicity and reputational damage.
Our businesses could be adversely affected by new laws and regulations, changes in existing laws, changes in interpretations of existing laws by courts and regulators and the effectthreat that anyadditional laws or regulations may be forthcoming, as well as our ability to enforce our legal rights. We could be required to change or limit certain of our business practices, which could impact our ability to generate revenues. We could also incur substantial costs to comply with new and existing laws and regulations, or substantial fines and penalties or other liabilities if we fail to comply with such laws regulations or policies may have on its operations.and regulations.
Vigorous Enforcementenforcement or Enhancementmodification of FCC Indecencyindecency and Other Program Content Rules Againstother program content rules against the Broadcastbroadcast and Cable Industries Could Havecable industries could have an Adverse Effectadverse effect on the Company’s Businessesour businesses and Resultsresults of Operationsoperations
The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material on television stations between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCC’s indecency/profanity definition, coupled with the spontaneity of live programming. The FCC enforces its indecency rules against the broadcasting industry. The FCC has found on a number of occasions that the content of television broadcasts has contained indecent material. In such instances, the FCC issued fines or advisory warnings to the offending licensees. Moreover, the FCC has in some instances imposed separate fines for each allegedly indecent “utterance,” in contrast with its previous policy, which generally considered all indecent words or phrases within a given program as constituting a single violation. The fines for broadcastingBroadcasting indecent material could result in fines per station areof a maximum of approximately $397,000$415,000 per utterance.utterance and/or the loss of a station’s FCC license. If the FCC denied a license renewal or revoked the license for one of the Company’sour television stations, the Companywe would lose itsour authority to operate the station. The determination of whether content is indecent is inherently subjective and, as such, it can be difficult to predict whether particular content could violate indecency standards. The difficulty in predicting whether individual programs, words or phrases may violate the FCC’s indecency rules adds significant uncertainty to the Company’sour ability to comply with the rules. Violation of indecency rules could lead to sanctions which may adversely affect the Company’sour businesses and results of operations. Some policymakers support the extension of the indecency rules that are applicable to over-the-air broadcasters to cover cable and satellite programming and/or attempts to increase enforcement of or otherwise expand existing laws and rules. If such an extension, attempt to increase enforcement or other expansion took place and were found to be constitutional, some of the Company’sour cable content could be subject to additional regulation and might not be able to attract the same subscription and viewership levels.
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We could be subject to Distribute Its Programming Could Materially Adversely Affect the Company’s Businesses and Results of Operations
We are subject to taxation in the U.S. and numerous international jurisdictions. Our tax rates are impacted by the tax laws, regulations and administrative practices, interpretations and policies in the federal, state and local disastersand international territories where our businesses operate, and these rates may be subject to significant change. Our tax returns are routinely audited and litigation, adverse outcomes, or settlements may occur because tax authorities may disagree with certain positions we have taken, including extreme weatherour methodologies for intercompany arrangements. Additionally, shifting economic and political conditions may result in significant changes to tax policies, laws or tax rates in various jurisdictions. Such changes, litigation, adverse outcomes, or audit settlements may result in the recognition of additional charges to our income tax provision in any given period and may adversely affect our effective income tax rate or cash payments and may therefore adversely affect our business, financial condition or results of operations.
Volatility and weakness in capital markets may adversely affect our credit availability and related financing costs
Bank and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Although we can currently access the bank and capital markets, there is no assurance that impair on-ground uplinks such markets will continue to be a reliable source of financing for us. In addition, our access to and cost of borrowing can be affected by our short- and long-term debt ratings assigned by ratings agencies. In addition, the interest rates included in certain agreements that govern certain of our debt securities and/or downlinks,credit facilities may be based on the London Interbank Offered Rate (“LIBOR”). In the future, use of LIBOR may be discontinued and we cannot be certain how long LIBOR will continue to be a viable benchmark interest rate. Use of alternative interest rates could result in increased borrowing costs or asvolatility in the markets and interest rates. These factors, including the tightening of credit markets, or a resultdecrease in our debt ratings, could adversely affect our ability to obtain cost-effective financing.
We could be adversely affected by strikes and other union activity
We and our business partners engage the services of an impairmentwriters, directors, actors, musicians and other talent, production crew members, trade employees, players in sports leagues and others who are subject to industry-wide or specially-negotiated collective bargaining agreements, and occasionally individual agreements. The Alliance of Motion Picture and Television Producers (AMPTP) is a satellite. Currently, there aremulti-employer trade association that, along with and on behalf of hundreds of member companies including Paramount Pictures and CBS Studios, negotiates the industry-wide collective bargaining agreements with these parties, and we may lack practical control over the negotiations and terms of the agreements. The Writers Guild of America contract expires on May 1, 2020, and the Directors Guild of America and Screen Actors Guild-American Federation of Television and Radio Artists contracts expire on June 30, 2020. The AMPTP expects to negotiate successor deals with these guilds and unions in the coming months. Any labor disputes that arise may disrupt our operations and cause delays in the production of our programming, and we may not be able to negotiate favorable terms for a limited number of communications satellites available for the transmission of programming. If a disruption occurs, failure to secure alternate distribution facilities in a timely mannerrenewal, which could increase our costs. Depending on its duration, any lockout, labor dispute, strike or work stoppage could have a materialan adverse effect on our revenues, cash flows and/or operating income and/or their timing.
Our revenues, expenses and operating results may vary based on the Company’s businessestiming, mix, number and availability of our films and other programming and on seasonal factors
Our revenues, expenses and operating results fluctuate due to the timing, mix, number and/or availability of our theatrical films, home entertainment releases and programs for licensing. For example, our operating results may increase or decrease during a particular period relative to the corresponding period in the prior year due to differences in the number and/or mix of films released, the commencement of a license period or the timing of delivery of programming to licensees for exhibition. Our operating results also fluctuate due to the timing of the recognition of marketing expenses, which are generally incurred before and throughout the theatrical release of a film, with the recognition of related revenues through the film’s theatrical exhibition and subsequent distribution windows.
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Our business also has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on audiences’ viewing, reading and attendance habits. Typically, our revenue from advertising is highest in the first and fourth quarters. In the Cable Networks segment, advertising is typically highest in the fourth quarter due to the holiday season, among other factors. In the TV Entertainment segment, advertising revenues benefit principally in the first quarter of the years in which we telecast the Super Bowl and NCAA Division I Men’s Basketball Tournament National Semifinals and Championship and in the fourth quarter due to the holiday season and, in even-numbered years, advertising placed by candidates for political offices. Revenues from the Filmed Entertainment segment’s theatrical film releases tend to be cyclical with increases during the summer. The Publishing segment is subject to increased periods of demand during the summer and year-end holiday season. The effects of these variances make it difficult to estimate future operating results based on the previous results of operations. Each of the Company’s television stationsany specific quarter.
We could suffer losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and cable networks uses studio and transmitter facilities that are subject to damage or destruction. Failure to restore such facilities in a timely manner could have a material adverse effect on the Company’s businesses and results of operations.programming
Our liabilities related to discontinued operations and former businesses could adversely impact our financial conditions
NAI, through its voting control of ViacomCBS, will be in a Positionposition to Control Actionscontrol actions that Require Stockholder Approvalrequire stockholder approval
NAI, through its direct and indirect ownership of the Company’sour Class A Common Stock, has voting control of the Company.ViacomCBS. At December 31, 2017,2019, NAI directly or indirectly owned approximately 79.5%79.4% of the Company’s votingshares of our Class A Common Stock outstanding, and approximately 10.2% of the shares of our Class A Common Stock and approximately 10.2% of the Company’s Class A Common Stock and non-votingour Class B Common Stock outstanding on a combined basis. Mr. Sumner M. Redstone is the beneficial owner of the controlling interest in NAI and, accordingly, beneficially owns all such shares. Mr. Redstone is the controlling stockholder, chairmanChairman of the board of directors and chief executive officer of NAI, serves as Chairman Emeritus of the Company's Board of Directors and Ms.Chief Executive Officer of NAI. Shari E. Redstone, the presidentPresident and a director of NAI, serves as Vicenon-executive Chair of the Company’sViacomCBS Board of Directors. In addition, Mr. David R. Andelman is a director of NAI and serves as a director of the Company.Directors (the “ViacomCBS Board”). NAI is controlled by Mr. Redstone through the Sumner M. Redstone National Amusements Trust (the “SMR Trust”), which owns 80% of the voting interest of NAI, and such voting interest of NAI held by the SMR Trust is voted solely by Mr. Redstone until his incapacity or death. The SMR Trust provides that in the event of Mr. Redstone’s death or incapacity, voting control of the NAI voting interest held by the SMR Trust will pass to seven trustees, who will include CBS Corporation directors Ms. Shari Redstone and Mr. David R. Andelman.Redstone. No member of the Company’sour management is a trustee of the SMR Trust.
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Subject to the terms of the Governance Agreement dated as of August 13, 2019, which is incorporated by reference as an exhibit in this Annual Report on Form 10-K, NAI is in a position to control the outcome of corporate actions that require, or may be accomplished by, stockholder approval, including amending ViacomCBS’ bylaws, the election or removal of directors and transactions involving a change of control. OtherFor example, the ViacomCBS bylaws provide that:
the affirmative vote of not less than a majority of the aggregate voting power of all outstanding shares of our capital stock then entitled to vote generally in an election of directors, voting together as a single class, is required for our stockholders to amend, alter, change, repeal or adopt any of our bylaws;
any or all of our directors may be removed from office at any time prior to the expiration of his or her term of office, with or without cause, only by the affirmative vote of the holders of record of outstanding shares representing at least a majority of all the aggregate voting power of outstanding shares of our Common Stock then entitled to vote generally in the election of directors, voting together as a single class at a special meeting of our stockholders called expressly for that purpose; provided that during the two-year period following the closing date of the ViacomCBS Merger, the removal of our Chief Executive Officer requires the approval of the ViacomCBS Board by the “Requisite Approval” (as defined in the ViacomCBS certificate of incorporation incorporated by reference as an exhibit in this Annual Report on Form 10-K); provided further, that during the two-year period following the closing date, NAI and NAI Entertainment Holdings LLC are not permitted to remove any other persons who were members of the ViacomCBS Board at the effective time of the Merger in accordance with the Merger Agreement or who otherwise become members the ViacomCBS Board (other than any of the NAI Affiliated Directors (as defined in the bylaws)) without the Requisite Approval; and
in accordance with the General Corporation Law of the State of Delaware, our stockholders may act by written consent without a meeting if such stockholders hold the number of shares representing not less than the minimum number of votes that would be necessary to authorize or take such actions at a meeting at which all shares entitled to vote thereon were present and voted.
Accordingly, ViacomCBS stockholders who may have different interests are unable to affect the outcome of theany such corporate actions of the Company for so long as NAI retains voting control. For more information, see the Governance Agreement incorporated by reference as an exhibit in this Annual Report on Form 10-K.
Sales of NAI’s Sharesshares of ViacomCBS Common Stock, Could Adversely Affectsome of which are pledged to lenders, could adversely affect the Stock Pricestock price
At December 31, 2017,2019, NAI directly or indirectly owned approximately 79.5%79.4% of the Company’s votingshares of our Class A Common Stock outstanding, and approximately 10.2% of the shares of our Class A Common Stock and approximately 10.2% of the Company’s Class A Common Stock and non-votingour Class B Common Stock outstanding on a combined basis. Based on information received from NAI, NAI has pledged to its lenders a portion of shares of the Company’s votingour Class A commonCommon Stock and non-votingour Class B Common Stock owned directly or indirectly by NAI. The
At December 31, 2019, the aggregate number of shares of our Common Stock pledged by NAI representsto its lenders represented approximately 4.4%4.1% of the total outstanding shares of votingour Class A Common Stock and non-votingour Class B Common Stock, on a combined basis. TheAt December 31, 2019, the amount of the Company’s votingour Class A Common Stock whichthat NAI directly or indirectly ownsowned and which hasthat was not been pledged by NAI to its lenders representsrepresented approximately 59.6%64.0% of the Company’s total votingoutstanding shares of our Class A Common stock outstanding. Stock.
If there is a default on NAI’s debt obligations and the lenders foreclose on the collateral,pledged shares, the lenders
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our principal physical properties are beyond the Company’s control, include: actual or anticipated fluctuations in the Company’s operating results; changes in expectations as to the Company’s future financial performance or changes in financial estimates of securities analysts; success of the Company’s operating and growth strategies; investor anticipation of strategic, technological or regulatory threats, whether or not warranted by actual events; operating and stock price performance of other comparable companies; and realization of any of the risks described in these risk factors.below. In addition, the stock market has experienced volatility that often has been unrelated or disproportionate to the operating performance of particular companies. These broad marketwe own and industry fluctuations may adversely affectlease office, studio, production and warehouse space and broadcast, antenna and satellite transmission facilities throughout the trading prices of the Company’s common stock, regardless of the Company’s actual operating performance.
ViacomCBS
Our world headquarters is located at 1515 Broadway, New York, New York, where we lease approximately 1.4 million square feet for executive, administrative and business terms available to the Company, including limitations to which the Company contractually agreed in connection with the Company’s separation of former Viacom Inc. (“Former Viacom”) into two publicly traded entities, CBS Corporation and new Viacom Inc., which was completed on December 31, 2005 (the “Separation”).
We also arise if the Company and Viacom Inc. enter into any commercial arrangements with each other in the future. CBS Corp.’s certificate of incorporation contains provisions related to corporate opportunities that may be of interest to both the Company and Viacom Inc. CBS Corp.’s certificate of incorporation provides that in the event thatown a director, officer or controlling stockholder of the Company who is also a director, officer or controlling stockholder of Viacom Inc. acquires knowledge of a potential corporate opportunity for both the Company and Viacom Inc., such director, officer or controlling stockholder may present such opportunity to the Company or Viacom Inc. or both, as such director, officer or controlling stockholder deems appropriate in his or her sole discretion, and that by doing so such person will have satisfied his or her fiduciary duties to the Company and its stockholders. In addition, CBS Corp.’s certificate of incorporation provides that the Company renounces any interest in any such opportunity presented to Viacom Inc. These provisions create the possibility that a corporate opportunity of one of such companies may be used for the benefit of the other company.
We maintain facilities for our Global Business Services Center at our offices in Budapest, Hungary, where we lease approximately 44,000 square feet of space through 2023, and at our offices in Warsaw, Poland, where we lease approximately 50,000 square feet of space through 2025.
TV Entertainment
We own the CBS Broadcast Center complex located on approximately 3.7 acres at 524 West 57th Street, New York, New York, which consists of approximately 860,000 square feet of office and studio space. The Company also owns two
We own studio facilities in California: (a)at the CBS Studio Center at 4024 Radford Avenue, Studio City, California, located on approximately 40 acres,acres.
CBS Interactive occupies approximately 193,000 square feet of space at 235 Second Street, San Francisco, California, under a lease expiring in 2022.
We occupy approximately 106,000 square feet of office, production and (b) CBStechnical space at Television City, at 7800 Beverly Boulevard, Los Angeles, California locatedunder a lease expiring in 2024.
Cable Networks
In addition to occupying space at 1515 Broadway in New York, we occupy the following major office facilities:
Our Cable Networks business occupies approximately 277,000 square feet of office and production space at 345 Hudson Street, New York, New York, under a lease expiring in 2022.
Our Cable Networks business occupies approximately 210,000 square feet of office and production space at 1575 North Gower Street, Los Angeles, California, under a lease expiring in 2028.
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Our Cable Networks’ Network Operations Center in Hauppauge, New York contains approximately 65,000 square feet of floor space on approximately 25 acres. nine acres of owned land.
The Nickelodeon Animation Studio at 203-231 West Olive Avenue, Burbank, California contains approximately 180,000 square feet of studio and office space, leased under two leases expiring in 2036.
Nickelodeon’s Live Action Studio contains approximately 108,000 square feet of stage and office space at Burbank Studios, 3000 West Alameda Avenue, Burbank, California, under a lease expiring in 2024.
Showtime Networks leases approximately 230,000253,000 square feet at 1633 Broadway, New York, New York, under a lease which expiresexpiring in 2026. 2026 and leases approximately 56,000 square feet at The Lot, 1041 N. Formosa Avenue, West Hollywood, California, under a lease expiring in 2028.
Telefe occupies approximately 496,000 square feet of office, studio and production space, transmission facilities and for other ancillary uses at its owned and leased facilities in Buenos Aires, Argentina.
ViacomCBS Networks International occupies approximately 140,000 square feet of space at its owned and leased Hawley Crescent facilities in London.
Network 10 leases approximately 100,000 square feet of space at 1 Saunders Street, Pyrmont, New South Wales, Australia, under a lease expiring in 2023.
Filmed Entertainment
Paramount owns the Paramount Pictures Studio situated at 5555 Melrose Avenue, Los Angeles, California, located on approximately 62 acres of land, and containing approximately 1.85 million square feet of floor space used for executive, administrative and business offices, sound stages, production facilities, theatres, equipment facilities and other ancillary uses. Paramount has embarked on a planned 25-year expansion and revitalization project for the studio.
Publishing
Simon & Schuster leases approximately 300,000 square feet of office space at 1230 Avenue of the Americas, New York, New York, which lease runs to 2034. CBS Interactive leases approximately 283,000 square feet of space at 235 Second Street, San Francisco, California, under a lease which expiresexpiring in 2022. CBS Interactive subleases approximately 90,000 square feet of this space2034.
Item 3. Legal Proceedings.
The information set forth under the caption “Legal Matters” in Note 19 to third parties. The Companythe consolidated financial statements in “Item 8. Financial Statements and its subsidiaries also own and lease office, studio and warehouse space and broadcast, antenna and satellite transmission facilities throughout the U.S., Canada and several other foreign countries for its businesses. The Company considers its properties adequate for its present needs.Supplementary Data – Notes to Consolidated Financial Statements” is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
| Name | Age | Position |
| Shari E. Redstone | 65 | Non-Executive Chair, Director |
| Robert M. Bakish | 56 | President and Chief Executive Officer, Director |
| Candace K. Beinecke | 73 | Director |
| Barbara M. Byrne | 65 | Director |
| Brian Goldner | 56 | Director |
| Linda M. Griego | 72 | Director |
| Robert N. Klieger | 47 | Director |
| Judith A. McHale | 73 | Director |
| Ronald L. Nelson | 67 | Director |
| Charles E. Phillips, Jr. | 60 | Director |
| Susan Schuman | 60 | Director |
| Nicole Seligman | 63 | Director |
| Frederick O. Terrell | 65 | Director |
Shari E. Redstone has been a member of the ViacomCBS Board of Directors (the “Board”) since January 1994. She has served as the Non-Executive Chair of our Board since December 2019 and, prior to that, served as Non-Executive Vice Chair of the Board beginning in 2005 and as Non-Executive Vice Chair of the board of Viacom beginning in 2006. Ms. Redstone is Co-founder and Managing Partner of Advancit Capital, an investment firm launched in 2011 that focuses on early stage companies at the intersection of media, entertainment and technology, with investments in over 75 companies. Ms. Redstone has been President of NAI since 2000, and also serves as a director of NAI. Ms. Redstone brings to the Board her extensive experience in and a deep understanding of the entertainment industry, broad experience and talent managing a large business, extensive legal experience and her experience as President of NAI, including as one of its significant stockholders. Ms. Redstone is actively involved in a variety of charitable, civic, and educational organizations, including serving as a member of the board of trustees of The Paley Center for Media. She sits on the Board of Trustees of the Dana-Farber Cancer Institute. Ms. Redstone earned a BS from Tufts University and a JD and a Masters in Tax Law from Boston University. She practiced corporate law, estate planning and criminal law in the Boston area before joining NAI. Ms. Redstone is the daughter of Sumner M. Redstone.
Robert M. Bakish has been our President and Chief Executive Officer and a member of our Board since December 2019. Mr. Bakish served as President and Chief Executive Officer and a member of the board of Viacom from December 2016 to December 2019, having served as Acting President and Chief Executive Officer beginning earlier in 2016. Mr. Bakish joined Viacom’s predecessor (“Former Viacom”) in 1997 and held positions throughout the organization, including as President and Chief Executive Officer of Viacom International Media Networks and its predecessor company, MTV Networks International (“MTVNI”), from 2007 to 2016; President of MTVNI; Executive Vice President, Operations and Viacom Enterprises; Executive Vice President and Chief Operating Officer, MTV Networks Advertising Sales; and Senior Vice President, Planning, Development and Technology. Before joining Former Viacom, Mr. Bakish was a partner with Booz Allen Hamilton in its Media and Entertainment practice. Mr. Bakish has extensive knowledge and deep understanding of the Viacom business and the entertainment industry through various leadership positions at Viacom spanning approximately 20 years and culminating with President and Chief Executive Officer, and broad expertise overseeing global operations. Mr. Bakish has served as a director of Avid Technology, Inc. since 2009.
Candace K. Beinecke has been a member of our Board since September 2018. Ms. Beinecke is the Senior Partner of Hughes Hubbard & Reed LLP, a New York law firm, and is a practicing partner in Hughes Hubbard’s corporate department. In 1999, Ms. Beinecke became the first woman to Chair a major New York law firm. Ms. Beinecke also serves as the Lead Trustee of Vornado Realty Trust, the Chairperson of the Board of First Eagle Funds (a mutual fund
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family), and as a board member of ALSTOM (a public French transport company). As the long-time head of a top-ranked international law firm, Ms. Beinecke is well-recognized in the legal profession for her corporate governance and mergers and acquisitions expertise and brings to the Board extensive legal, governance, business and risk management experience. Ms. Beinecke’s breadth of director experience, which includes service as a lead trustee and chairperson, as well as service on other nominating and governance committees, a remuneration committee and an executive committee, gives her a deep understanding of public company governance.
Barbara M. Byrne has been a member of our Board since September 2018. Ms. Byrne is the former Vice Chairman, Investment Banking at Barclays PLC. During her more than 35 years of financial services experience, Ms. Byrne served as team leader for some of Barclay’s most important multinational corporate clients and was the primary architect of several of Barclays’ marquee transactions. Widely recognized as a leading investment banker and strategic advisor, she is a member of various industry councils and participates as a forum leader on strategic issues and trends facing the financial services sector and global markets. With this experience, Ms. Byrne brings to the Board important business and financial expertise in its deliberations on complex transactions, risk management, strategy and other financial matters.
Brian Goldner has been a member of our Board since September 2018. Mr. Goldner has served as the Chief Executive Officer of Hasbro, Inc. since 2008, and additionally has served as its Chairman of the Board since May 2015. In addition to being Chief Executive Officer, from 2008 to 2016, Mr. Goldner was also the President of Hasbro. Besides being a member of Hasbro’s board, he also served on the boards of The Gap, Inc. from 2016 to 2019 and Molson Coors Brewing Company from 2010 to 2016. Mr. Goldner brings to the Board significant leadership, operational and brand management experience from his executive positions at one of the leading public companies in his industry, where he was instrumental in transforming a traditional toy and game company into a global play and entertainment leader. With his direct experience in executing on strategies to differentiate Hasbro in a competitive global marketplace in response to industry evolution, he is well-positioned to advise on the strategic direction of the Company’s businesses. Further, Mr. Goldner’s service on other boards and board committees gives him a deep understanding of public company governance.
Linda M. Griego has been a member of our Board since March 2007. Ms. Griego has served, since 1986, as President and Chief Executive Officer of Griego Enterprises, Inc., a business management company. For more than 20 years, she oversaw the operations of Engine Co. No. 28, a prominent restaurant in downtown Los Angeles that she founded in 1988. From 1990 to 2000, Ms. Griego held a number of government-related appointments, including Deputy Mayor of the city of Los Angeles, President and Chief Executive Officer of the Los Angeles Community Development Bank, and President and Chief Executive Officer of Rebuild LA, the agency created to jump-start inner-city economic development following the 1992 Los Angeles riots. Over the past two decades, she has also served on a number of government commissions and boards of directors of nonprofit organizations, including current service on the boards of The Ralph M. Parsons Foundation, the MLK Health and Wellness, CDC, and the Charles R. Drew University of Medicine and Science. Ms. Griego has served as a director of publicly traded and private corporations, including serving as director of AECOM and the American Funds (7 funds). With the breadth of her leadership experience as a businesswoman, in the public sector through her multiple government appointments and extensive community-based participation in Los Angeles, an area where the Company has a significant presence, and on multiple not-for-profit boards, Ms. Griego provides the Board with financial and business acumen, as well as public policy expertise as it relates to business practices. Ms. Griego is also an experienced director, including through service on other audit, compensation and organization, and nominating and governance committees, with demonstrated expertise in the application of sound corporate governance principles.
Robert N. Klieger has been a member of our Board since July 2017. Mr. Klieger is a partner in the Los Angeles law firm Hueston Hennigan LLP. Mr. Klieger’s practice focuses on complex civil litigation and counseling in the areas of entertainment and intellectual property. Mr. Klieger represents motion picture studios, broadcast and cable television networks, production companies, video game publishers and high net worth individuals in the media and entertainment space, as well as clients in other industries including apparel, aviation and venture capital. Prior to joining Hueston Hennigan, Mr. Klieger was a partner at Irell & Manella LLP and a founding partner at Kendall Brill & Klieger LLP. Before beginning his career in private practice, Mr. Klieger served as a law clerk to the Honorable
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Cynthia Holcomb Hall of the United States Court of Appeals for the Ninth Circuit, and the Honorable William Matthew Byrne, Jr. of the United States District Court for the Central District of California. Mr. Klieger is recognized as one of the most prominent attorneys in the entertainment industry, with a practice focused on complex civil litigation and counseling in the areas of media, entertainment and intellectual property and clients that include leading enterprises in television, film and digital media. With his exceptional legal acumen and distinguished reputation for his trial practice and counsel, Mr. Klieger brings to the Board legal and strategic expertise in matters germane to the Company’s businesses and complex business transactions.
Judith A. McHale has been a member of our Board since December 2019 and, prior to that, served on the board of Viacom from August 2016 to December 2019. Ms. McHale is President and Chief Executive Officer of Cane Investments, LLC, a private investment company. Prior to joining Cane Investments in 2011, Ms. McHale served as the Under Secretary of State for Public Diplomacy and Public Affairs for the U.S. Department of State from 2009 to 2011. From 2004 to 2006, Ms. McHale served as the President and Chief Executive Officer of Discovery Communications, Inc., the parent company of Discovery Channel, and served as its President and Chief Operating Officer from 1995 to 2004. In 2006, Ms. McHale worked with private equity firm Global Environment Fund to launch the GEF/Africa Growth Fund, an investment vehicle focused on supplying expansion capital to small and medium-sized enterprises that provide consumer goods and services in emerging African markets. Ms. McHale has extensive experience leading a major media conglomerate with a background in operations and financial management, expertise in global affairs, experience in government affairs and extensive public company and corporate governance experience. She has served on the board of Ralph Lauren Corporation since 2011 and the board of Hilton Worldwide Holdings Inc. since 2013. She previously served on the boards of SeaWorld Entertainment, Inc., Host Hotel & Resorts, Inc., DigitalGlobe Inc., John Hancock Financial Services, Inc. and Potomac Electric Power Company.
Ronald L. Nelson has been a member of our Board since December 2019 and served on the board of Viacom from August 2016 to December 2019. Mr. Nelson served as a consultant to Avis Budget Group, Inc. until May 2019. Prior to that, he served as Executive Chairman of the Board of Avis Budget Group from 2016 to 2018 and as its Chairman and Chief Executive Officer from 2006 to 2015, and also served as Chief Operating Officer from 2010 to 2015. Prior to that, Mr. Nelson held several executive finance and operating roles, beginning in 2003 with Cendant Corporation, including as its Chief Financial Officer and President and a member of its board from 2003 to 2006. From 1994 to 2003, Mr. Nelson served as Co-Chief Operating Officer of DreamWorks SKG. Prior to that, he was Executive Vice President, Chief Financial Officer and a director at Paramount Communications, Inc., formerly Gulf + Western Industries, Inc. Mr. Nelson has extensive experience as a chief executive officer, chief financial officer and chief operating officer of major global companies, significant financial expertise, international business experience, public company and corporate governance experience and a long-standing background in the media industry. Mr. Nelson has served on the board of Hanesbrands Inc. since 2008 and as its Non-Executive Chairman since 2019, and on the board of Wyndham Hotels & Resorts, Inc. since 2019. He previously served on the board of Convergys.
Charles E. Phillips, Jr. has been a member of our Board since December 2019 and served on the board of Viacom from January 2006 to December 2019 and, prior to that, on the board of Former Viacom beginning in 2004. Mr. Phillips is Chairman of Infor, Inc., a multi-billion dollar enterprise software company and served as its Chief Executive Officer from 2010 to 2019. He was a President of Oracle Corporation from 2003 to 2010 and served as a member of its Board of Directors and Executive Management Committee from 2004 to 2010. Prior to Oracle, Mr. Phillips was a managing director at Morgan Stanley in the Technology Group and served on its Board of Directors. Mr. Phillips has extensive experience as a senior executive in a large, multinational corporation, financial industry background and financial and analytical expertise, significant public company and corporate governance experience, expertise in technology issues and familiarity with issues facing media, new media and intellectual property-driven companies and a deep knowledge of the Viacom business. He is a member of the Board of Directors of the Federal Reserve Bank of New York, the Apollo Theater, Business Executives for National Security and the New York Police Foundation. He served on President Obama’s Economic Recovery Board, led by Paul Volcker, and is a member of the Council on Foreign Relations.
Susan Schumanhas been a member of our Board since September 2018. Ms. Schuman is the Chief Executive Officer and Co-Founder of SYPartners LLC, a consultancy firm that partners with chief executive officers and their
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leadership teams undergoing business and cultural transformation. Over the past 20 years, Ms. Schuman has built and led SYPartners, working with executives at many high-profile companies and organizations. This experience in advising on business, organization and cultural transformation, including new value creation strategies, positions Ms. Schuman as a skilled advisor to the Board on the strategic and transformational direction of the Company.
Nicole Seligman has been a member of our Board since December 2019 and, prior to that, served on the board of Viacom from August 2016 to December 2019. Until March 2016, Ms. Seligman served as the President of Sony Entertainment, Inc. (beginning in 2014) and of Sony Corporation of America (beginning in 2012), and as Senior Legal Counsel of Sony Group (beginning in 2014). Ms. Seligman previously served as Executive Vice President and General Counsel of Sony Corporation from 2005 to 2014. She joined Sony in 2001 and served in a variety of other capacities during her tenure, including as a Corporate Executive Officer and Group Deputy General Counsel of Sony Corporation, and as General Counsel and an Executive Vice President at Sony Corporation of America, a subsidiary of Sony Corporation. Prior to joining Sony Corporation of America, Ms. Seligman was a partner in the litigation practice at Williams & Connolly LLP in Washington, D.C., where she worked on a broad range of complex civil and criminal matters and counseled a wide range of clients, including President William Jefferson Clinton and Lt. Col. Oliver North. Ms. Seligman joined Williams & Connolly in 1985. Ms. Seligman served as law clerk to Justice Thurgood Marshall on the Supreme Court of the United States from 1984 to 1985 and as law clerk to Judge Harry T. Edwards at the U.S. Court of Appeals for the District of Columbia Circuit from 1983 to 1984. Ms. Seligman has extensive media industry experience with various leadership roles at a major media conglomerate, public company and corporate governance experience, and exceptional achievements in the legal profession. Ms. Seligman has served on the board of Far Point Acquisition Corporation since 2018 and the board of MeiraGTx Holdings plc since 2019, and has been a Non-Executive Director of WPP plc since 2014 and its Senior Independent Director since 2016.
Frederick O. Terrell has been a member of our Board since December 2018. Mr. Terrell served as Executive Vice Chairman of Investment Banking and Capital Markets at Credit Suisse and later Senior Advisor from January 2018 to November 2018. From 2010 to 2017 he was Vice Chairman of Investment Banking and Capital Markets at Credit Suisse. His investment banking career began in 1983 as an Associate with The First Boston Corporation. During his accomplished career in the financial services sector spanning more than 25 years, Mr. Terrell was responsible for Credit Suisse’s global banking relationships with some of its most high-profile clients. From 2000 to 2008 he was the Managing Partner of Provender Capital Group, LLC a private equity firm focusing on investments in emerging companies. He has served as a member of the Board of Directors of the New York Life Insurance Company, Wellchoice Inc. (formerly Empire Blue Cross Blue Shield) and Carver Bancorp, Inc. His experience also includes past and present service on multiple not-for-profit boards, including the Yale School of Management, The Partnership for New York City, The Partnership Fund for New York City, Coro New York Leadership Center, Big Brothers Big Sisters of New York City and the Center for a New American Security. He is a member of the Council on Foreign Relations, The Economic Club of New York and the Investment Committee of the Rockefeller Foundation. Based on his extensive banking and corporate advisory experience, Mr. Terrell brings significant business and financial expertise to the Board in its deliberations on corporate strategy, complex transactions and other financial matters.
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OUR EXECUTIVE OFFICERS
ViacomCBS’ executive officers as of February 18, 2020 are as follows:
| Name | Age | |||
| 56 | ||||
| 51 | Executive Vice President, | |||
| 55 | Executive Vice President, Controller and Chief Accounting Officer | |||
| 54 | ||||
| 55 | ||||
| Julia Phelps | 42 | Executive Vice President, Chief | ||
| Nancy Phillips | 52 | Executive Vice President, Chief People Officer | ||
| Christina Spade | 50 | Executive Vice President, Chief Financial Officer | ||
See “Our Board of the executive officers of the Company is related to any other executive officer or director by blood, marriage or adoption.Directors” for Mr. Bakish’s biography.
Katherine Gill-Charesthas been our Executive Vice President, Controller and General Counsel of CBS Broadcasting Inc., a position he has heldChief Accounting Officer since joining the Company in 2004. Mr. Anschell previously was a partner with the law firm, White O’Connor Curry in Los Angeles, California.
Julia Phelps has been our Executive Vice President, Chief AccountingCommunications and Corporate Marketing Officer since December 2019. Prior to that, she served as Executive Vice President, Communications, Culture and Marketing of the Company since August 2014. Previously, heViacom beginning in 2017, having previously served as Senior Vice President, ControllerCommunications and Chief Accounting OfficerCulture of the Company since October 2011,Viacom beginning earlier in 2017. Prior to that, she served as Executive Vice President Deputy Controller of the Company since March 2010 and Vice President, Assistant Controller since January 1, 2006. Prior to that, Mr. Liding joined FormerCommunications for Viacom
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International Media Networks beginning in 1995 and2012, after having served as Vice President of Financial ReportingCorporate Communications for Viacom. Ms. Phelps joined Viacom in 2005 from 2002 through 2005.DeVries Public Relations, a New York-based communications agency.
Christina Spade has been our Executive Vice President, Chief Financial Officer since October 2018. Prior to that, she served as Executive Vice President, Chief Financial Officer and Strategy for U.S. Supreme Court Justice Thurgood Marshall.Showtime Networks Inc. (“Showtime”) beginning in 2013. Previously, Ms. Spade served as Senior Vice President, Affiliate Finance and Business Operations for Showtime beginning in 2003. Prior to joining Showtime in 1997, Ms. Spade was an Audit Manager with PricewaterhouseCoopers LLP in its Entertainment, Media and Communications practice.
Part II
| Item 5. | Market for |
On December 19, 2019, we declared a quarterly cash dividend of $.24 per share range of high and low sales prices for CBS Corporation’son our Class A and Class B Common Stock, as reportedresulting in total dividends of $150 million, which were paid on January 10, 2020. Prior to the NYSE.Merger, Viacom and CBS each declared a quarterly cash dividend during each of the first three quarters of 2019 and during each of the four quarters of 2018 and 2017. During 2019, CBS declared total per share dividends of $.54, resulting in total dividends of $205 million. For each of the years ended December 31, 2018 and 2017, CBS declared total per share dividends of $.72, resulting in total annual dividends of $274 million and $289 million, respectively. During 2019, Viacom declared total per share dividends of $.60, resulting in total dividends of $245 million. For each of the years ended December 31, 2018 and 2017, Viacom declared total per share dividends of $.80, resulting in total annual dividends of $325 million and $323 million, respectively.
| Voting Class A | Non-Voting Class B | ||||||||||||||
| Common Stock | Common Stock | ||||||||||||||
| High | Low | High | Low | ||||||||||||
| 2017 | |||||||||||||||
| 1st quarter | $ | 70.68 | $ | 62.25 | $ | 69.60 | $ | 61.95 | |||||||
| 2nd quarter | $ | 71.07 | $ | 61.01 | $ | 70.10 | $ | 59.72 | |||||||
| 3rd quarter | $ | 68.86 | $ | 57.45 | $ | 68.75 | $ | 56.91 | |||||||
| 4th quarter | $ | 61.70 | $ | 53.00 | $ | 60.77 | $ | 52.75 | |||||||
| 2016 | |||||||||||||||
| 1st quarter | $ | 59.99 | $ | 46.86 | $ | 55.38 | $ | 41.36 | |||||||
| 2nd quarter | $ | 61.77 | $ | 53.13 | $ | 57.89 | $ | 50.53 | |||||||
| 3rd quarter | $ | 61.51 | $ | 49.92 | $ | 58.22 | $ | 48.88 | |||||||
| 4th quarter | $ | 66.99 | $ | 55.27 | $ | 65.09 | $ | 54.35 | |||||||
On February 1, 2018, the Company12, 2020, we announced a quarterly cash dividend of $.18$.24 per share on itsour Class A and Class B Common Stock, payable on April 1, 2018. The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2017 and 2016, resulting in total annual dividends of $289 million, or $.72 per share, for 2017 and $294 million, or $.66 per share, for 2016. CBS Corp.2020. We currently expectsexpect to continue to pay a regular cash dividend to itsour stockholders.
In November 2010, the Companywe announced that itsour Board of Directors approved a program to repurchase $1.5 billion of the Company’sour common stock in open market purchases or other types of transactions (including accelerated stock repurchases or privately negotiated transactions). Since then, various increases totaling $16.4 billion have been approved and announced, including most recently, an increase to the share repurchase program to a total availability of $6.0 billion on July 28, 2016. Below is a summary of CBS Corp.’sour purchases of itsour Class B Common Stock during the three months ended December 31, 2017.2019.
| (in millions, except per share amounts) | Total Number of Shares Purchased (a) | Average Price Per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Remaining Authorization | |||||||||||||||
| October 1, 2017 - October 31, 2017 | — | $ | — | — | $ | 3,057 | |||||||||||||
| November 1, 2017 - November 30, 2017 | 17.9 | $ | 56.40 | (a) | $ | 3,057 | |||||||||||||
| December 1, 2017 - December 31, 2017 | — | $ | — | — | $ | 3,057 | |||||||||||||
| Total | 17.9 | (a) | $ | 3,057 | |||||||||||||||
| (in millions, except per share amounts) | Total Number of Shares Purchased | Average Price Per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Remaining Authorization | |||||||||||||||
| October 1, 2019 - October 31, 2019 | — | $ | — | — | $ | 2,457 | |||||||||||||
| November 1, 2019 - November 30, 2019 | — | $ | — | — | $ | 2,457 | |||||||||||||
| December 1, 2019 - December 31, 2019 | 1.2 | $ | 40.78 | 1.2 | $ | 2,408 | |||||||||||||
| Total | 1.2 | 1.2 | $ | 2,408 | |||||||||||||||
As of February 12, 2018,14, 2020, there were approximately 1,4372,227 record holders of CBS Corp.our Class A Common Stock and approximately 19,54131,784 record holders of CBS Corp.our Class B Common Stock.
Performance Graph
The following graph compares the cumulative total stockholder return on CBS Corp.of our Class A and Class B Common Stock with the cumulative total return on the companies listed in the Standard & Poor’s 500 Stock Index (“S&P 500”) and a Peer Group of companies identified below.
On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the surviving company (the “Merger”). At the effective time of the Merger, the combined company changed its name to ViacomCBS Inc. Accordingly, the performance graph also includes Viacom Class B Common Stock.
The performance graph assumes $100 invested on December 31, 20122014 in each of theour Class A and Class B Common Stock, of CBS Corp.,Viacom’s Class B Common Stock, the S&P 500 and the Peer Group identified below, including reinvestment of dividends, through the calendar year ended December 31, 2017.2019.
Total Cumulative Stockholder Return
For Five-Year Period EndingEnded December 31, 20172019
| December 31, | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| CBS Corp. Class A Common Stock | $100 | $169 | $151 | $141 | $178 | $166 |
| CBS Corp. Class B Common Stock | $100 | $169 | $148 | $128 | $174 | $164 |
| S&P 500 | $100 | $132 | $151 | $153 | $171 | $206 |
Peer Group (a) | $100 | $151 | $181 | $171 | $190 | $202 |
| December 31, | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| Class A Common Stock | $100 | $94 | $118 | $110 | $82 | $85 |
| Class B Common Stock | $100 | $86 | $118 | $110 | $83 | $81 |
Viacom Class B Common Stock (a) | $100 | $56 | $50 | $45 | $38 | $38 |
| S&P 500 | $100 | $101 | $114 | $138 | $132 | $174 |
Peer Group (b) | $100 | $98 | $99 | $108 | $123 | $154 |
(a) At the effective time of the Merger, each share of Viacom Class B Common Stock was converted into 0.59625 shares of ViacomCBS Class B Common Stock. Accordingly, the performance graph reflects the performance of Viacom Class B Common Stock through December 4, 2019, the date of the Merger, and the performance of ViacomCBS Class B Common Stock from December 4, 2019 through December 31, 2019.
(b) The Peer Group consists of the following companies: The Walt Disney Company (“Disney”), Fox Corporation and Discovery Inc. In March 2019, Disney acquired Twenty-First Century Fox Inc. and Time Warner Inc.(“21st Century Fox”) following the spin-off of Fox Corporation from 21st Century Fox. The performance graph reflects the performance of 21st Century Fox stock through the date of such transactions.
| Item 6. | Selected Financial Data. |
(In millions, except per share amounts)
Year Ended December 31, (a) | |||||||||||||||||||
2017 (b) (c) (d) (e) | 2016 (b) (c) | 2015 (b) (f) | 2014 (b) (e) | 2013 | |||||||||||||||
| Revenues | $ | 13,692 | $ | 13,166 | $ | 12,671 | $ | 12,519 | $ | 12,713 | |||||||||
| Operating income | $ | 2,423 | $ | 2,621 | $ | 2,658 | $ | 2,590 | $ | 2,663 | |||||||||
| Net earnings from continuing operations | $ | 1,309 | $ | 1,552 | $ | 1,554 | $ | 1,151 | $ | 1,520 | |||||||||
Net earnings (loss) from discontinued operations, net of tax | $ | (952 | ) | $ | (291 | ) | $ | (141 | ) | $ | 1,808 | $ | 359 | ||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | 1,413 | $ | 2,959 | $ | 1,879 | |||||||||
| Basic net earnings (loss) per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | 3.26 | $ | 3.50 | $ | 3.21 | $ | 2.09 | $ | 2.50 | |||||||||
Net earnings (loss) from discontinued operations | $ | (2.37 | ) | $ | (.66 | ) | $ | (.29 | ) | $ | 3.29 | $ | .59 | ||||||
| Net earnings | $ | .89 | $ | 2.84 | $ | 2.92 | $ | 5.38 | $ | 3.09 | |||||||||
| Diluted net earnings (loss) per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | 3.22 | $ | 3.46 | $ | 3.18 | $ | 2.05 | $ | 2.44 | |||||||||
Net earnings (loss) from discontinued operations | $ | (2.34 | ) | $ | (.65 | ) | $ | (.29 | ) | $ | 3.22 | $ | .58 | ||||||
| Net earnings | $ | .88 | $ | 2.81 | $ | 2.89 | $ | 5.27 | $ | 3.01 | |||||||||
| Dividends per common share | $ | .72 | $ | .66 | $ | .60 | $ | .54 | $ | .48 | |||||||||
| At Year End: | |||||||||||||||||||
| Total assets: | |||||||||||||||||||
| Continuing operations | $ | 20,830 | $ | 19,642 | $ | 18,695 | $ | 18,372 | $ | 17,191 | |||||||||
| Discontinued operations | 13 | 4,596 | 5,070 | 5,563 | 9,014 | ||||||||||||||
| Total assets | $ | 20,843 | $ | 24,238 | $ | 23,765 | $ | 23,935 | $ | 26,205 | |||||||||
| Total debt: | |||||||||||||||||||
| Continuing operations | $ | 10,162 | $ | 9,375 | $ | 8,448 | $ | 7,112 | $ | 6,403 | |||||||||
| Discontinued operations | — | 1,345 | — | — | 14 | ||||||||||||||
| Total debt | $ | 10,162 | $ | 10,720 | $ | 8,448 | $ | 7,112 | $ | 6,417 | |||||||||
| Total Stockholders’ Equity | $ | 1,978 | $ | 3,689 | $ | 5,563 | $ | 6,970 | $ | 9,966 | |||||||||
Year Ended December 31, (a) | |||||||||||||||||||
2019 (c) | 2018 (d) | 2017 (e) (h) | 2016 (f) (h) | 2015 (g) (h) | |||||||||||||||
| Revenues | $ | 27,812 | $ | 27,250 | $ | 26,535 | $ | 25,685 | $ | 25,559 | |||||||||
| Operating income | $ | 4,273 | $ | 5,204 | $ | 5,341 | $ | 5,297 | $ | 5,708 | |||||||||
Net earnings from continuing operations (ViacomCBS and noncontrolling interests) | $ | 3,301 | $ | 3,460 | $ | 3,320 | $ | 2,970 | $ | 3,506 | |||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 3,270 | $ | 3,423 | $ | 3,268 | $ | 2,935 | $ | 3,427 | |||||||||
Net earnings from continuing operations per common share attributable to ViacomCBS | |||||||||||||||||||
| Basic | $ | 5.32 | $ | 5.55 | $ | 5.11 | $ | 4.32 | $ | 4.75 | |||||||||
| Diluted | $ | 5.30 | $ | 5.51 | $ | 5.05 | $ | 4.28 | $ | 4.71 | |||||||||
| Dividends per common share: | |||||||||||||||||||
| ViacomCBS Inc. (formerly CBS Corporation) | $ | .78 | $ | .72 | $ | .72 | $ | .66 | $ | .60 | |||||||||
Viacom Inc. (b) | $ | .60 | $ | .80 | $ | .80 | $ | 1.20 | $ | 1.53 | |||||||||
| At Year End: | |||||||||||||||||||
| Total assets | $ | 49,519 | $ | 44,497 | $ | 43,503 | $ | 47,383 | $ | 45,922 | |||||||||
| Total debt | $ | 18,719 | $ | 19,113 | $ | 20,351 | $ | 21,675 | $ | 21,015 | |||||||||
| Total ViacomCBS stockholders’ equity | $ | 13,207 | $ | 10,449 | $ | 8,519 | $ | 8,235 | $ | 9,311 | |||||||||
| Total equity | $ | 13,289 | $ | 10,503 | $ | 8,600 | $ | 8,286 | $ | 9,369 | |||||||||
(a) On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the surviving company (the “Merger”). At the effective time of the Merger, the combined company changed its name to ViacomCBS Inc. The Merger has been accounted for as a transaction between entities under common control and therefore, the net assets of Viacom were combined with those of CBS at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented.
(b) Amounts reflect the historical dividends of Viacom Inc. and have not been adjusted for the conversion to ViacomCBS shares in connection with the Merger.
(c) For 2019, the following items affected the comparability of results: costs for restructuring and other corporate matters, including costs related to the Merger, of $775 million ($641 million, net of tax); programming charges of $589 million ($447 million, net of tax); a gain on sale of assets of $549 million($386 million, net of tax); and discrete tax benefits of $827 million.
(d) For 2018, the following items affected the comparability of results: costs for restructuring and other corporate matters of $490 million ($374 million, net of tax); programming charges of $162 million ($123 million, net of tax); and discrete tax benefits of $297 million.
(e) For 2017, the following items affected the comparability of results: restructuring charges of $258 million ($163 million, net of tax); programming charges of $144 million ($94 million, net of tax); a gain on sale of assets of $146 million ($130 million, net of tax); a gain on the sale of EPIX of $285 million ($189 million, net of tax); a pension settlement charge of $352 million ($237 million, net of tax); and discrete tax benefits of $321 million.
(f) Results for 2016 included costs for restructuring and other corporate matters of $286 million ($182 million, net of tax) and a pension settlement charge of $211 million ($130 million, net of tax).
(g) Results for 2015 included programming charges of $578 million ($383 million, net of tax); costs for restructuring and other corporate matters of $287 million ($186 million, net of tax); and a gain on sale of assets of $139 million ($131 million, net of tax).
(h) On November 16, 2017, CBS Corporation (the “Company” or “CBS Corp.”)we completed the disposition of CBS Radio Inc. (“CBS Radio”) through a tax-free split-off. CBS Radio has been presented as a discontinued operation in the Company’s consolidated financial statements for all periods presented.Also included in discontinued operations is CBS Outdoor Americas Inc., which was disposed of in 2014, and Outdoor Europe, which was sold in 2013.
| Item 7. | Management’s Discussion and Analysis of Results of Operations and Financial Condition. (Tabular dollars in millions, except per share amounts) |
Management’s discussion and analysis of the results of operations and financial condition of CBS Corporation (together with its consolidated subsidiaries, unless the context otherwise requires, the “Company” or “CBS Corp.”)ViacomCBS Inc. should be read in conjunction with the consolidated financial statements and related notes. References in this document to “ViacomCBS,” the “Company,” “we,” “us” and “our” refer to ViacomCBS Inc. 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—The overview section provides a summary of ViacomCBS and our business and operational highlights. |
| • | Consolidated Results of Operations—The consolidated results of operations section provides an analysis of our results on a consolidated basis for the three years ended December 31, 2019. |
| • | Segment Results of Operations—The segment results of operations section provides an analysis of our results on a reportable segment basis for the three years ended December 31, 2019. |
| • | Liquidity and Capital Resources—The liquidity and capital resources section provides a discussion of our cash flows for the three years ended December 31, 2019, and of our outstanding debt, commitments and contingencies existing as of December 31, 2019. |
| • | Critical Accounting Policies—The critical accounting policies section provides 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—The legal matters section discusses our legal matters and other litigation to which we are a party. |
| • | Market Risk—The market risk section discusses how we manage exposure to market and interest rate risks. |
Overview
Merger with Viacom Inc.
On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the surviving company (the “Merger”). At the effective time of the Merger (the “Effective Time”), the combined company changed its name to ViacomCBS Inc. (“ViacomCBS”).
At the Effective Time, (1) each share of Viacom Class A Common Stock issued and outstanding immediately prior to the Effective Time, other than shares held directly by Viacom as treasury shares or held by CBS, was converted automatically into 0.59625 shares of ViacomCBS Class A Common Stock, and (2) each share of Viacom Class B Common Stock issued and outstanding immediately prior to the Effective Time, other than shares held directly by Viacom as treasury shares or held by CBS, was converted automatically into 0.59625 shares of ViacomCBS Class B Common Stock (together with ViacomCBS Class A Common Stock, the “ViacomCBS Common Stock”). At the Effective Time, each share of CBS Class A Common Stock and each share of CBS Class B Common Stock (together with CBS Class A Common Stock, the “CBS Common Stock”) issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of ViacomCBS Class A Common Stock and ViacomCBS Class B Common Stock, respectively, and was not affected by the Merger.
Following the Merger, the CBS Television Network, cable networks, content production and distribution, television stations, internet-based businesses, and consumer publishing. The Company’s principal strategy is to create and acquire premium content that is widely accepted by audiences and generate both advertising and non-advertising revenuesCommon Stock was delisted from the distributionNew York Stock Exchange and the Viacom Common Stock ceased trading on the Nasdaq Stock Market LLC (“Nasdaq”). On December 5, 2019, ViacomCBS
Management’s Discussion and Analysis of this content
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Class A Common Stock and ViacomCBS Class B Common Stock were listed on multiple media platformsNasdaq and to various geographic locations. began trading under the ticker symbols VIACA and VIAC, respectively.
The Company continues to increase its investment in premium content to enhance its opportunitiesMerger is being accounted for revenue growth, which include exhibitingas a transaction between entities under common control as National Amusements, Inc. (“NAI”) was the Company’s contentcontrolling stockholder of each of CBS and Viacom (and remains the controlling stockholder of ViacomCBS). The net assets of Viacom have been combined with those of CBS at their historical carrying amounts and the companies have been presented on multiple digital platforms, including the Company’s owned digital streaming services as well as third-party live television streaming offerings; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”) and television stations affiliated with the CBS Television Network. The Company also seeks to grow its advertising revenues by monetizinga combined basis for all content viewership as industry measurements evolve to reflect viewers’ changing habits. The Company’s continued ability to capitalize on these and other emerging opportunities will provide it with incremental advertising and non-advertising revenues.periods presented.
Operational Highlights 20172019 vs. 20162018
| Consolidated results of operations | Increase/(Decrease) | ||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| GAAP: | |||||||||||||||
| Revenues | $ | 13,692 | $ | 13,166 | $ | 526 | 4 | % | |||||||
| Operating income | $ | 2,423 | $ | 2,621 | $ | (198 | ) | (8 | )% | ||||||
| Net earnings from continuing operations | $ | 1,309 | $ | 1,552 | $ | (243 | ) | (16 | )% | ||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | (904 | ) | (72 | )% | ||||||
| Diluted EPS from continuing operations | $ | 3.22 | $ | 3.46 | $ | (.24 | ) | (7 | )% | ||||||
| Diluted EPS | $ | .88 | $ | 2.81 | $ | (1.93 | ) | (69 | )% | ||||||
Non-GAAP: (a) | |||||||||||||||
| Adjusted operating income | $ | 2,819 | $ | 2,861 | $ | (42 | ) | (1 | )% | ||||||
| Adjusted net earnings from continuing operations | $ | 1,705 | $ | 1,663 | $ | 42 | 3 | % | |||||||
| Adjusted net earnings | $ | 1,791 | $ | 1,840 | $ | (49 | ) | (3 | )% | ||||||
| Adjusted diluted EPS from continuing operations | $ | 4.19 | $ | 3.71 | $ | .48 | 13 | % | |||||||
| Adjusted diluted EPS | $ | 4.40 | $ | 4.11 | $ | .29 | 7 | % | |||||||
| Consolidated results of operations | Increase/(Decrease) | ||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| GAAP: | |||||||||||||||
| Revenues | $ | 27,812 | $ | 27,250 | $ | 562 | 2 | % | |||||||
| Operating income | $ | 4,273 | $ | 5,204 | $ | (931 | ) | (18 | )% | ||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 3,270 | $ | 3,423 | $ | (153 | ) | (4 | )% | ||||||
Diluted EPS from continuing operations attributable to ViacomCBS | $ | 5.30 | $ | 5.51 | $ | (.21 | ) | (4 | )% | ||||||
| Net cash flow provided by operating activities | $ | 1,230 | $ | 3,464 | $ | (2,234 | ) | (64 | )% | ||||||
Non-GAAP: (a) | |||||||||||||||
| Adjusted OIBDA | $ | 5,531 | $ | 6,289 | $ | (758 | ) | (12 | )% | ||||||
Adjusted net earnings from continuing operations attributable to ViacomCBS | $ | 3,090 | $ | 3,646 | $ | (556 | ) | (15 | )% | ||||||
Adjusted diluted EPS from continuing operations attributable to ViacomCBS | $ | 5.01 | $ | 5.87 | $ | (.86 | ) | (15 | )% | ||||||
| Free cash flow | $ | 877 | $ | 3,111 | $ | (2,234 | ) | (72 | )% | ||||||
(a) See pages II-7II-6 - II-8 and II-8II-33 for reconciliations of adjusted results to the most directly comparable financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”).
For 2017,2019, revenues grew 4%increased 2% to an all-time high$27.81 billion from $27.25 billion in 2018, driven by CBS’ broadcast of $13.69 billion, led by strongSuper Bowl LIII in 2019, growth from affiliate our streaming services, which include CBS All Access, Pluto TVand the Showtime streaming subscription feeoffering (“Showtime OTT”), and higher content licensing revenues which increased 26%, driven by higher station affiliation fees and retransmission revenues; Showtime Networks’ distributionthe production of the Floyd Mayweather/Conor McGregor pay-per-view boxing event; and growth from new digital initiatives, including the Company’s owned streaming subscription services, CBS All Access and the Showtime digital streaming subscription service, and third-party live television streaming services. Growth in content licensing and distribution revenues also contributed to the revenue increase, and was driven by higher licensing sales.programming for third parties. These increases were partially offset by lower advertisingtheatrical revenues, mainly resulting fromprimarily due to the benefit to 2016 from the broadcast of Super Bowl 50 on CBSdifficult comparison against Mission: Impossible - Fallout in 2018, and recordlower political advertising sales duringas a result of the 2016 Presidential election cycle.midterm elections in 2018. Foreign exchange rate changes had a 1-percentage point unfavorable impact on the revenue comparison.
Operating income decreased 18% to $4.27 billion from $5.20 billion in 2018. This comparison was impacted by items identified as affecting comparability, including restructuring charges, costs related to the Merger and other corporate matters, programming charges and gains on the sale of assets. Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) decreased 12%, primarily reflecting an increased investment in content, including a higher number of series produced for exhibition on our properties as well as for third parties. Net earnings from continuing operations attributable to ViacomCBS for 2019 were $3.27 billion, or $5.30 per diluted share, compared with $3.42 billion, or $5.51 per diluted share, for 2018. This comparison was impacted by the aforementioned items as well as other items identified as affecting comparability set forth in the section “Reconciliation of Non-GAAP Measures” below. Adjusted net earnings from continuing operations attributable to ViacomCBS decreased 15% and adjusted diluted earnings per share (“EPS”) from continuing operations decreased 15%to $5.01 for 2019, driven by the lower Adjusted OIBDA. Adjusted OIBDA, adjusted net earnings from continuing operations attributable to ViacomCBS and adjusted diluted EPS from continuing operations are non-GAAP financial measures. See pages II-6
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Total Number of Shares (in millions) | Average Price Per Share | Dollar Value of Shares Repurchased | Remaining Authorization | |||||||||||||||||||
| Share repurchase program | 16.2 | $ | 64.70 | $ | 1,050 | $ | 3,057 | |||||||||||||||
| Shares retired in split-off of CBS Radio | 17.9 | $ | 56.40 | 1,007 | ||||||||||||||||||
| Total | 34.1 | $ | 60.35 | $ | 2,057 | |||||||||||||||||
| Increase/(Decrease) | ||||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | ||||||||||||
| Dividends per share | $ | .72 | $ | .66 | $ | .06 | 9 | % | ||||||||
| Total dividends | $ | 289 | $ | 294 | $ | (5 | ) | (2 | )% | |||||||
Reconciliation of Non-GAAP Measures
Results for the years ended December 31, 2019, 2018 and 2017 included certain items identified as affecting comparability. Adjusted OIBDA, adjusted earnings from continuing operations before income taxes, adjusted provision for income taxes, adjusted net earnings from continuing operations attributable to ViacomCBS and 2016 included discrete items that were not part ofadjusted diluted EPS from continuing operations (together, the normal course of operations. The following tables present non-GAAP financial measures, which“adjusted measures”) exclude the impact of these discrete items reconciled to the most directly comparable financialand are measures of performance not calculated in accordance with GAAP. The Company believes that presenting its financial results adjustedWe use these measures to, among other things, evaluate our operating performance. These measures are among the primary measures used by management for the impactplanning and forecasting of discrete items isfuture 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 it allowsthey allow investors to view performance in a manner similar to the method used by the Company’s management and providesour 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 underlyingadjusted 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, benefit (provision) for income taxes, net earnings from continuing operations attributable to ViacomCBS 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 Company.adjusted measures to their most directly comparable financial measures in accordance with GAAP.
| Year Ended December 31, | 2017 | 2016 | |||||
| Operating income | $ | 2,423 | $ | 2,621 | |||
| Discrete items: | |||||||
| Pension settlement charges | 352 | 211 | |||||
| Restructuring and merger and acquisition-related costs | 63 | 38 | |||||
Other operating items, net (a) | (19 | ) | (9 | ) | |||
| Adjusted operating income | $ | 2,819 | $ | 2,861 | |||
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Operating Income (GAAP) | $ | 4,273 | $ | 5,204 | $ | 5,341 | |||||
Depreciation and amortization (a) | 443 | 433 | 443 | ||||||||
Restructuring and other corporate matters (b) | 775 | 490 | 258 | ||||||||
Programming charges (b) | 589 | 162 | 144 | ||||||||
Gain on sale of assets (b) | (549 | ) | — | (146 | ) | ||||||
| Adjusted OIBDA (Non-GAAP) | $ | 5,531 | $ | 6,289 | $ | 6,040 | |||||
(a) 2019 includes an impairment charge of $20 million to reduce the carrying value of intangible assets.
(b) See notes on the following tables for additional information on items affecting comparability.
| Net Earnings from Continuing Operations | Diluted EPS from Continuing Operations (f) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Reported (GAAP) | $ | 1,309 | $ | 1,552 | $ | 3.22 | $ | 3.46 | ||||||||
| Discrete items: | ||||||||||||||||
Pension settlement charges (net of a tax benefit of $115 million in 2017 and $81 million in 2016) | 237 | 130 | .58 | .29 | ||||||||||||
| Restructuring and merger and acquisition-related costs (net of a tax benefit of $24 million in 2017 and $15 million in 2016) | 39 | 23 | .10 | .05 | ||||||||||||
Other operating items, net (net of a tax benefit of $4 million in 2017 and a tax provision of $4 million in 2016) (a) | (23 | ) | (5 | ) | (.06 | ) | (.01 | ) | ||||||||
Loss on early extinguishment of debt (net of a tax benefit of $18 million) | 31 | — | .08 | — | ||||||||||||
Write-down of investments (net of a tax benefit of $3 million in 2017) (b) | 5 | 10 | .01 | .02 | ||||||||||||
Federal tax reform (c) | 129 | — | .32 | — | ||||||||||||
Tax items (d) | (22 | ) | (47 | ) | (.05 | ) | (.10 | ) | ||||||||
| Adjusted (Non-GAAP) | $ | 1,705 | $ | 1,663 | $ | 4.19 | $ | 3.71 | ||||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
| Net Earnings | Diluted EPS (f) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Reported (GAAP) | $ | 357 | $ | 1,261 | $ | .88 | $ | 2.81 | ||||||||
| Discrete items: | ||||||||||||||||
Pension settlement charges (net of a tax benefit of $115 million in 2017 and $81 million in 2016) | 237 | 130 | .58 | .29 | ||||||||||||
| Restructuring and merger and acquisition-related costs (net of a tax benefit of $24 million in 2017 and $15 million in 2016) | 39 | 23 | .10 | .05 | ||||||||||||
Other operating items, net (net of a tax benefit of $4 million in 2017 and a tax provision of $4 million in 2016) (a) | (23 | ) | (5 | ) | (.06 | ) | (.01 | ) | ||||||||
Loss on early extinguishment of debt (net of a tax benefit of $18 million) | 31 | — | .08 | — | ||||||||||||
Write-down of investments (net of a tax benefit of $3 million in 2017) (b) | 5 | 10 | .01 | .02 | ||||||||||||
Federal tax reform (c) | 129 | — | .32 | — | ||||||||||||
Tax items (d) | (64 | ) | (11 | ) | (.16 | ) | (.02 | ) | ||||||||
Discontinued operations items (e) | 1,080 | 432 | 2.65 | .96 | ||||||||||||
| Adjusted (Non-GAAP) | $ | 1,791 | $ | 1,840 | $ | 4.40 | $ | 4.11 | ||||||||
| Year Ended December 31, 2019 | |||||||||||||||||||||||
| Earnings from Continuing Operations Before Income Taxes | Benefit (Provision) for Income Taxes | Net Earnings from Continuing Operations Attributable to ViacomCBS | Diluted EPS from Continuing Operations | ||||||||||||||||||||
| Reported (GAAP) | $ | 3,345 | $ | 9 | $ | 3,270 | $ | 5.30 | |||||||||||||||
| Items affecting comparability: | |||||||||||||||||||||||
Restructuring and other corporate matters (a) | 775 | (134 | ) | 641 | 1.04 | ||||||||||||||||||
Impairment charge (b) | 20 | (6 | ) | 14 | .02 | ||||||||||||||||||
Programming charges (c) | 589 | (142 | ) | 447 | .73 | ||||||||||||||||||
Gain on sale of assets (d) | (549 | ) | 163 | (386 | ) | (.63 | ) | ||||||||||||||||
Net gain from investments (e) | (85 | ) | 16 | (69 | ) | (.11 | ) | ||||||||||||||||
Discrete tax items (f) | — | (827 | ) | (827 | ) | (1.34 | ) | ||||||||||||||||
| Adjusted (Non-GAAP) | $ | 4,095 | $ | (921 | ) | $ | 3,090 | $ | 5.01 | ||||||||||||||
(a) For 2017, includes a net gainReflects severance and exit costs relating to restructuring activities and costs incurred in connection with the disposition of propertyMerger, legal proceedings involving the Company and equipment. For 2016, includes a gain from the sale of an internet business in China and a multiyear, retroactive impact of a new operating tax.other corporate matters.
(b) Reflects the write-down of a cost investment in 2017 and an equity-method investment in 2016 to their fair values.
(c) Programming charges principally reflect accelerated amortization associated with changes in the expected monetization of certain programs, and restructuring charges at CBS Radio of $8 million ($5 million, net of tax).
(e) Reflects a gain on marketable securities of $113 million; gains of $22 million on the Company’s digital streaming services, CBS All Access sale and CBSN. Entertainment’s revenues are generated primarilyacquisition of joint ventures; and an impairment charge of $50 million to write-down an investment to its fair value.
(f) Primarily reflects a deferred tax benefit of $768 million resulting from advertising sales, the licensing and distributiontransfer of its content, and affiliate and subscription fees. The Entertainment segment contributed 67% to consolidated revenuesintangible assets between our subsidiaries in eachconnection with a reorganization of our international operations; tax benefits of $44 million realized in connection with the preparation of the years2018 federal tax return, based on further clarity provided by the United States government on tax positions relating to federal tax legislation enacted in December 2017 2016(the “Tax Reform Act”); and 2015, and 55%, 53% and 51% to total segment operating income in 2017, 2016 and 2015, respectively.a tax benefit of $39 million triggered by the bankruptcy of an investee.
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, 2018 | |||||||||||||||||||||||
| Earnings from Continuing Operations Before Income Taxes | Provision for Income Taxes | Net Earnings from Continuing Operations Attributable to ViacomCBS | Diluted EPS from Continuing Operations | ||||||||||||||||||||
| Reported (GAAP) | $ | 4,124 | $ | (617 | ) | $ | 3,423 | $ | 5.51 | ||||||||||||||
| Items affecting comparability: | |||||||||||||||||||||||
Restructuring and other corporate matters (a) | 490 | (116 | ) | 374 | .60 | ||||||||||||||||||
Programming charges (b) | 162 | (39 | ) | 123 | .20 | ||||||||||||||||||
| Gain on early extinguishment of debt | (18 | ) | 4 | (14 | ) | (.02 | ) | ||||||||||||||||
Net loss from investments (c) | 53 | (16 | ) | 37 | .06 | ||||||||||||||||||
Discrete tax items (d) | — | (297 | ) | (297 | ) | (.48 | ) | ||||||||||||||||
| Adjusted (Non-GAAP) | $ | 4,811 | $ | (1,081 | ) | $ | 3,646 | $ | 5.87 | ||||||||||||||
(a) Primarily reflects severance and Smithsonian Networks. Cable Networks’ revenues are generated primarily from affiliate and subscriptionexit costs relating to restructuring activities as well as professional fees related to legal proceedings, cost transformation initiatives, investigations at our Company and the licensingevaluation of potential merger activity.
(b) Reflects programming charges resulting from changes to our programming strategy, including at CBS Films and distributionour Cable Networks segment, in connection with management changes.
(c) Reflects a loss on marketable securities of $23 million; an impairment charge of $46 million to write-down an investment to its content. The Cable Networks segment contributed 18%, 16%fair value; and 18%a gain of $16 million on the sale of a 1% equity interest in Viacom18 to consolidated revenuesour joint venture partner.
(d) Primarily reflects a net discrete tax benefit of $80 million related to the Tax Reform Act and other tax law changes; a net tax benefit of $71 million relating to a tax accounting method change granted by the Internal Revenue Service (“IRS”); and the reversal of a valuation allowance of $140 million relating to capital loss carryforwards that were utilized in 2017, 2016,connection with the sale of CBS Television City in 2019.
| Year Ended December 31, 2017 | |||||||||||||||||||||||
| Earnings from Continuing Operations Before Income Taxes | Provision for Income Taxes | Net Earnings from Continuing Operations Attributable to ViacomCBS | Diluted EPS from Continuing Operations | ||||||||||||||||||||
| Reported (GAAP) | $ | 4,120 | $ | (804 | ) | $ | 3,268 | $ | 5.05 | ||||||||||||||
| Items affecting comparability: | |||||||||||||||||||||||
| Restructuring charges | 258 | (95 | ) | 163 | .25 | ||||||||||||||||||
Programming charges (a) | 144 | (50 | ) | 94 | .14 | ||||||||||||||||||
Gain on sale of assets (b) | (146 | ) | 16 | (130 | ) | (.20 | ) | ||||||||||||||||
| Loss on early extinguishment of debt | 38 | (17 | ) | 21 | .03 | ||||||||||||||||||
| Gain on sale of EPIX | (285 | ) | 96 | (189 | ) | (.29 | ) | ||||||||||||||||
| Pension settlement charge | 352 | (115 | ) | 237 | .37 | ||||||||||||||||||
Impairment of investments (c) | 18 | (7 | ) | 11 | .02 | ||||||||||||||||||
Discrete tax items (d) | — | (321 | ) | (321 | ) | (.50 | ) | ||||||||||||||||
| Adjusted (Non-GAAP) | $ | 4,499 | $ | (1,297 | ) | $ | 3,154 | $ | 4.87 | ||||||||||||||
(a) Reflects programming charges associated with the execution of a strategy for certain of our flagship brands, as well as strategic initiatives at Paramount.
(b) Reflects a gain of $127 million, with $11 million attributable to the noncontrolling interest, on the sale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction and 2015, respectively,a net gain of $19 million relating to the disposition of property and 35%, 33% and 37%equipment.
(c) Reflects the write-down of certain investments to total segment operating income in 2017, 2016 and 2015, respectively.their fair value.
United States (“U.S”).
| Revenues by Type | % of Total | % of Total | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2017 | Revenues | 2016 | Revenues | $ | % | |||||||||||||||||||
| Advertising | $ | 5,753 | 42 | % | $ | 6,288 | 48 | % | $ | (535 | ) | (9 | )% | ||||||||||||
| Content licensing and distribution | 3,952 | 29 | 3,673 | 28 | 279 | 8 | |||||||||||||||||||
| Affiliate and subscription fees | 3,758 | 27 | 2,978 | 22 | 780 | 26 | |||||||||||||||||||
| Other | 229 | 2 | 227 | 2 | 2 | 1 | |||||||||||||||||||
| Total Revenues | $ | 13,692 | 100 | % | $ | 13,166 | 100 | % | $ | 526 | 4 | % | |||||||||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Revenues
| Revenues by Type | % of Total | % of Total | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2019 | Revenues | 2018 | Revenues | $ | % | |||||||||||||||||||
| Advertising | $ | 11,074 | 40 | % | $ | 10,841 | 40 | % | $ | 233 | 2 | % | |||||||||||||
| Affiliate | 8,602 | 31 | 8,376 | 31 | 226 | 3 | |||||||||||||||||||
| Content licensing | 6,483 | 23 | 6,163 | 22 | 320 | 5 | |||||||||||||||||||
| Theatrical | 547 | 2 | 744 | 3 | (197 | ) | (26 | ) | |||||||||||||||||
| Publishing | 814 | 3 | 825 | 3 | (11 | ) | (1 | ) | |||||||||||||||||
| Other | 292 | 1 | 301 | 1 | (9 | ) | (3 | ) | |||||||||||||||||
| Total Revenues | $ | 27,812 | 100 | % | $ | 27,250 | 100 | % | $ | 562 | 2 | % | |||||||||||||
Advertising
Advertising revenues are generated primarily from the remainingsale of advertising spots closeron the CBS Television Network, our basic cable networks and our television stations, as well as on our ad-supported streaming services, including CBS All Access and Pluto TV, and on our websites. Our advertising revenues include integrated marketing services, which provide unique branded content and custom sponsorship opportunities to our advertisers, as well as advanced marketing solutions (“AMS”), including addressable video and brand solutions. For 2019, the 2% increase in advertising revenues was driven by 5% growth in domestic advertising revenues, reflecting CBS’ broadcast of tent-pole sporting events in 2019, mainly Super Bowl LIII and the related programming.national semifinals and championship game of the NCAA Division I Men’s Basketball Tournament (“NCAA Tournament”), as well as higher revenues from AMS, which includes Pluto TV. These increases were partially offset by lower political advertising sales at our owned television stations, as a result of the benefit to last year from the 2018 midterm elections. International advertising revenues decreased 14%, reflecting the unfavorable impact of foreign exchange rate changes, as well as softness in the Australian and UK markets, partially offset by increases in pricing and political advertising in Argentina. Foreign exchange rate changes had an unfavorable impact of 1-percentage point on the total advertising revenues comparison and 9-percentage points on the international advertising revenues comparison.
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 Distributionthe national semifinals and championship games of the NCAA Tournament are broadcast on the CBS Television Network every other year through 2032 under the current agreement with the NCAA and Turner Broadcasting System, Inc. (“Turner”). In 2020, the advertising revenue comparison will be negatively affected by the benefit in 2019 from CBS’ broadcasts of the Super Bowl and the national semifinals and championship game of the NCAA Tournament. These events will not be broadcast by CBS in 2020. Advertising revenues in 2020 will benefit from higher political advertising sales, mainly in the second half of the year, associated with the U.S. Presidential election.
Affiliate
Affiliate revenues are principally comprised of fees from the licensing of internally-produced television programming; fees from the distribution of third-party programming; and revenues from the publishing and distribution of consumer books. For 2017, the 8% increase in content licensing and distribution revenues reflected growth in both international and domestic licensing sales. The increase in domestic licensing sales was primarily driven by sales of NCIS: New Orleans, Madam Secretary and several titles from the CSI franchise. Internationally, the Company benefited from strong demand for its content during 2017, reflecting additional titles available for sale as a result of the Company’s recent increased investment in internally-produced series.
prior
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Content Licensing
Content licensing revenues are principally comprised of fees from the licensing of exhibition rights for our internally-produced television and film programming to television stations, cable networks, and subscription video-on-demand (“SVOD”) and free video-on-demand services; home entertainment revenues, which will impactare derived from the comparabilitysale and distribution of revenues during 2018. The adoptionour content through DVDs and Blu-ray discs to wholesale and retail partners, as well as from the viewing of this guidance will result in changes toour content on a transactional basis through transactional video-on-demand (“TVOD”) and electronic sell-through services; fees from the Company’s revenue recognition policies primarily relating to two areasuse of itsour trademarks and brands for consumer products, recreation and live events; and fees from the distribution of third-party programming. For 2019, content licensing and distribution operations. First,revenues increased 5%, primarily reflecting higher revenues from certain distribution arrangementsthe domestic licensing of third-partyour content, will be recognized based on the gross amount of consideration receiveddriven by the Company, withproduction of programming for third parties and the licensing of programming to SVOD providers. These increases were partially offset by a participation expense recognized fordecline in international licensing revenues.
Revenues from the fees paid to the third party. Under current accounting guidance, such revenueslicensing of exhibition rights are recognized at the net amount retained by the Company after the paymentbeginning of fees to the third party. This accounting change if adopted in 2017 would have increased 2017 revenues by approximately $275 million, with no impact on operating income. Second, revenues associated with the extension of an existing licensing arrangement, which are currently recognized upon the execution of such extension, will be recognized at a later date once the extension period begins. This change will result in quarterly fluctuations in the Company’s results; however, it is not expected to have a material impact on the Company’s operating income on an annual basis, since revenues from extensions executed each year approximate revenues from extensions for which the license period has begun. The Company will applyin which programs are made available to the modified retrospective methodlicensee for the adoption of this guidanceexhibition, and therefore, revenuescontent licensing revenue comparisons are impacted by fluctuations resulting from the timing of the availability of our programming for reporting periods prior to 2018 will not be affected.multiyear licensing agreements.
Theatrical revenues are expected to increase compared toprincipally comprised of the worldwide theatrical distribution of films through audience ticket sales. For 2019, theatrical revenues decreased 26%, principally reflecting a difficult comparison against the prior year, as a result of the Company’s acquisition2018 releases of Network TenMission: Impossible - Fallout and A Quiet Place. Theatrical revenues in 2019 benefited from the fourth quarterreleases of 2017.Rocketman, Gemini Man and Dora and the Lost City of Gold, as well as the continued success of the 2018 release, Bumblebee. Domestic theatrical revenues decreased 31% and international theatrical revenues decreased 23%.
| % of | % of | ||||||||||||||||||
| Year Ended December 31, | 2017 | International | 2016 | International | |||||||||||||||
| United Kingdom | $ | 300 | 15 | % | $ | 279 | 15 | % | |||||||||||
| Other Europe | 735 | 37 | 717 | 39 | |||||||||||||||
| Canada | 279 | 14 | 256 | 14 | |||||||||||||||
| Asia | 210 | 10 | 190 | 10 | |||||||||||||||
| Australia | 166 | 8 | 167 | 9 | |||||||||||||||
| Other | 327 | 16 | 240 | 13 | |||||||||||||||
| Total International Revenues | $ | 2,017 | 100 | % | $ | 1,849 | 100 | % | |||||||||||
Publishing
| % of | % of | ||||||||||||||||||||||||
| Operating Expenses by Type | Operating | Operating | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2017 | Expenses | 2016 | Expenses | $ | % | |||||||||||||||||||
| Programming | $ | 3,156 | 37 | % | $ | 2,941 | 37 | % | $ | 215 | 7 | % | |||||||||||||
| Production | 2,873 | 34 | 2,658 | 34 | 215 | 8 | |||||||||||||||||||
Participation, distribution and royalty | 1,050 | 13 | 1,058 | 13 | (8 | ) | (1 | ) | |||||||||||||||||
| Other | 1,359 | 16 | 1,299 | 16 | 60 | 5 | |||||||||||||||||||
| Total Operating Expenses | $ | 8,438 | 100 | % | $ | 7,956 | 100 | % | $ | 482 | 6 | % | |||||||||||||
Other
Other revenues are principally comprised of revenues from the rental of production facilities and digital revenues from search and e-commerce partners. For 2019, other revenues decreased 3%, mainly reflecting lower revenues from the rental of our production facilities as a result of the Floyd Mayweather/Conor McGregor pay-per-view boxing event; CBS’s broadcastsale of the semifinals and finals of the NCAA Tournament, and an increased investmentCBS Television City in cable programming. Costs in 2016 associated with CBS’s broadcast of Super Bowl 50 partially offset these increases.January 2019.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
| % of | % of | ||||||||||||||||||||||||
| Operating Expenses by Type | Operating | Operating | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2019 | Expenses | 2018 | Expenses | $ | % | |||||||||||||||||||
| Production | $ | 6,797 | 39 | % | $ | 6,483 | 41 | % | $ | 314 | 5 | % | |||||||||||||
| Programming | 4,287 | 25 | 3,965 | 25 | 322 | 8 | |||||||||||||||||||
Participation, distribution and royalty | 3,369 | 20 | 3,295 | 21 | 74 | 2 | |||||||||||||||||||
| Programming charges | 589 | 3 | 162 | 1 | 427 | n/m | |||||||||||||||||||
| Other | 2,181 | 13 | 2,012 | 12 | 169 | 8 | |||||||||||||||||||
| Total Operating Expenses | $ | 17,223 | 100 | % | $ | 15,917 | 100 | % | $ | 1,306 | 8 | % | |||||||||||||
n/m - not meaningful
Production
Production expenses reflect the amortization of direct costs of internally-developedinternally-produced television and theatrical film content as well as other television production costs, including on-air talent. For 2017,2019, the 8%5% increase in production expenses reflected an increased investment in internally-developedcontent, including a higher number of series produced for distribution on multiple platforms, including our streaming services and cable networks, as well as higher amortization of television series and higherproduction costs associated with the increase in televisioncontent licensing revenues. These increases were partially offset by lower amortization of feature film costs, driven by costs in 2018 associated with Mission: Impossible - Fallout.
Programming
Programming expenses reflect the amortization of acquired programs exhibited on our television broadcast networks, cable networks and television stations. For 2019, the 8% increase in programming expenses was driven by higher sports programming costs, mainly from CBS’ broadcasts of Super Bowl LIII and the national semifinals and championship game of the NCAA Tournament in 2019, which were not broadcast by CBS in 2018, and programming for Pluto TV, which we acquired in March 2019. These increases were partially offset by lower amortization of acquired programming for our cable networks.
Participation, Distribution and Royalty
Participation, distribution and royalty costs primarily include participation and residual expenses for television and film programming, royalty costs for Publishingpublishing content and other distribution expenses incurred with respect to film and television content, such as print and advertising. For 2017,2019, the 1%decrease2%increase in participation, distribution and royalty costs was primarily driven by the mix of titles sold under television licensing arrangements.
| % of | % of | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2017 | Revenues | 2016 | Revenues | $ | % | |||||||||||||||||||
Selling, general and administrative expenses | $ | 2,212 | 16 | % | $ | 2,124 | 16 | % | $ | 88 | 4 | % | |||||||||||||
Programming Charges
During 2019, in connection with the Company’s growth initiatives. DuringMerger, we implemented management changes across the first quarterorganization. In connection with these changes, we performed an evaluation of 2018,our programming portfolio across all of our businesses, including an assessment of the Company will adopt new FASB guidance on the presentationoptimal use of net periodic pension and postretirement benefit cost (“net benefit cost”) which requires that the components of net benefit cost other than service cost be presentedour programming in the statementmarketplace, which resulted in the identification of operations separately from the service cost component and below the subtotal of operating income.programs not aligned with management’s strategy. As a result, we recorded programming charges of $589 million principally reflecting accelerated amortization associated with changes in the adoptionexpected monetization of this guidance,certain programs, and decisions to cease airing, alter future airing patterns or not renew certain programs.
In addition, during 2018, in connection with management changes, we recorded programming charges of $162 million relating to changes to our programming strategy, including at CBS Films, which shifted its focus from theatrical films to developing content for our streaming services, as well as at our Cable Networks segment where we ceased the Company’s SG&A expenses for 2017 and 2016 will decrease by $89 million and $72 million, respectively. (See Note 15 to the consolidated financial statements.)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Depreciation and amortization | $ | 223 | $ | 225 | $ | (2 | ) | (1 | )% | ||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Other operating expenses primarily include compensation and costs associated with book sales, including printing and warehousing. For 2019, the 8% increase in other operating expenses mainly reflected higher costs associated with growth and expansion of our streaming services.
Selling, General and Administrative Expenses
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Selling, general and administrative expenses | $ | 5,647 | $ | 5,206 | $ | 441 | 8 | % | |||||||
Selling, general and administrative (“SG&A”) expenses include expenses incurred for selling and marketing costs, occupancy, professional service fees and back office support, including employee compensation. The 8% increase in SG&A expenses was driven by higher advertising and marketing costs, reflecting an increase in the number of series premieres and costs associated with our streaming services, as well as the inclusion of Pluto TV and Pop TV since their acquisitions in the first quarter of 2019. These increases were partially offset by cost savings associated with restructuring activities and compensation cost savings resulting from changes in senior management at CBS in 2018.
Depreciation and Amortization
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Depreciation and amortization | $ | 443 | $ | 433 | $ | 10 | 2 | % | |||||||
Depreciation and amortization expense reflects depreciation of fixed assets, including amortization of transponders and equipment under finance leases, and amortization of finite-lived intangible assets. For 2019, depreciation and amortization expense also includes an impairment charge of $20 million to reduce the carrying value of broadcast licenses in Australia to their fair value.
Restructuring and Other Corporate Matters
During 2019 and 2018, we recorded costs for restructuring and other corporate matters as follows:
| Year Ended December 31, | 2019 | 2018 | |||||
| Severance | $ | 401 | $ | 235 | |||
| Exit costs and other | 23 | 75 | |||||
| Restructuring charges | 424 | 310 | |||||
| Restructuring-related costs | — | 52 | |||||
| Merger-related costs | 294 | — | |||||
| Other corporate matters | 57 | 128 | |||||
| Restructuring and other corporate matters | $ | 775 | $ | 490 | |||
During the year ended December 31, 2019, we recorded restructuring charges of $424 million, primarily for severance and the acceleration of stock-based compensation in connection with the Merger, as well as costs related to a restructuring plan initiated in the first quarter of 2019 under which severance payments are being provided to certain eligible employees who voluntarily elected to participate. In addition, in 2019 we incurred costs of $294 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, transaction-related bonuses, and contractual executive compensation, including the accelerated vesting of stock-based compensation, that was triggered by the Merger. We also incurred costs of $40 million in connection with the settlement of a commercial dispute and $17 million associated with legal proceedings involving the Company (see Note 19) and other corporate matters.
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, 2018, we recorded restructuring charges of $310 million resulting from cost transformation initiatives to improve margins, as well as restructuring-related costs of $52 million, comprised of third-party professional services associated with such initiatives. In addition, in 2018 we recorded expenses of $128 million primarily for professional fees related to legal proceedings, investigations at our Company and the evaluation of potential merger activity.
Gain on Sale of Assets
In 2019, we completed the sale of CBS Television City for $750 million. We have 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 on the Consolidated Balance Sheet at December 31, 2019 is a liability of $124 million, reflecting the present value of the estimated amount payable under the guarantee obligation. This transaction resulted in a gain of $549 million for 2019, which includes a reduction for the guarantee obligation. We also recognized a tax benefit of $140 million in the fourth quarter of 2018 for the reversal of a valuation allowance relating to capital loss carryforwards that were utilized in connection with this sale.
Interest Expense and Interest Income
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Interest expense | $ | (962 | ) | $ | (1,030 | ) | $ | (68 | ) | (7 | )% | ||||
| Interest income | $ | 66 | $ | 79 | $ | (13 | ) | (16 | )% | ||||||
The following table presents our outstanding debt balances, excluding finance leases, and the weighted average interest rate as of December 31, 2019 and 2018:
| Weighted Average | Weighted Average | |||||||||||||||||
| At December 31, | 2019 | Interest Rate | 2018 | Interest Rate | ||||||||||||||
| Total long-term debt | $ | 17,976 | 4.70 | % | $ | 18,370 | 4.64 | % | ||||||||||
| Commercial paper | $ | 699 | 2.07 | % | $ | 674 | 3.02 | % | ||||||||||
Gain (Loss) on Marketable Securities
For 2019 and 2018, we recorded a gain of $113 million and a loss of $23 million, respectively, reflecting changes in the fair value of marketable securities.
Gain (Loss) on Early Extinguishment of Debt
For 2018, we recorded a gain on early extinguishment of debt of $18 million associated with the redemption of senior notes and debentures prior to maturity totaling $1.13 billion.
Other Items, Net
The following table presents the components of Other items, net.
| Year Ended December 31, | 2019 | 2018 | |||||
| Pension and postretirement benefit costs | $ | (105 | ) | $ | (68 | ) | |
| Foreign exchange losses | (17 | ) | (18 | ) | |||
| Impairment of investments | (50 | ) | (46 | ) | |||
| Gains from investments | 22 | 16 | |||||
| Other | 5 | (8 | ) | ||||
| Other items, net | $ | (145 | ) | $ | (124 | ) | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Benefit (Provision) for Income Taxes
The benefit (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 2019, we recorded a benefit for income taxes of $9 million, reflecting an effective income tax rate of (0.3)%, which included discrete items such as 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; tax benefits of $44 million realized in connection with the preparation of the 2018 federal tax return, based on further clarity provided by the United States government on tax positions relating to the Tax Reform Act; and a tax benefit of $39 million triggered by the bankruptcy of an investee. For 2018, the provision for income taxes was $617 million, reflecting an effective income tax rate of 15.0%. The provision for income taxes for 2018 included discrete items such as the reversal of a valuation allowance of $140 million relating to capital loss carryforwards that were utilized in connection with the sale of CBS Television City in 2019; a tax benefit of $80 million relating to the Tax Reform Act and other tax law changes; and a net tax benefit of $71 million relating to a tax accounting method change granted by the Internal Revenue Service.
Equity in Earnings (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, | 2019 | 2018 | $ | % | |||||||||||
| Equity in loss of investee companies | $ | (72 | ) | $ | (62 | ) | $ | (10 | ) | (16 | )% | ||||
| Tax benefit | 19 | 15 | 4 | 27 | |||||||||||
| Equity in loss of investee companies, net of tax | $ | (53 | ) | $ | (47 | ) | $ | (6 | ) | (13 | )% | ||||
Net Earnings from Continuing Operations Attributable to ViacomCBS and Diluted EPS from Continuing Operations Attributable to ViacomCBS
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 3,270 | $ | 3,423 | $ | (153 | ) | (4 | )% | ||||||
Diluted EPS from continuing operations attributable to ViacomCBS | $ | 5.30 | $ | 5.51 | $ | (.21 | ) | (4 | )% | ||||||
For 2019, net earnings from continuing operations attributable to ViacomCBS and diluted EPS from continuing operations each decreased 4%, primarily driven by the lower operating income, mainly reflecting our increased investment in content. The lower operating income was partially offset by the aforementioned discrete tax benefits.
Net Earnings Attributable to ViacomCBS and Diluted EPS Attributable to ViacomCBS
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Net earnings attributable to ViacomCBS | $ | 3,308 | $ | 3,455 | $ | (147 | ) | (4 | )% | ||||||
| Diluted EPS attributable to ViacomCBS | $ | 5.36 | $ | 5.56 | $ | (.20 | ) | (4 | )% | ||||||
Consolidated Results of Operations— 2018 vs. 2017
Revenues
| Revenues by Type | % of Total | % of Total | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2018 | Revenues | 2017 | Revenues | $ | % | |||||||||||||||||||
| Advertising | $ | 10,841 | 40 | % | $ | 10,582 | 40 | % | $ | 259 | 2 | % | |||||||||||||
| Affiliate | 8,376 | 31 | 8,153 | 31 | 223 | 3 | |||||||||||||||||||
| Content licensing | 6,163 | 22 | 5,947 | 22 | 216 | 4 | |||||||||||||||||||
| Theatrical | 744 | 3 | 716 | 3 | 28 | 4 | |||||||||||||||||||
| Publishing | 825 | 3 | 830 | 3 | (5 | ) | (1 | ) | |||||||||||||||||
| Other | 301 | 1 | 307 | 1 | (6 | ) | (2 | ) | |||||||||||||||||
| Total Revenues | $ | 27,250 | 100 | % | $ | 26,535 | 100 | % | $ | 715 | 3 | % | |||||||||||||
Advertising
For 2018, the 2% increase in advertising revenues was driven by our acquisition of Network 10 in the fourth quarter of 2017; record political advertising sales in 2018 associated with the U.S. midterm elections; higher pricing at our broadcast and cable networks; and growth in revenues from AMS. Advertising revenues for 2018 also benefited from the adoption of a new revenue recognition standard in the first quarter of 2018, under which revenues for certain distribution arrangements are recognized based on the gross amount of consideration received from the customer, with an offsetting increase to operating expenses. Under previous accounting guidance, such revenues were recognized at the net amount retained by us after the payment of fees to the third party. This guidance was applied prospectively from the date of adoption, and therefore, amounts for 2017 are reported under previous accounting guidance. These increases were partially offset by lower linear impressions at our cable networks and the absence of the broadcasts of five Thursday Night Football games and the national semifinals and championship game of the NCAA Tournament, which were broadcast on the CBS Television Network in 2017. The national semifinals and championship game of the NCAA Tournament are broadcast by the CBS Television Network every other year through 2032 under the current agreements with the NCAA and Turner. Foreign exchange rate changes had an unfavorable impact of 1-percentage point on the advertising revenues comparison.
Affiliate
For 2018, the 3% increase in affiliate revenues reflects 22% growth in station affiliation and retransmission fees and 65% growth from subscription fees for our streaming services, CBS All Accessand Showtime OTT. These increases were partially offset by the unfavorable comparison against Showtime Networks’ distribution in 2017 of the Floyd Mayweather/Conor McGregor pay-per-view boxing event. Cable affiliate fees were relatively flat for 2018 compared with 2017, as contractual rate increases under carriage agreements for our cable networks and the benefit of new channel launches and acquisitions were offset by subscriber declines.
Content Licensing
For 2018, the 4%increase in content licensing revenues reflects higher revenues from the distribution of third-party content, resulting from revenues under certain distribution arrangements now being recognized at the gross amount of consideration received from the customer, with an offsetting increase to participation expense, as a result of the adoption of a new revenue recognition standard in the first quarter of 2018. Under previous guidance, such
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
distribution revenues were recognized at the net amount retained by us after the payment of fees to the third party. The increase also reflected growth from domestic and international license fees, including the 2018 availability of Tom Clancy’s Jack Ryan, The Haunting of Hill House, Maniac, The Alienist and The Cloverfield Paradox, compared with 2017, which included the licensing of NCIS: New Orleans, Madam Secretary and titles from the CSI franchise. These increases were partially offset by lower home entertainment revenues, primarily reflecting the number and mix of titles in release.
Theatrical
For 2018, theatrical revenues increased 4%, principally reflecting the strong performance of the theatrical release of Mission: Impossible - Fallout in 2018.
Publishing
Publishing revenues for 2018 decreased 1%driven by lower sales of print and electronic books, which were partially offset by higher sales of digital audio books.
Operating Expenses
| % of Total | % of Total | ||||||||||||||||||||||||
| Operating Expenses by Type | Operating | Operating | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2018 | Expense | 2017 | Expense | $ | % | |||||||||||||||||||
| Production | $ | 6,483 | 41 | % | $ | 5,994 | 39 | % | $ | 489 | 8 | % | |||||||||||||
| Programming | 3,965 | 25 | 4,268 | 28 | (303 | ) | (7 | ) | |||||||||||||||||
Participation, distribution and royalty | 3,295 | 21 | 3,182 | 20 | 113 | 4 | |||||||||||||||||||
| Programming charges | 162 | 1 | 144 | 1 | 18 | 13 | |||||||||||||||||||
| Other | 2,012 | 12 | 1,895 | 12 | 117 | 6 | |||||||||||||||||||
| Total Operating Expenses | $ | 15,917 | 100 | % | $ | 15,483 | 100 | % | $ | 434 | 3 | % | |||||||||||||
Production
For 2018, the 8% increase in production expenses reflected an increased investment in content, including a higher number of series produced for distribution on multiple platforms, including our owned networks and streaming services, and the acquisition of Network 10 in the fourth quarter of 2017.
Programming
For 2018, the 7% decrease in programming expenses was driven by lower sports programming costs, resulting from Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event in 2017 and the absence of Thursday Night Football and the national semifinals and championship game of the NCAA Tournament, which were broadcast on the CBS Television Network in 2017. These decreases were partially offset by costs for programming on Network 10, which we acquired in the fourth quarter of 2017, and an increased investment in programming for our cable networks.
Participation, Distribution and Royalty
For 2018, the 4% increase in participation, distribution and royalty costs was primarily driven by the adoption of new revenue recognition guidance in the first quarter of 2018, which resulted in revenues under certain distribution arrangements being recognized based on the gross amount of consideration received from the customer, with an offsetting participation expense recognized for the fees paid to the third party. Under previous accounting guidance, such revenues were recognized at the net amount retained by us after the payment of fees to the third party. This
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
change resulted in an increase to both revenues and participation expenses of $279 million for 2018, with no impact to our operating income. The increase also reflects higher participation costs associated with the increase in content licensing revenues. These increases were partially offset by lower film distribution costs, driven by the number and mix of theatrical releases and a charge in 2017 resulting from the termination of a slate financing agreement.
Programming Charges
During 2018, in connection with management changes, we recorded programming charges of $162 million relating to changes to our programming strategy, including at CBS Films, which shifted its focus from theatrical films to developing content for our streaming services, as well as at our Cable Networks segment where we ceased the use of certain programming.
In addition, during 2017, we recorded programming charges of $144 million associated with management’s decision to cease use of certain original and acquired programming, in connection with the execution of a strategy for certain of our flagship brands and strategic initiatives at Paramount.
Other
For 2018, the 6% increase in other operating expenses mainly reflected higher costs associated with growth in our streaming services and expenses of Network 10, which we acquired in the fourth quarter of 2017.
Selling, General and Administrative Expenses
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Selling, general and administrative expenses | $ | 5,206 | $ | 5,156 | $ | 50 | 1 | % | |||||||
For 2018, the 1% increase in SG&A expenses reflected higher advertising and marketing costs, mainly for the launch of the Paramount Network and to support our growth initiatives. These increases were partially offset by savings from cost transformation initiatives.
Depreciation and Amortization
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Depreciation and amortization | $ | 433 | $ | 443 | $ | (10 | ) | (2 | )% | ||||||
Restructuring and Other Corporate Matters
During 2018 and 2017, we recorded costs for restructuring and other corporate matters as follows:
| Year Ended December 31, | 2018 | 2017 | |||||
| Severance | $ | 235 | $ | 224 | |||
| Exit costs and other | 75 | 12 | |||||
| Asset impairment | — | 22 | |||||
| Restructuring charges | 310 | 258 | |||||
| Restructuring-related costs | 52 | — | |||||
| Other corporate matters | 128 | — | |||||
| Restructuring and other corporate matters | $ | 490 | $ | 258 | |||
During the year ended December 31, 2018, we recorded restructuring charges of $310 million resulting from cost transformation initiatives to improve margins, as well as restructuring-related costs of $52 million, comprised of third-
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
party professional services associated with such initiatives. In addition, in 2018 we recorded expenses of $128 million primarily for professional fees related to legal proceedings, investigations at our Company and the evaluation of potential merger activity.
During the year ended December 31, 2017, we recorded restructuring charges of $258 million, resulting from the execution of a strategy for certain of our flagship brands and strategic initiatives at Paramount, as well as costs relating to other restructuring plans across several of our businesses in a continued effort to reduce our cost structure. The restructuring charges for 2017 included a non-cash impairment charge resulting from the decision to abandon an international trade name in connection with the strategic initiatives.
Gain on Sale of Assets
In 2017, we completed the sale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction. The sale resulted in a pre-tax gain of $127 million on the Consolidated Statement of Operations, with $11 million attributable to the noncontrolling interest. In addition, in 2017 we recorded a net gain of $19 million relating to the disposition of property and equipment.
Interest Expense and Interest Income
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Interest expense | $ | (1,030 | ) | $ | (1,088 | ) | $ | (58 | ) | (5 | )% | ||||
| Interest income | $ | 79 | $ | 87 | $ | (8 | ) | (9 | )% | ||||||
The following table presents our outstanding debt balances, excluding finance leases, and the weighted average interest rate as of December 31, 2018 and 2017:
| Weighted Average | Weighted Average | |||||||||||||||||
| At December 31, | 2018 | Interest Rate | 2017 | Interest Rate | ||||||||||||||
| Total long-term debt | $ | 18,370 | 4.64 | % | $ | 19,466 | 4.67 | % | ||||||||||
| Commercial paper | $ | 674 | 3.02 | % | $ | 779 | 1.91 | % | ||||||||||
Gain (Loss) on Marketable Securities
During 2018, we recorded a loss on marketable securities of $23 million. In connection with the adoption of FASB guidance on financial instruments, beginning in the first quarter of 2018, changes in the fair value of marketable securities are recognized in the Consolidated Statements of Operations.
Gain (Loss) on Early Extinguishment of Debt
For 2018, the gain on early extinguishment of debt of $18 million reflected the pre-tax gain associated with the redemption of senior notes and debentures prior to maturity totaling $1.13 billion. During 2017, we redeemed, prior to maturity, senior notes totaling $4.27 billion, resulting in the recognition of a pre-tax loss on the early extinguishment of debt of $38 million.
Gain on Sale of EPIX
During 2017, we completed the sale of our 49.76% interest in EPIX, resulting in a pre-tax gain of $285 million.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Pension Settlement Charge
During 2017, we purchased a group annuity contract under which an insurance company has permanently assumed the Company’sour obligation to pay and administer pension benefits to certain of the Company’s pension plan participants, or their designated beneficiaries, who had been receiving pension benefits. The purchase of this group annuity contract was funded with pension plan assets. As a result, the Company’sour outstanding pension benefit obligation was reduced by approximately $800 million, representing approximately 20% of the total obligations of the Company’s qualified pension plans.million. In connection with this transaction, the Companywe recorded a settlement charge of $352 million in the fourth quarter of 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Companywe made discretionary contributions totaling $600 million to prefund itsour qualified pension plans.
The following table presents the Company offered eligible former employees who had not yet initiated pensioncomponents of Other items, net.
| Year Ended December 31, | 2018 | 2017 | |||||
| Pension and postretirement benefit costs | $ | (68 | ) | $ | (96 | ) | |
| Foreign exchange losses | (18 | ) | (20 | ) | |||
| Impairment of investments | (46 | ) | (18 | ) | |||
| Gain on sale of investment | 16 | — | |||||
| Other | (8 | ) | 19 | ||||
| Other items, net | $ | (124 | ) | $ | (115 | ) | |
Benefit (Provision) for Income Taxes
For 2018, the provision for income taxes was $617 million, reflecting an effective income tax rate of 15.0%. The provision for income taxes for 2018 included discrete items such as the reversal of a valuation allowance of $140 million relating to capital loss carryforwards that were utilized in connection with the sale of CBS Television City in 2019; a tax benefit paymentsof $80 million relating to the optionTax Reform Act and other tax law changes; and a tax benefit of $71 million relating to make a one-time election to receivetax accounting method change granted by the present valueInternal Revenue Service. For 2017, the provision for income taxes was $804 million, reflecting an effective income tax rate of their pension benefits19.5%. The provision for income taxes for 2017 included discrete items such as a lump-sum distribution or to commence an immediate monthly annuity benefit. As a result, the Company paid a totaltax benefit of $518 million of lump-sum distributions in 2016 using its pension plan assets, representing 12% of the total obligations of its qualified pension plans. Accordingly, the Company recorded a settlement charge of $211$279 million reflecting the accelerated recognition of a portionforeign tax credits on the distribution of unamortized actuarial lossessecurities to the U.S.
Equity in the plan.Earnings (Loss) of Investee Companies, Net of Tax
| Balance at | 2017 | 2017 | Balance at | ||||||||||||||||||
| December 31, 2016 | Charges | Settlements | December 31, 2017 | ||||||||||||||||||
| Entertainment | $ | 20 | $ | 44 | $ | (18 | ) | $ | 46 | ||||||||||||
| Cable Networks | 4 | — | (3 | ) | 1 | ||||||||||||||||
| Publishing | 1 | 5 | (3 | ) | 3 | ||||||||||||||||
| Local Media | 12 | 12 | (7 | ) | 17 | ||||||||||||||||
| Corporate | 2 | 2 | (1 | ) | 3 | ||||||||||||||||
| Total | $ | 39 | $ | 63 | $ | (32 | ) | $ | 70 | ||||||||||||
| Increase/(Decrease) | ||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | ||||||||||
| Equity in earnings (loss) of investee companies | $ | (62 | ) | $ | 14 | $ | (76 | ) | n/m | |||||
| Tax benefit (provision) | 15 | (10 | ) | 25 | n/m | |||||||||
| Equity in earnings (loss) of investee companies, net of tax | $ | (47 | ) | $ | 4 | $ | (51 | ) | n/m | |||||
n/m - not meaningful
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net Earnings from Continuing Operations Attributable to ViacomCBS and Diluted EPS from Continuing Operations Attributable to ViacomCBS
| Balance at | 2016 | 2016 | Balance at | ||||||||||||||||||
| December 31, 2015 | Charges | Settlements | December 31, 2016 | ||||||||||||||||||
| Entertainment | $ | 19 | $ | 16 | $ | (15 | ) | $ | 20 | ||||||||||||
| Cable Networks | — | 4 | — | 4 | |||||||||||||||||
| Publishing | — | 1 | — | 1 | |||||||||||||||||
| Local Media | 11 | 6 | (5 | ) | 12 | ||||||||||||||||
| Corporate | 1 | 3 | (2 | ) | 2 | ||||||||||||||||
| Total | $ | 31 | $ | 30 | $ | (22 | ) | $ | 39 | ||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 3,423 | $ | 3,268 | $ | 155 | 5 | % | |||||||
Diluted EPS from continuing operations attributable to ViacomCBS | $ | 5.51 | $ | 5.05 | $ | .46 | 9 | % | |||||||
For 2017, other2018, the 5% increase in net earnings from continuing operations attributable to ViacomCBS was driven by the lower effective income tax rate in 2018, partially offset by lower operating items, net reflectedincome. Diluted EPS from continuing operations attributable to ViacomCBS grew 9%, reflecting the higher earnings and lower weighted average shares outstanding as a net gain relating to the dispositionresult of property and equipment. For 2016, other operating items, net included a gain from the disposition of an internet business in China and a multiyear, retroactive impact of a new operating tax.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Interest expense | $ | (457 | ) | $ | (411 | ) | $ | 46 | 11 | % | |||||
| Interest income | $ | 64 | $ | 32 | $ | 32 | 100 | % | |||||||
| Weighted Average | Weighted Average | |||||||||||||||||
| At December 31, | 2017 | Interest Rate | 2016 | Interest Rate | ||||||||||||||
| Total long-term debt | $ | 9,426 | 4.26 | % | $ | 8,850 | 4.47 | % | ||||||||||
| Commercial paper | $ | 679 | 1.88 | % | $ | 450 | 0.98 | % | ||||||||||
Net Loss from Discontinued Operations, Net of Tax
On November 16, 2017, we completed the split-off of CBS Radio through an exchange offer, in which we accepted 17.9 million outstanding 5.75% senior notes due April 2020shares of CBS Class B Common Stock from our stockholders in exchange for the 101.4 million shares of CBS Radio common stock that we owned. Immediately following the exchange offer, each share of CBS Radio common stock was converted into one share of Entercom Communications Corp. (“Entercom”) Class A common stock upon completion of the merger of CBS Radio and Entercom. CBS Radio has been presented as a discontinued operation in the Company’s $300 million outstanding 4.625% senior notes due May 2018.
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, | 2017 | 2016 | Increase/(Decrease) | |||||||||
Provision for income taxes, including interest and before other discrete items | $ | (565 | ) | $ | (686 | ) | (18 | )% | ||||
Excess tax benefits from stock-based compensation (a) | 44 | — | ||||||||||
Other discrete items (b) | 17 | 58 | ||||||||||
Federal tax reform (c) | (129 | ) | — | |||||||||
| Provision for income taxes | $ | (633 | ) | $ | (628 | ) | 1 | % | ||||
| Effective income tax rate | 32.0 | % | 28.2 | % | ||||||||
The following table presents equity in earnings (loss) of investee companies for the Company’s domestic and international equity investments.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Domestic | $ | (61 | ) | $ | (67 | ) | $ | 6 | 9 | % | |||||
| International | 2 | (8 | ) | 10 | 125 | % | |||||||||
| Tax benefit | 22 | 25 | (3 | ) | (12 | ) | |||||||||
| Equity in loss of investee companies, net of tax | $ | (37 | ) | $ | (50 | ) | $ | 13 | 26 | % | |||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Net earnings from continuing operations | $ | 1,309 | $ | 1,552 | $ | (243 | ) | (16 | )% | ||||||
| Diluted EPS from continuing operations | $ | 3.22 | $ | 3.46 | $ | (.24 | ) | (7 | )% | ||||||
| Fair value of CBS Corp. Class B Common Stock accepted | ||||
| (17,854,689 shares at $56.40 per share on November 16, 2017) | $ | 1,007 | ||
Carrying value of CBS Radio (a) | (1,112 | ) | ||
| Net loss on split-off of CBS Radio | $ | (105 | ) | |
| Year Ended December 31, 2017 | CBS Radio | Other | Total | CBS Radio | Other | Total | ||||||||||||||||||
| Revenues | $ | 1,018 | $ | — | $ | 1,018 | $ | 1,018 | $ | — | $ | 1,018 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Operating | 364 | — | 364 | 364 | — | 364 | ||||||||||||||||||
| Selling, general and administrative | 446 | (1 | ) | 445 | 444 | (8 | ) | 436 | ||||||||||||||||
| Market value adjustment | 980 | (a) | — | 980 | 980 | (a) | — | 980 | ||||||||||||||||
| Restructuring charges | 7 | (b) | — | 7 | 7 | — | 7 | |||||||||||||||||
| Total costs and expenses | 1,797 | (1 | ) | 1,796 | 1,795 | (8 | ) | 1,787 | ||||||||||||||||
| Operating income (loss) | (779 | ) | 1 | (778 | ) | (777 | ) | 8 | (769 | ) | ||||||||||||||
| Interest expense | (70 | ) | — | (70 | ) | (70 | ) | — | (70 | ) | ||||||||||||||
| Other items, net | (2 | ) | — | (2 | ) | |||||||||||||||||||
| Earnings (loss) from discontinued operations | (849 | ) | 1 | (848 | ) | (849 | ) | 8 | (841 | ) | ||||||||||||||
| Income tax benefit (provision) | (55 | ) | 45 | (c) | (10 | ) | (55 | ) | 43 | (b) | (12 | ) | ||||||||||||
| Earnings (loss) from discontinued operations, net of tax | (904 | ) | 46 | (858 | ) | (904 | ) | 51 | (853 | ) | ||||||||||||||
| Net gain (loss) on disposal | (109 | ) | 13 | (96 | ) | (109 | ) | 13 | (96 | ) | ||||||||||||||
| Income tax benefit (provision) | 4 | (2 | ) | 2 | 4 | (2 | ) | 2 | ||||||||||||||||
| Net gain (loss) on disposal, net of tax | (105 | ) | 11 | (d) | (94 | ) | (105 | ) | 11 | (c) | (94 | ) | ||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | $ | (1,009 | ) | $ | 57 | $ | (952 | ) | $ | (1,009 | ) | $ | 62 | $ | (947 | ) | ||||||||
(a) During 2017, prior to the split-off, CBS Radio was measured each reporting period beginning with the first quarter of 2017, at the lower of its carrying amount or fair value less cost to sell. The value of the transaction with Entercom was determined based on Entercom’s stock price at the closing of the transaction and therefore, we recorded a market value adjustment of $980 million in 2017 to adjust the carrying value of CBS Radio was measured atto the value indicated by the stock valuation of Entercom. As a result, the Company recorded a market value adjustment of $980 million during the nine months ended September 30, 2017 to adjust the carrying value of CBS Radio as follows:
| First Quarter 2017 | $ | (715 | ) | |
| Second Quarter 2017 | (365 | ) | ||
| Third Quarter 2017 | 100 | |||
| $ | (980 | ) | ||
(b) Reflects restructuring charges associated with the reorganization of certain business operations, including severance costs and costs associated with exiting contractual obligations.
Net Earnings Attributable to ViacomCBS and Diluted EPS Attributable to ViacomCBS
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Net earnings attributable to ViacomCBS | $ | 3,455 | $ | 2,321 | $ | 1,134 | 49 | % | |||||||
| Diluted EPS attributable to ViacomCBS | $ | 5.56 | $ | 3.59 | $ | 1.97 | 55 | % | |||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Segments
| Year Ended December 31, 2016 | CBS Radio | Other (b) | Total | ||||||||
| Revenues | $ | 1,220 | $ | — | $ | 1,220 | |||||
| Costs and expenses: | |||||||||||
| Operating | 397 | — | 397 | ||||||||
| Selling, general and administrative | 497 | — | 497 | ||||||||
| Depreciation and amortization | 26 | — | 26 | ||||||||
| Restructuring charges | 8 | (a) | — | 8 | |||||||
| Impairment charge | 444 | — | 444 | ||||||||
| Total costs and expenses | 1,372 | — | 1,372 | ||||||||
| Operating loss | (152 | ) | — | (152 | ) | ||||||
| Interest expense | (17 | ) | — | (17 | ) | ||||||
| Other income | 2 | — | 2 | ||||||||
| Loss from discontinued operations | (167 | ) | — | (167 | ) | ||||||
| Income tax provision | (88 | ) | (36 | ) | (124 | ) | |||||
| Net loss from discontinued operations, net of tax | $ | (255 | ) | $ | (36 | ) | $ | (291 | ) | ||
TV ENTERTAINMENT: Our TV Entertainment segment creates and acquires programming for distribution and viewing on multiple media platforms, including our broadcast network, through multichannel video programming distributors (“MVPDs”) and virtual MVPDs, and our streaming services, as well as for licensing to third parties both domestically and internationally. TV Entertainment consists of certain business operations, including severance costs and costs associated with exiting contractual obligations.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | (904 | ) | (72 | )% | ||||||
| Diluted EPS | $ | .88 | $ | 2.81 | $ | (1.93 | ) | (69 | )% | ||||||
| Revenues by Type | % of Total | % of Total | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2016 | Revenues | 2015 | Revenues | $ | % | |||||||||||||||||||
| Advertising | $ | 6,288 | 48 | % | $ | 5,824 | 46 | % | $ | 464 | 8 | % | |||||||||||||
| Content licensing and distribution | 3,673 | 28 | 3,903 | 31 | (230 | ) | (6 | ) | |||||||||||||||||
| Affiliate and subscription fees | 2,978 | 22 | 2,724 | 21 | 254 | 9 | |||||||||||||||||||
| Other | 227 | 2 | 220 | 2 | 7 | 3 | |||||||||||||||||||
| Total Revenues | $ | 13,166 | 100 | % | $ | 12,671 | 100 | % | $ | 495 | 4 | % | |||||||||||||
CABLE NETWORKS: Our Cable Networks segment creates and acquires programming for distribution and viewing on multiple media platforms, including our cable networks, through MVPDs and virtual MVPDs, and our streaming services, as well as for licensing to third parties both domestically and internationally. Cable Networks consists of our premium subscription cable networks Showtime, The Movie Channel and Flix, and a subscription streaming offering of Showtime; our basic cable networks Nickelodeon, MTV, BET, Comedy Central, Paramount Network, Nick Jr., VH1, TV Land, CMT, Pop TV and Smithsonian Channel, among others, as well as the international extensions of these brands operated by ViacomCBS Networks International; international broadcast networks, Network 10, Channel 5 and Telefe; and Pluto TV, a leading free streaming TV platform in the United States. Cable Networks’ revenues are generated primarily reflected lower domesticfrom affiliate revenues, advertising sales and the licensing of its content and brands.
FILMED ENTERTAINMENT: Our Filmed Entertainment segment develops, produces, finances, acquires and distributes films, television programming and other entertainment content in various markets and media worldwide primarily through Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios. Filmed Entertainment’s revenues are generated primarily from the release and/or distribution of films theatrically, the release and/or distribution of film and television product through home entertainment, the licensing revenues compared with 2015, which included sales of NCIS,Elementary film and CSI. A significant contributor television product to television licensing revenues in 2016 was the international licensing of five Star Trek series.and digital platforms and other ancillary activities.
| % of | % of | ||||||||||||||||||
| Year Ended December 31, | 2016 | International | 2015 | International | |||||||||||||||
| United Kingdom | $ | 279 | 15 | % | $ | 345 | 17 | % | |||||||||||
| Other Europe | 717 | 39 | 691 | 35 | |||||||||||||||
| Canada | 256 | 14 | 286 | 14 | |||||||||||||||
| Asia | 190 | 10 | 236 | 12 | |||||||||||||||
| Other | 407 | 22 | 446 | 22 | |||||||||||||||
| Total International Revenues | $ | 1,849 | 100 | % | $ | 2,004 | 100 | % | |||||||||||
| % of Total | % of Total | ||||||||||||||||||||||||
| Operating Expenses by Type | Operating | Operating | Increase/(Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2016 | Expense | 2015 | Expense | $ | % | |||||||||||||||||||
| Programming | $ | 2,941 | 37 | % | $ | 2,892 | 37 | % | $ | 49 | 2 | % | |||||||||||||
| Production | 2,658 | 34 | 2,604 | 33 | 54 | 2 | |||||||||||||||||||
Participation, distribution and royalty | 1,058 | 13 | 1,109 | 14 | (51 | ) | (5 | ) | |||||||||||||||||
| Other | 1,299 | 16 | 1,306 | 16 | (7 | ) | (1 | ) | |||||||||||||||||
| Total Operating Expenses | $ | 7,956 | 100 | % | $ | 7,911 | 100 | % | $ | 45 | 1 | % | |||||||||||||
| % of | % of | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2016 | Revenues | 2015 | Revenues | $ | % | |||||||||||||||||||
Selling, general and administrative expenses | $ | 2,124 | 16 | % | $ | 1,961 | 15 | % | $ | 163 | 8 | % | |||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Depreciation and amortization | $ | 225 | $ | 235 | $ | (10 | ) | (4 | )% | ||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Interest expense | $ | (411 | ) | $ | (392 | ) | $ | 19 | 5 | % | |||||
| Interest income | $ | 32 | $ | 24 | $ | 8 | 33 | % | |||||||
| Weighted Average | Weighted Average | |||||||||||||||||
| At December 31, | 2016 | Interest Rate | 2015 | Interest Rate | ||||||||||||||
| Total long-term debt | $ | 8,850 | 4.47 | % | $ | 8,365 | 4.68 | % | ||||||||||
| Commercial paper | $ | 450 | 0.98 | % | $ | — | n/a | |||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Tax provision | $ | (628 | ) | $ | (676 | ) | $ | (48 | ) | (7 | )% | ||||
| Effective tax rate | 28.2 | % | 29.9 | % | |||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Domestic | $ | (67 | ) | $ | (60 | ) | $ | (7 | ) | (12 | )% | ||||
| International | (8 | ) | 4 | (12 | ) | n/m | |||||||||
| Tax benefit | 25 | 22 | 3 | 14 | % | ||||||||||
| Equity in loss of investee companies, net of tax | $ | (50 | ) | $ | (34 | ) | $ | (16 | ) | (47 | )% | ||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Net earnings from continuing operations | $ | 1,552 | $ | 1,554 | $ | (2 | ) | — | % | ||||||
| Diluted EPS from continuing operations | $ | 3.46 | $ | 3.18 | $ | .28 | 9 | % | |||||||
| Year Ended December 31, 2015 | CBS Radio | Other (a) | Total | ||||||||
| Revenues | $ | 1,223 | $ | — | $ | 1,223 | |||||
| Costs and expenses: | |||||||||||
| Operating | 415 | — | 415 | ||||||||
| Selling, general and administrative | 500 | — | 500 | ||||||||
| Depreciation and amortization | 29 | — | 29 | ||||||||
| Restructuring charges | 36 | — | 36 | ||||||||
| Impairment charge | 484 | — | 484 | ||||||||
| Total costs and expenses | 1,464 | — | 1,464 | ||||||||
| Operating loss | (241 | ) | — | (241 | ) | ||||||
| Other income | 1 | — | 1 | ||||||||
| Loss from discontinued operations | (240 | ) | — | (240 | ) | ||||||
| Income tax benefit | 89 | — | 89 | ||||||||
| Loss from discontinued operations, net of tax | (151 | ) | — | (151 | ) | ||||||
| Net gain on disposal | — | 17 | 17 | ||||||||
| Income tax provision | — | (7 | ) | (7 | ) | ||||||
| Net gain on disposal, net of tax | — | 10 | 10 | ||||||||
| Net earnings (loss) from discontinued operations, net of tax | $ | (151 | ) | $ | 10 | $ | (141 | ) | |||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Net earnings | $ | 1,261 | $ | 1,413 | $ | (152 | ) | (11 | )% | ||||||
| Diluted EPS | $ | 2.81 | $ | 2.89 | $ | (.08 | ) | (3 | )% | ||||||
| % of Total | % of Total | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2017 | Revenues | 2016 | Revenues | $ | % | |||||||||||||||||||
| Entertainment | $ | 9,164 | 67 | % | $ | 8,877 | 67 | % | $ | 287 | 3 | % | |||||||||||||
| Cable Networks | 2,501 | 18 | 2,160 | 16 | 341 | 16 | |||||||||||||||||||
| Publishing | 830 | 6 | 767 | 6 | 63 | 8 | |||||||||||||||||||
| Local Media | 1,668 | 12 | 1,779 | 14 | (111 | ) | (6 | ) | |||||||||||||||||
| Corporate/Eliminations | (471 | ) | (3 | ) | (417 | ) | (3 | ) | (54 | ) | (13 | ) | |||||||||||||
| Total Revenues | $ | 13,692 | 100 | % | $ | 13,166 | 100 | % | $ | 526 | 4 | % | |||||||||||||
| % of Total | % of Total | ||||||||||||||||||||||||
| Segment | Segment | ||||||||||||||||||||||||
| Operating | Operating | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2017 | Income | 2016 | Income | $ | % | |||||||||||||||||||
| Segment Operating Income (Loss): | |||||||||||||||||||||||||
| Entertainment | $ | 1,554 | 55 | % | $ | 1,519 | 53 | % | $ | 35 | 2 | % | |||||||||||||
| Cable Networks | 996 | 35 | 959 | 33 | 37 | 4 | |||||||||||||||||||
| Publishing | 132 | 5 | 119 | 4 | 13 | 11 | |||||||||||||||||||
| Local Media | 492 | 18 | 618 | 22 | (126 | ) | (20 | ) | |||||||||||||||||
| Corporate | (355 | ) | (13 | ) | (354 | ) | (12 | ) | (1 | ) | — | ||||||||||||||
| Total Segment Operating Income | 2,819 | 100 | % | 2,861 | 100 | % | (42 | ) | (1 | ) | |||||||||||||||
| Pension settlement charges | (352 | ) | (211 | ) | (141 | ) | (67 | ) | |||||||||||||||||
Restructuring and merger and acquisition-related costs | (63 | ) | (38 | ) | (25 | ) | (66 | ) | |||||||||||||||||
| Other operating items, net | 19 | 9 | 10 | 111 | |||||||||||||||||||||
| Total Operating Income | $ | 2,423 | $ | 2,621 | $ | (198 | ) | (8 | )% | ||||||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Depreciation and Amortization: | |||||||||||||||
| Entertainment | $ | 115 | $ | 117 | $ | (2 | ) | (2 | )% | ||||||
| Cable Networks | 23 | 23 | — | — | |||||||||||
| Publishing | 6 | 6 | — | — | |||||||||||
| Local Media | 45 | 44 | 1 | 2 | |||||||||||
| Corporate | 34 | 35 | (1 | ) | (3 | ) | |||||||||
| Total Depreciation and Amortization | $ | 223 | $ | 225 | $ | (2 | ) | (1 | )% | ||||||
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 - 2019 vs. 2018
| % of Total | % of Total | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2019 | Revenues | 2018 | Revenues | $ | % | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||
| TV Entertainment | $ | 11,924 | 43 | % | $ | 11,061 | 41 | % | $ | 863 | 8 | % | |||||||||||||
| Cable Networks | 12,449 | 45 | 12,683 | 46 | (234 | ) | (2 | ) | |||||||||||||||||
| Filmed Entertainment | 2,990 | 10 | 2,956 | 11 | 34 | 1 | |||||||||||||||||||
| Publishing | 814 | 3 | 825 | 3 | (11 | ) | (1 | ) | |||||||||||||||||
| Corporate/Eliminations | (365 | ) | (1 | ) | (275 | ) | (1 | ) | (90 | ) | (33 | ) | |||||||||||||
| Total Revenues | $ | 27,812 | 100 | % | $ | 27,250 | 100 | % | $ | 562 | 2 | % | |||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Adjusted OIBDA: | |||||||||||||||
| TV Entertainment | $ | 2,443 | $ | 2,466 | $ | (23 | ) | (1 | )% | ||||||
| Cable Networks | 3,515 | 4,341 | (826 | ) | (19 | ) | |||||||||
| Filmed Entertainment | 80 | (33 | ) | 113 | n/m | ||||||||||
| Publishing | 143 | 153 | (10 | ) | (7 | ) | |||||||||
| Corporate/Eliminations | (449 | ) | (433 | ) | (16 | ) | (4 | ) | |||||||
| Stock-based compensation | (201 | ) | (205 | ) | 4 | 2 | |||||||||
| Total Adjusted OIBDA | 5,531 | 6,289 | (758 | ) | (12 | ) | |||||||||
| Depreciation and amortization | (443 | ) | (433 | ) | (10 | ) | (2 | ) | |||||||
| Restructuring and other corporate matters | (775 | ) | (490 | ) | (285 | ) | n/m | ||||||||
| Programming charges | (589 | ) | (162 | ) | (427 | ) | n/m | ||||||||
| Gain on sale of assets | 549 | — | 549 | n/m | |||||||||||
| Total Operating Income | $ | 4,273 | $ | 5,204 | $ | (931 | ) | (18 | )% | ||||||
n/m - not meaningful
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Depreciation and Amortization: | |||||||||||||||
| TV Entertainment | $ | 150 | $ | 160 | $ | (10 | ) | (6 | )% | ||||||
| Cable Networks | 219 | 194 | 25 | 13 | |||||||||||
| Filmed Entertainment | 37 | 38 | (1 | ) | (3 | ) | |||||||||
| Publishing | 5 | 6 | (1 | ) | (17 | ) | |||||||||
| Corporate | 32 | 35 | (3 | ) | (9 | ) | |||||||||
| Total Depreciation and Amortization | $ | 443 | $ | 433 | $ | 10 | 2 | % | |||||||
TV Entertainment(CBS Television Network, CBS Television Studios, CBS Studios International,Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Distribution, Network Ten,Stations and CBS-branded streaming services CBS Interactive,All Access and CBS Films)CBSN, among others)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Revenues | $ | 9,164 | $ | 8,877 | $ | 287 | 3 | % | |||||||
| Segment Operating Income | $ | 1,554 | $ | 1,519 | $ | 35 | 2 | % | |||||||
| Segment Operating Income as a % of revenues | 17 | % | 17 | % | |||||||||||
| Restructuring charges | $ | 44 | $ | 16 | $ | 28 | 175 | % | |||||||
| Depreciation and amortization | $ | 115 | $ | 117 | $ | (2 | ) | (2 | )% | ||||||
| Capital expenditures | $ | 98 | $ | 98 | $ | — | — | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Advertising | $ | 6,008 | $ | 5,751 | $ | 257 | 4 | % | |||||||
| Affiliate | 2,550 | 2,082 | 468 | 22 | |||||||||||
| Content licensing | 3,157 | 3,006 | 151 | 5 | |||||||||||
| Other | 209 | 222 | (13 | ) | (6 | ) | |||||||||
| Revenues | $ | 11,924 | $ | 11,061 | $ | 863 | 8 | % | |||||||
| Adjusted OIBDA | $ | 2,443 | $ | 2,466 | $ | (23 | ) | (1 | )% | ||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Revenues | $ | 2,501 | $ | 2,160 | $ | 341 | 16 | % | |||||||
| Segment Operating Income | $ | 996 | $ | 959 | $ | 37 | 4 | % | |||||||
| Segment Operating Income as a % of revenues | 40 | % | 44 | % | |||||||||||
| Restructuring charges | $ | — | $ | 4 | $ | (4 | ) | (100 | )% | ||||||
| Depreciation and amortization | $ | 23 | $ | 23 | $ | — | — | % | |||||||
| Capital expenditures | $ | 20 | $ | 19 | $ | 1 | 5 | % | |||||||
For 2017,2019, the 16%8% increase inTV Entertainment revenues reflects growth across each of the segment’s main revenue streams.
Advertising
The 4%increase in advertising revenues was driven by Showtime Networks’ distribution11% growth in CBS Network advertising, principally reflecting CBS’ broadcasts of Super Bowl LIII and the national semifinals and championship game of the Floyd Mayweather/Conor McGregor pay-per-view boxing event, growth from the Showtime digital streaming subscription offering and higher international licensing sales of Showtime content. These increases wereNCAA Tournament, partially offset by lower domestic licensingthe timing of other sporting events. Taken together these items contributed 9-percentage points of the growth in network advertising. Advertising sales at our owned television stations decreased 11%, primarily reflecting record political advertising in 2018 from the midterm elections, partially offset by the benefit from CBS’ broadcast of Super Bowl LIII. 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 NFL and the national semifinals and championship games of the NCAA Tournament are broadcast on the CBS Television Network every other year through 2032 under the current agreement with the NCAA and Turner.
Affiliate
Affiliate revenues grew 22%, primarily as a result of sales of several titles, including Penny Dreadful,a 20% increase in 2016. As of December 31, 2017, subscriptions totaled approximately 25 million for Showtime, the Company’s premium television network,station affiliation fees and the Showtime digital streaming subscription offering combined, 52 million forretransmission revenues as well as subscriber growth at CBS Sports Network and 30 million for Smithsonian Networks.All Access.
Content licensing increased 4%5%, driven by higher revenues from the revenue growth, which was significantly offset byproduction of programming for third parties, including Unbelievable and Dead to Me, and higher revenues from the licensing of library programming to SVOD providers.
Adjusted OIBDA
Adjusted OIBDA decreased 1% as a result of an increased investment in content and higher costs associated with the pay-per-view boxing eventgrowth and an increased investmentexpansion of our streaming services, partially offset by higher revenues.
Comparability in programming. Restructuring charges2020 will be negatively affected by the benefit in 2016 primarily reflected severance costs.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Revenues | $ | 830 | $ | 767 | $ | 63 | 8 | % | |||||||
| Segment Operating Income | $ | 132 | $ | 119 | $ | 13 | 11 | % | |||||||
| Segment Operating Income as a % of revenues | 16 | % | 16 | % | |||||||||||
| Restructuring charges | $ | 5 | $ | 1 | $ | 4 | n/m | ||||||||
| Depreciation and amortization | $ | 6 | $ | 6 | $ | — | — | % | |||||||
| Capital expenditures | $ | 5 | $ | 9 | $ | (4 | ) | (44 | )% | ||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Revenues | $ | 1,668 | $ | 1,779 | $ | (111 | ) | (6 | )% | ||||||
| Segment Operating Income | $ | 492 | $ | 618 | $ | (126 | ) | (20 | )% | ||||||
| Segment Operating Income as a % of revenues | 29 | % | 35 | % | |||||||||||
| Restructuring charges | $ | 12 | $ | 6 | $ | 6 | 100 | % | |||||||
| Depreciation and amortization | $ | 45 | $ | 44 | $ | 1 | 2 | % | |||||||
| Capital expenditures | $ | 32 | $ | 37 | $ | (5 | ) | (14 | )% | ||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Advertising | $ | 5,129 | $ | 5,130 | $ | (1 | ) | — | % | ||||||
| Affiliate | 6,052 | 6,294 | (242 | ) | (4 | ) | |||||||||
| Content licensing | 1,268 | 1,259 | 9 | 1 | |||||||||||
| Revenues | $ | 12,449 | $ | 12,683 | $ | (234 | ) | (2 | )% | ||||||
| Adjusted OIBDA | $ | 3,515 | $ | 4,341 | $ | (826 | ) | (19 | )% | ||||||
Revenues
For 2017,2019, Cable Networks revenues decreased 2% from the 6% decreaseprior year, reflecting an unfavorable impact from foreign exchange rate changes of 2-percentage points. Domestic revenues remained substantially flat compared with the prior year as higher advertising revenues were offset by a decline in affiliate revenues. International revenues decreased 9% mainly as a result of a 7-percentage point unfavorable impact of foreign exchange rate changes.
Advertising
Advertising revenues remained flat compared with the prior year and included an unfavorable impact of foreign exchange rate changes of 3-percentage points. Domestic advertising revenues increased 6%, reflecting higher revenues from AMS,which comprised approximately 19% of domestic advertising revenues in 2019, and includes Pluto TV, which was acquired in March 2019. The domestic advertising growth also reflects higher pricing and the inclusion of the results of Pop TV. We began consolidating Pop TVin March 2019 when we acquired the 50% stake we did not own, which brought our ownership to 100%. These increases were partially offset by lower linear impressions. International advertising revenues decreased 13%, mainly reflecting the unfavorable impact of foreign exchange rate changes of 9-percentage points, as well as softness in the Australian and UK markets, partially offset by increases in pricing and political advertising in Argentina.
Affiliate
Affiliate revenues decreased 4%, which included a 1-percentage point unfavorable impact from foreign exchange rate changes. Domestic affiliate revenues decreased 4%, primarily driven by lower advertising revenues, primarily reflecting the benefit to 2016 from record political advertising sales during the 2016 Presidential election cycledeclines in traditional MVPD subscribers at our basic and CBS’s broadcast of Super Bowl 50. This decrease waspremium cable networks. These declines were partially offset by growth from Showtime OTT, the inclusion of the results of Pop TV, and contractual rate increases under carriage agreements. International affiliate revenues decreased 6%, reflecting a 6-percentage point unfavorable impact of foreign exchange rate changes. As of December 31, 2019, Showtime subscriptions, including Showtime OTT, totaled approximately 27 million.
Content Licensing
The 1% increase in retransmissioncontent licensing revenues, which includes the unfavorable impact of foreign exchange rate changes of 1-percentage point, was the result of increased revenues from the production of programming for third parties, including The Real Worldand fees from virtual MVPDs.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2017 | 2016 | $ | % | |||||||||||
| Segment Operating Loss | $ | (355 | ) | $ | (354 | ) | $ | (1 | ) | — | % | ||||
| Restructuring charges | $ | 2 | $ | 3 | $ | (1 | ) | (33 | )% | ||||||
| Depreciation and amortization | $ | 34 | $ | 35 | $ | (1 | ) | (3 | )% | ||||||
| Capital expenditures | $ | 30 | $ | 33 | $ | (3 | ) | (9 | )% | ||||||
| % of Total | % of Total | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2016 | Revenues | 2015 | Revenues | $ | % | |||||||||||||||||||
| Entertainment | $ | 8,877 | 67 | % | $ | 8,438 | 67 | % | $ | 439 | 5 | % | |||||||||||||
| Cable Networks | 2,160 | 16 | 2,242 | 18 | (82 | ) | (4 | ) | |||||||||||||||||
| Publishing | 767 | 6 | 780 | 6 | (13 | ) | (2 | ) | |||||||||||||||||
| Local Media | 1,779 | 14 | 1,592 | 12 | 187 | 12 | |||||||||||||||||||
| Corporate/Eliminations | (417 | ) | (3 | ) | (381 | ) | (3 | ) | (36 | ) | (9 | ) | |||||||||||||
| Total Revenues | $ | 13,166 | 100 | % | $ | 12,671 | 100 | % | $ | 495 | 4 | % | |||||||||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Adjusted OIBDA
Adjusted OIBDA decreased 19%, driven by lower revenues as well as increased investment in content and higher advertising and promotion expenses.
Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios)
| % of Total | % of Total | ||||||||||||||||||||||||
| Segment | Segment | ||||||||||||||||||||||||
| Operating | Operating | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2016 | Income | 2015 | Income | $ | % | |||||||||||||||||||
| Segment Operating Income (Loss): | |||||||||||||||||||||||||
| Entertainment | $ | 1,519 | 53 | % | $ | 1,294 | 51 | % | $ | 225 | 17 | % | |||||||||||||
| Cable Networks | 959 | 33 | 945 | 37 | 14 | 1 | |||||||||||||||||||
| Publishing | 119 | 4 | 114 | 4 | 5 | 4 | |||||||||||||||||||
| Local Media | 618 | 22 | 487 | 19 | 131 | 27 | |||||||||||||||||||
| Corporate | (354 | ) | (12 | ) | (276 | ) | (11 | ) | (78 | ) | (28 | ) | |||||||||||||
| Total Segment Operating Income | 2,861 | 100 | % | 2,564 | 100 | % | 297 | 12 | |||||||||||||||||
| Pension settlement charge | (211 | ) | — | (211 | ) | n/m | |||||||||||||||||||
Restructuring and merger and acquisition-related costs | (38 | ) | (45 | ) | 7 | 16 | |||||||||||||||||||
| Other operating items, net | 9 | 139 | (130 | ) | (94 | ) | |||||||||||||||||||
| Total Operating Income | $ | 2,621 | $ | 2,658 | $ | (37 | ) | (1 | )% | ||||||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Theatrical | $ | 547 | $ | 744 | $ | (197 | ) | (26 | )% | ||||||
| Home Entertainment | 623 | 617 | 6 | 1 | |||||||||||
| Licensing | 1,709 | 1,493 | 216 | 14 | |||||||||||
| Other | 111 | 102 | 9 | 9 | |||||||||||
| Revenues | $ | 2,990 | $ | 2,956 | $ | 34 | 1 | % | |||||||
| Adjusted OIBDA | $ | 80 | $ | (33 | ) | $ | 113 | n/m | |||||||
n/m - not meaningful
Revenues
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Depreciation and Amortization: | |||||||||||||||
| Entertainment | $ | 117 | $ | 126 | $ | (9 | ) | (7 | )% | ||||||
| Cable Networks | 23 | 23 | — | — | |||||||||||
| Publishing | 6 | 6 | — | — | |||||||||||
| Local Media | 44 | 48 | (4 | ) | (8 | ) | |||||||||
| Corporate | 35 | 32 | 3 | 9 | |||||||||||
| Total Depreciation and Amortization | $ | 225 | $ | 235 | $ | (10 | ) | (4 | )% | ||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Revenues | $ | 8,877 | $ | 8,438 | $ | 439 | 5 | % | |||||||
| Segment Operating Income | $ | 1,519 | $ | 1,294 | $ | 225 | 17 | % | |||||||
| Segment Operating Income as a % of revenues | 17 | % | 15 | % | |||||||||||
| Restructuring charges | $ | 16 | $ | 26 | $ | (10 | ) | (38 | )% | ||||||
| Depreciation and amortization | $ | 117 | $ | 126 | $ | (9 | ) | (7 | )% | ||||||
| Capital expenditures | $ | 98 | $ | 99 | $ | (1 | ) | (1 | )% | ||||||
For 2016,2019, the 5%1% increase in Filmed Entertainmentrevenues was primarily driven by 10%reflects growth in network advertisinglicensing revenues, mainly frompartially offset by lower theatrical revenues. Foreign exchange rate changes had a 1-percentage point unfavorable impact on the broadcast of Super Bowl 50 on CBSrevenue comparison.
Theatrical
The 26% decrease in 2016 and 3% growth in underlying network advertising revenues. Affiliate and subscription fees grew 45%theatrical revenues principally reflects a difficult comparison to the prior year, as a result of higher station affiliation fees the 2018 releases of Mission: Impossible - Fallout and subscription growth for CBS All Access A Quiet Place. These increases were partially offset by 7% lower content licensing and distributionTheatrical revenues compared to 2015, which included significant licensing sales of NCIS, Elementary and CSI, while 2016in 2019 benefited from the internationalreleases of Rocketman, Gemini Man and Dora and the Lost City of Gold, as well as the continued success of the 2018 release, Bumblebee. Foreign exchange rate changes had a 1-percentage point unfavorable impact on theatrical revenues.
Home Entertainment
The 1% increase in home entertainment revenues was driven by the number and mix of titles in release. Significant 2019 releases included Bumblebee, Rocketman, Instant Family, and Pet Sematary, while 2018 benefited from the releases of Mission: Impossible - Fallout, Daddy’s Home 2 and A Quiet Place.Changes in foreign exchange rates resulted in a 1-percentage point unfavorable impact on the revenue comparison.
Licensing
The 14% growth in licensing revenues was driven by increases in licensing of five Star Trek series. film catalog titles to SVOD providers and recent releases to pay television services. Foreign exchange rate changes had a 1-percentage point unfavorable impact on licensing revenues.
Other
The revenue comparison9% increase in other revenues was also impacteddriven by the sales of internet businesses in China.higher studio rental revenues.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Adjusted OIBDA for 2019 increased to $80 million from a loss of $33 million for 2018, principally driven by higher profits from licensing of film library titles. This increase in operating income of 17% primarily reflected the increase in revenues. For 2016 and2015, restructuring charges primarily reflected severance costs andwas partially offset by costs associated with exiting contractual obligationsfuture film releases and other relatedhigher incentive compensation costs. Fluctuations in results for the Filmed Entertainment segment may occur as a result of the timing of the recognition of print and advertising expenses, 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 subsequent distribution windows.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Revenues | $ | 2,160 | $ | 2,242 | $ | (82 | ) | (4 | )% | ||||||
| Segment Operating Income | $ | 959 | $ | 945 | $ | 14 | 1 | % | |||||||
| Segment Operating Income as a % of revenues | 44 | % | 42 | % | |||||||||||
| Restructuring charges | $ | 4 | $ | — | $ | 4 | n/m | ||||||||
| Depreciation and amortization | $ | 23 | $ | 23 | $ | — | — | % | |||||||
| Capital expenditures | $ | 19 | $ | 18 | $ | 1 | 6 | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2019 | 2018 | $ | % | |||||||||||
| Revenues | $ | 814 | $ | 825 | $ | (11 | ) | (1 | )% | ||||||
| Adjusted OIBDA | $ | 143 | $ | 153 | $ | (10 | ) | (7 | )% | ||||||
Revenues
For 2019, the 1% decrease in revenues primarily reflects lower print book sales, partially offset by 15% growth in digital audio sales. Bestselling titles for 2019 included Howard Stern Comes Again by Howard Stern, The Institute by Stephen King and The Pioneers by David McCullough.
Adjusted OIBDA
The 7% decrease in Adjusted OIBDA primarily reflects lower revenues and higher costs from the mix of titles.
Segment Results of Operations - 2018 vs. 2017
| % of Total | % of Total | Increase/(Decrease) | |||||||||||||||||||||||
| Year Ended December 31, | 2018 | Revenues | 2017 | Revenues | $ | % | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||
| TV Entertainment | $ | 11,061 | 41 | % | $ | 10,476 | 39 | % | $ | 585 | 6 | % | |||||||||||||
| Cable Networks | 12,683 | 46 | 12,479 | 47 | 204 | 2 | |||||||||||||||||||
| Filmed Entertainment | 2,956 | 11 | 3,075 | 12 | (119 | ) | (4 | ) | |||||||||||||||||
| Publishing | 825 | 3 | 830 | 3 | (5 | ) | (1 | ) | |||||||||||||||||
| Corporate/Eliminations | (275 | ) | (1 | ) | (325 | ) | (1 | ) | 50 | 15 | |||||||||||||||
| Total Revenues | $ | 27,250 | 100 | % | $ | 26,535 | 100 | % | $ | 715 | 3 | % | |||||||||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Adjusted OIBDA: | |||||||||||||||
| TV Entertainment | $ | 2,466 | $ | 2,301 | $ | 165 | 7 | % | |||||||
| Cable Networks | 4,341 | 4,442 | (101 | ) | (2 | ) | |||||||||
| Filmed Entertainment | (33 | ) | (187 | ) | 154 | 82 | |||||||||
| Publishing | 153 | 146 | 7 | 5 | |||||||||||
| Corporate/Eliminations | (433 | ) | (442 | ) | 9 | 2 | |||||||||
| Stock-based compensation | (205 | ) | (220 | ) | 15 | 7 | |||||||||
| Total Adjusted OIBDA | 6,289 | 6,040 | 249 | 4 | |||||||||||
| Depreciation and amortization | (433 | ) | (443 | ) | 10 | 2 | |||||||||
| Restructuring and other corporate matters | (490 | ) | (258 | ) | (232 | ) | n/m | ||||||||
| Programming charges | (162 | ) | (144 | ) | (18 | ) | n/m | ||||||||
| Gain on sale of assets | — | 146 | (146 | ) | n/m | ||||||||||
| Total Operating Income | $ | 5,204 | $ | 5,341 | $ | (137 | ) | (3 | )% | ||||||
n/m - not meaningful
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Revenues | $ | 767 | $ | 780 | $ | (13 | ) | (2 | )% | ||||||
| Segment Operating Income | $ | 119 | $ | 114 | $ | 5 | 4 | % | |||||||
| Segment Operating Income as a % of revenues | 16 | % | 15 | % | |||||||||||
| Restructuring charges | $ | 1 | $ | — | $ | 1 | n/m | ||||||||
| Depreciation and amortization | $ | 6 | $ | 6 | $ | — | — | % | |||||||
| Capital expenditures | $ | 9 | $ | 10 | $ | (1 | ) | (10 | )% | ||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Depreciation and Amortization: | |||||||||||||||
| TV Entertainment | $ | 160 | $ | 163 | $ | (3 | ) | (2 | )% | ||||||
| Cable Networks | 194 | 193 | 1 | 1 | |||||||||||
| Filmed Entertainment | 38 | 42 | (4 | ) | (10 | ) | |||||||||
| Publishing | 6 | 6 | — | — | |||||||||||
| Corporate | 35 | 39 | (4 | ) | (10 | ) | |||||||||
| Total Depreciation and Amortization | $ | 433 | $ | 443 | $ | (10 | ) | (2 | )% | ||||||
TV Entertainment(CBS Television Network, CBS Television Studios, CBS Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Stations and CBS-branded streaming services CBS Local Digital Media)All Access and CBSN, among others)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Revenues | $ | 1,779 | $ | 1,592 | $ | 187 | 12 | % | |||||||
| Segment Operating Income | $ | 618 | $ | 487 | $ | 131 | 27 | % | |||||||
| Segment Operating Income as a % of revenues | 35 | % | 31 | % | |||||||||||
| Restructuring charges | $ | 6 | $ | 19 | $ | (13 | ) | (68 | )% | ||||||
| Depreciation and amortization | $ | 44 | $ | 48 | $ | (4 | ) | (8 | )% | ||||||
| Capital expenditures | $ | 37 | $ | 28 | $ | 9 | 32 | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Advertising | $ | 5,751 | $ | 5,696 | $ | 55 | 1 | % | |||||||
| Affiliate | 2,082 | 1,674 | 408 | 24 | |||||||||||
| Content licensing | 3,006 | 2,880 | 126 | 4 | |||||||||||
| Other | 222 | 226 | (4 | ) | (2 | ) | |||||||||
| Revenues | $ | 11,061 | $ | 10,476 | $ | 585 | 6 | % | |||||||
| Adjusted OIBDA | $ | 2,466 | $ | 2,301 | $ | 165 | 7 | % | |||||||
Revenues
For 2016,2018, the 12%6% increase in TV Entertainment revenues reflects growth across each of the segment’s main revenue streams.
Advertising
The 1% increase in advertising revenues was leddriven by record political advertising sales duringassociated with the 2016 Presidential election cycle, 14% growth in retransmission and subscription revenues,2018 midterm elections, partially offset by the absence of Thursday Night Football and the national semifinals and championship game of the NCAA Tournament, which were broadcast by CBS in 2017. TV Entertainment advertising revenues also benefited from the adoption of Super Bowl 50 on CBS duringa new revenue recognition standard in the first quarter of 2016.
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2016 | 2015 | $ | % | |||||||||||
| Segment Operating Loss | $ | (354 | ) | $ | (276 | ) | $ | (78 | ) | (28 | )% | ||||
| Restructuring charges | $ | 3 | $ | — | $ | 3 | n/m | ||||||||
| Depreciation and amortization | $ | 35 | $ | 32 | $ | 3 | 9 | % | |||||||
Capital expenditures (a) | $ | 33 | $ | 16 | $ | 17 | 106 | % | |||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Affiliate
Affiliate revenues grew 24% as a result of a 22% increase in station affiliation fees and retransmission revenues as well as subscriber growth at CBS All Access.
Content Licensing
Content licensing increased 4%, primarily reflecting higher international licensing and the impact of the aforementioned adoption of a new revenue recognition standard in 2018, which resulted in higher revenues under certain distribution arrangements, with an offsetting increase to operating expenses. These increases were partially offset by lower domestic licensing, as 2017 included the licensing of NCIS: New Orleans, Madam Secretary and titles from the CSI franchise.
Adjusted OIBDA
Adjusted OIBDA increased 7% as a result of higher revenues and lower programming costs associated with the absence of CBS’s broadcast of Thursday Night Football, partially offset by an increased investment in content and digital initiatives.
Cable Networks (Showtime Networks, Nickelodeon, MTV, BET, Comedy Central, Paramount Network, Nick Jr., VH1, TV Land, CMT, Smithsonian Networks, ViacomCBS Networks International, Network 10, Channel 5 and Telefe)
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
| Current assets: | |||||||||||||||
| Cash and cash equivalents | $ | 285 | $ | 598 | $ | (313 | ) | (52 | )% | ||||||
Receivables, net (a) | 3,697 | 3,314 | 383 | 12 | |||||||||||
Programming and other inventory (b) | 1,828 | 1,427 | 401 | 28 | |||||||||||
| Prepaid income taxes | 78 | 30 | 48 | 160 | |||||||||||
Current assets of discontinued operations (c) | 1 | 305 | (304 | ) | (100 | ) | |||||||||
| All other current assets, net | 384 | 389 | (5 | ) | (1 | ) | |||||||||
| Total current assets | $ | 6,273 | $ | 6,063 | $ | 210 | 3 | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Advertising | $ | 5,130 | $ | 4,947 | $ | 183 | 4 | % | |||||||
| Affiliate | 6,294 | 6,479 | (185 | ) | (3 | ) | |||||||||
| Content licensing | 1,259 | 1,053 | 206 | 20 | |||||||||||
| Revenues | $ | 12,683 | $ | 12,479 | $ | 204 | 2 | % | |||||||
| Adjusted OIBDA | $ | 4,341 | $ | 4,442 | $ | (101 | ) | (2 | )% | ||||||
Revenues
For 2018, the 2% increase primarily relates toin Cable Networks revenues was driven by 15% growth in international revenues, reflecting growth across each of the segment’s revenue streams. Domestic revenues decreased 2%, driven by lower affiliate revenues and advertising revenues, partially offset by increased content licensing revenues. International revenues included a 3-percentage point unfavorable impact from foreign exchange rate changes.
Advertising
Advertising revenues increased 4%, driven by 26% higher receivables associated with television licensing arrangements.
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Other assets (a) | $ | 2,840 | $ | 2,707 | $ | 133 | 5 | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Assets of discontinued operations (a) | $ | 12 | $ | 4,291 | $ | (4,279 | ) | (100 | )% | ||||||
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
| Current liabilities: | |||||||||||||||
Accounts payable (a) | $ | 231 | $ | 148 | $ | 83 | 56 | % | |||||||
| Accrued compensation | 343 | 369 | (26 | ) | (7 | ) | |||||||||
| Participants’ share and royalties payable | 986 | 1,024 | (38 | ) | (4 | ) | |||||||||
Program rights (b) | 373 | 290 | 83 | 29 | |||||||||||
Commercial paper (c) | 679 | 450 | 229 | 51 | |||||||||||
| All other current liabilities, net | 1,360 | 1,427 | (67 | ) | (5 | ) | |||||||||
| Current liabilities | $ | 3,972 | $ | 3,708 | $ | 264 | 7 | % | |||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Affiliate
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Long-term debt (a) | $ | 9,464 | $ | 8,902 | $ | 562 | 6 | % | |||||||
Content Licensing
Content licensing revenues increased 20% reflecting higher revenues from the licensing of original programming from our basic cable networks and Showtime, including the renewal of Dexter, as well as the benefit to 2018 from SpongeBob SquarePants: The Broadway Musical.
Adjusted OIBDA
Adjusted OIBDA decreased 2%, driven by an increased investment in content and growth initiatives, partially offset by the repayment of $1.20 billion of outstanding senior notes. (See Note 9 to the consolidated financial statements.)revenue growth and lower expenses resulting from cost transformation initiatives.
Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios)
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Pension and postretirement benefit obligations (a) | $ | 1,328 | $ | 1,769 | $ | (441 | ) | (25 | )% | ||||||
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Theatrical | $ | 744 | $ | 716 | $ | 28 | 4 | % | |||||||
| Home Entertainment | 617 | 789 | (172 | ) | (22 | ) | |||||||||
| Licensing | 1,493 | 1,468 | 25 | 2 | |||||||||||
| Other | 102 | 102 | — | — | |||||||||||
| Revenues | $ | 2,956 | $ | 3,075 | $ | (119 | ) | (4 | )% | ||||||
| Adjusted OIBDA | $ | (33 | ) | $ | (187 | ) | $ | 154 | 82 | % | |||||
Revenues
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Other liabilities (a) | $ | 2,155 | $ | 1,807 | $ | 348 | 19 | % | |||||||
| Increase/(Decrease) | |||||||||||||||
| At December 31, | 2017 | 2016 | $ | % | |||||||||||
Liabilities of discontinued operations (a) | $ | 42 | $ | 2,451 | $ | (2,409 | ) | (98 | )% | ||||||
| Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2017 | 2016 | 2017 vs. 2016 | 2015 | 2016 vs. 2015 | ||||||||||||||||||
| Cash provided by operating activities from: | |||||||||||||||||||||||
| Continuing operations | $ | 793 | $ | 1,454 | $ | (661 | ) | $ | 1,189 | $ | 265 | ||||||||||||
| Discontinued operations | 94 | 231 | (137 | ) | 205 | 26 | |||||||||||||||||
| Cash provided by operating activities | 887 | 1,685 | (798 | ) | 1,394 | 291 | |||||||||||||||||
| Cash (used for) provided by investing activities from: | |||||||||||||||||||||||
| Continuing operations | (523 | ) | (334 | ) | (189 | ) | 179 | (513 | ) | ||||||||||||||
| Discontinued operations | (24 | ) | (6 | ) | (18 | ) | (25 | ) | 19 | ||||||||||||||
| Cash (used for) provided by investing activities | (547 | ) | (340 | ) | (207 | ) | 154 | (494 | ) | ||||||||||||||
| Cash used for financing activities | (677 | ) | (1,046 | ) | 369 | (1,653 | ) | 607 | |||||||||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (337 | ) | $ | 299 | $ | (636 | ) | $ | (105 | ) | $ | 404 | ||||||||||
Theatrical
Theatrical revenues increased 4%, principally reflecting the 2018 release of Mission: Impossible - Fallout. Other significant 2018 releasesincluded A Quiet Place and Bumblebee. Significant releases in 2017 included Transformers: The Last Knight, xXx: Return of Xander Cage, Daddy’s Home 2 and Baywatch. Foreign exchange rate changes had a 1-percentage point unfavorable impact on theatrical revenues.
Home Entertainment
Home entertainment revenues decreased 22% in 2018, primarily reflecting the number and mix of titles in release. Significant 2018 releases included Mission: Impossible - Fallout, Daddy’s Home 2 and A Quiet Place compared to Transformers: The Last Knight, Jack Reacher: Never Go Back and Arrival in 2017.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Licensing revenues increased 2% in 2018, driven by higher revenues from the production of programming for third parties, including Tom Clancy’s Jack Ryan, Maniac, The Haunting of Hill House and The Cloverfield Paradox.
Adjusted OIBDA
Adjusted OIBDA for Filmed Entertainment was a loss of $33 million in 2018 compared with a loss of $187 million in 2017, an improvement of 82%, reflecting lower print and advertising expenses, primarily driven by the number and mix of theatrical releases and a charge resulting from the termination of a slate financing agreement in 2017. Fluctuations in results for the Filmed Entertainment segment may occur as a result of the timing of the recognition of print and advertising expenses, 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 subsequent distribution windows.
Publishing (Simon & Schuster)
| Increase/(Decrease) | |||||||||||||||
| Year Ended December 31, | 2018 | 2017 | $ | % | |||||||||||
| Revenues | $ | 825 | $ | 830 | $ | (5 | ) | (1 | )% | ||||||
| Adjusted OIBDA | $ | 153 | $ | 146 | $ | 7 | 5 | % | |||||||
Revenues
For 2018, the 1%decrease in revenues primarily reflects lower sales of print and electronic books, partially offset by 20% growth in digital audio sales. Bestselling titles for 2018 included Fear: Trump in the White House by Bob Woodward, The Outsider by Stephen King and Whiskey in a Teacup by Reese Witherspoon.
Adjusted OIBDA
The 5% increasein Adjusted OIBDA mainly reflects lower production costs.
Cash Flows
The changes in cash, cash equivalents and restricted cash were as follows:
| Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||
| Year Ended December 31, | 2019 | 2018 | 2019 vs. 2018 | 2017 | 2018 vs. 2017 | ||||||||||||||||||
| Cash provided by operating activities from: | |||||||||||||||||||||||
| Continuing operations | $ | 1,230 | $ | 3,463 | $ | (2,233 | ) | $ | 2,345 | $ | 1,118 | ||||||||||||
| Discontinued operations | — | 1 | (1 | ) | 94 | (93 | ) | ||||||||||||||||
| Cash provided by operating activities | 1,230 | 3,464 | (2,234 | ) | 2,439 | 1,025 | |||||||||||||||||
| Cash (used for) provided by investing activities from: | |||||||||||||||||||||||
| Continuing operations | (153 | ) | (588 | ) | 435 | 150 | (738 | ) | |||||||||||||||
| Discontinued operations | (2 | ) | (23 | ) | 21 | (24 | ) | 1 | |||||||||||||||
| Cash (used for) provided by investing activities | (155 | ) | (611 | ) | 456 | 126 | (737 | ) | |||||||||||||||
| Cash used for financing activities | (1,216 | ) | (2,531 | ) | 1,315 | (3,009 | ) | 478 | |||||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1 | ) | (25 | ) | 24 | 58 | (83 | ) | |||||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (142 | ) | $ | 297 | $ | (439 | ) | $ | (386 | ) | $ | 683 | ||||||||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating Activities. The decrease in cash provided by operating activities from continuing operations for 2019 compared with 2018 was primarily driven by an increased investment in television and film programming, higher payments for income taxes and payments of $132 million associated with costs related to the Merger. Operating cash flow for 2019 and 2018 also included payments for restructuring activities of $234 million and $219 million, respectively.
The increase in cash provided by operating activities from continuing operations for 2018 compared with 2017 was primarily driven by lower cash payments for income taxes and growth in affiliate and subscription fees and higher advertising revenues, including from the broadcast of Super Bowl 50,which were partially offset by an increased investment in programmingtelevision and higher paymentsfilm programming. Operating cash flow for income taxes.2017 also included discretionary pension contributions of $600 million to prefund our qualified pension plans.
Cash provided by operating activities from discontinued operations primarily reflected the operating activities of CBS Radio. Operating activities from discontinued operations also included payments and refunds for tax matters in foreign jurisdictions related to previously disposed businesses that are accounted for as discontinued operations.
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Cash taxes included in operating activities from continuing operations | $ | 365 | $ | 390 | $ | 287 | |||||
Less: Excess tax benefits from the exercise of stock options and vesting of restricted stock units, included in financing activities | — | 17 | 88 | ||||||||
| Cash paid for income taxes from continuing operations | $ | 365 | $ | 373 | $ | 199 | |||||
The decrease in cash paidpayments for income taxes infor 2018 compared to 2017 reflects a taxthe benefit from contributions of $600 million to prefund the Company’s qualified pension plans and a higherfederal income tax benefit associated with the exercise of stock options and vesting of RSUs, offset byoverpayment, which included the impact from the expirationretroactive renewal of a federal tax law which benefited cash taxes for 2016. The increase in cash paid for income taxes for 2016 was driven by higher taxable income and a higher tax benefit in 2015 from the exercise of stock options and the vesting of restricted stock units.law.
Investing Activities
| Year Ended December 31, | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||||||||||||||||
Acquisitions (including acquired television library), net of cash acquired (a) | $ | (270 | ) | $ | (92 | ) | $ | (12 | ) | |||||||||||||
Investments (a) | $ | (171 | ) | $ | (161 | ) | $ | (128 | ) | |||||||||||||
Capital expenditures | (185 | ) | (196 | ) | (171 | ) | (353 | ) | (352 | ) | (356 | ) | ||||||||||
Investments in and advances to investee companies (c) | (110 | ) | (81 | ) | (98 | ) | ||||||||||||||||
Acquisitions, net of cash acquired (b) | (399 | ) | (118 | ) | (289 | ) | ||||||||||||||||
Proceeds from dispositions | 11 | 20 | 383 | 756 | 39 | 892 | ||||||||||||||||
| All other investing activities from continuing operations, net | 31 | 15 | 77 | |||||||||||||||||||
| Other investing activities from continuing operations | 14 | 4 | 31 | |||||||||||||||||||
Cash flow (used for) provided by investing activities from continuing operations | (523 | ) | (334 | ) | 179 | (153 | ) | (588 | ) | 150 | ||||||||||||
| Cash flow used for investing activities from discontinued operations | (24 | ) | (6 | ) | (25 | ) | (2 | ) | (23 | ) | (24 | ) | ||||||||||
| Cash flow (used for) provided by investing activities | $ | (547 | ) | $ | (340 | ) | $ | 154 | $ | (155 | ) | $ | (611 | ) | $ | 126 | ||||||
(a) Primarily includes our investment in The CW.
(b) 2019 primarily reflects the acquisition of Pluto Inc. and the remaining 50% interest in Pop TV, a general entertainment cable network. 2018 primarily reflects the acquisitions of WhoSay Inc., a leading influence marketing firm, Pop Culture Media, a digital entertainment media company, and VidCon LLC, a host of conferences dedicated to online video. 2017 primarily reflects the acquisition of Network Ten,10, one of three major commercial broadcast networks in Australia, for approximately $124 million, net of cash acquired, and the acquisition of a television library. 2016
(c) 2019 primarily reflects the acquisitionssale of a sports-focused digital media businessCBS Television City. 2017 primarily reflects the sale of our 49.76% interest in EPIX and a publishing business.the sale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction.
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, | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||||||||||||||||
| Repurchase of CBS Corp. Class B Common Stock | $ | (1,111 | ) | $ | (2,997 | ) | $ | (2,813 | ) | |||||||||||||
| Proceeds from (repayments of) short-term debt borrowings, net | 229 | 450 | (616 | ) | $ | 25 | $ | (5 | ) | $ | 229 | |||||||||||
| Proceeds from issuance of senior notes | 1,773 | 684 | 1,959 | 492 | — | 3,157 | ||||||||||||||||
| Repayment of senior notes and debentures | (1,244 | ) | (199 | ) | — | |||||||||||||||||
| Proceeds from debt borrowings of CBS Radio | 40 | 1,452 | — | |||||||||||||||||||
| Repayment of debt borrowings of CBS Radio | (43 | ) | (110 | ) | — | |||||||||||||||||
| Repayment of notes and debentures | (910 | ) | (1,102 | ) | (4,729 | ) | ||||||||||||||||
| Dividends | (296 | ) | (288 | ) | (300 | ) | (595 | ) | (599 | ) | (616 | ) | ||||||||||
| Repurchase of the Company’s Class B Common Stock | (57 | ) | (586 | ) | (1,111 | ) | ||||||||||||||||
| Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (89 | ) | (58 | ) | (96 | ) | (56 | ) | (67 | ) | (103 | ) | ||||||||||
| Proceeds from exercise of stock options | 91 | 21 | 142 | 15 | 29 | 263 | ||||||||||||||||
| All other financing activities, net | (27 | ) | (1 | ) | 71 | |||||||||||||||||
| Other financing activities | (130 | ) | (201 | ) | (99 | ) | ||||||||||||||||
| Cash flow used for financing activities | $ | (677 | ) | $ | (1,046 | ) | $ | (1,653 | ) | $ | (1,216 | ) | $ | (2,531 | ) | $ | (3,009 | ) | ||||
Free Cash Flow
Free cash flow is a non-GAAP financial measure. Free cash flow reflects the Company’sour net cash flow provided by (used for) operating activities before operating cash flow from discontinued operations, and discretionary contributions to prefund the Company’s pension plans, and includingless capital expenditures. The Company’sOur calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash that is directly related to the Company’sour operations. Free cash flow excludes discretionary contributions to prefund the Company’s pension plans because management assesses the Company’s ability to generate operating cash flows without considering the impact from discretionary pension contributions, and decisions regarding the timing of pension plan funding are not dependent on the level of operating cash flows generated during the period. The Company’sOur net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.
Management believes free cash flow provides investors with an important perspective on the cash available to the Companyus to service debt, make strategic acquisitions and investments, maintain itsour capital assets, satisfy itsour tax obligations, and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the Company’sour ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of the Company’sour operating performance. The Company believesWe believe the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Company’sour underlying operations in a manner similar to the method used by management. Free cash flow is one ofamong several components of incentive compensation targets for certain management personnel. In addition, free cash flow is a primary measure used externally by the Company’sour investors, analysts and industry peers for purposes of valuation and comparison of the Company’sour operating performance to other companies in itsour industry.
As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, either net cash flow provided by (used for) operating activities as a measure of liquidity or net earnings (loss) as a measure of operating performance. Free cash flow, as the Company calculateswe calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow as a measure of liquidity has certain limitations, does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company’sour ability to fund itsour cash needs. When comparing free cash flow to
The following table presents a reconciliation of our net cash flow provided by (used for) operating activities the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions that are not reflected into free cash flow.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Net cash flow provided by operating activities (GAAP) | $ | 1,230 | $ | 3,464 | $ | 2,439 | |||||
| Capital expenditures | (353 | ) | (352 | ) | (356 | ) | |||||
| Less: Operating cash flow from discontinued operations | — | 1 | 94 | ||||||||
| Free cash flow (Non-GAAP) | $ | 877 | $ | 3,111 | $ | 1,989 | |||||
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
On December 19, 2019, ViacomCBS declared a reconciliationquarterly cash dividend of $.24 per share on its Class A and Class B Common Stock, resulting in total dividends of $150 million, which were paid on January 10, 2020. Prior to the Merger, Viacom and CBS each declared a quarterly cash dividend during each of the Company’s free cash flow to net cash flow provided by operating activities.
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Net cash flow provided by operating activities | $ | 887 | $ | 1,685 | $ | 1,394 | |||||
| Capital expenditures | (185 | ) | (196 | ) | (171 | ) | |||||
Exclude discretionary pension plan contributions, net of tax of $219 million | (381 | ) | — | — | |||||||
| Exclude operating cash flow from discontinued operations | 94 | 231 | 205 | ||||||||
| Free cash flow | $ | 989 | $ | 1,258 | $ | 1,018 | |||||
first three quarters of 2019 and during each of the four quarters of 2018 and 2017. During 2019, CBS declared total per share dividends of $.54, resulting in total dividends of $205 million. For each of the years ended December 31, 2018 and 2017, 2016 and 2015, the CompanyCBS declared total per share dividends of $.72, $.66, and $.60, respectively, which resultedresulting in total annual dividends of $274 million and $289 million, $294respectively. During 2019, Viacom declared total per share dividends of $.60, resulting in total dividends of $245 million. For each of the years ended December 31, 2018 and 2017, Viacom declared total per share dividends of $.80, resulting in total annual dividends of $325 million and $293$323 million, respectively.
On February 1, 2018, the Company announced12, 2020, ViacomCBS declared a quarterly cash dividend of $.18$.24 per share on its Class A and Class B Common Stock, payable on April 1, 2018.2020.
Share Repurchase Program
During 2017, the CompanyDecember 2019, we repurchased 16.21.2 million shares of CBS Corp.ViacomCBS Class B Common Stock under itsour share repurchase program for $1.05 billion,$50 million, at an average cost of $64.70$40.78 per share. At December 31, 2017, $3.062019, $2.41 billion of authorization remained under the share repurchase program.
Capital Structure
The following table sets forth the Company’sour debt.
| At December 31, | 2017 | 2016 | 2019 | 2018 | ||||||||||
| Commercial paper | $ | 679 | $ | 450 | $ | 699 | $ | 674 | ||||||
| Senior debt (1.95%-7.875% due 2017-2045) | 9,426 | 8,850 | ||||||||||||
| Obligations under capital leases | 57 | 75 | ||||||||||||
| Senior debt (2.30%-7.875% due 2019-2045) | 16,690 | 17,086 | ||||||||||||
| Junior debt (5.875%-6.250% due 2057) | 1,286 | 1,284 | ||||||||||||
| Obligations under finance leases | 44 | 69 | ||||||||||||
Total debt (a) | 10,162 | 9,375 | 18,719 | 19,113 | ||||||||||
| Less commercial paper | 679 | 450 | 699 | 674 | ||||||||||
| Less current portion of long-term debt | 19 | 23 | 18 | 339 | ||||||||||
| Total long-term debt, net of current portion | $ | 9,464 | $ | 8,902 | $ | 18,002 | $ | 18,100 | ||||||
| (a) | At December 31, |
During the year ended December 31, 2019, we issued $500 million of 4.20% senior notes due 2029. We used the net proceeds from this issuance in the redemption of our $600 million outstanding 2.30% senior notes due August 2019. During 2019, we also repaid the $220 million aggregate principal amount of our 5.625% senior notes due September 2019 and the $90 million aggregate principal amount of our 2.75% senior notes due December 2019.
During the year ended December 31, 2018, we redeemed $1.13 billion of senior notes and debentures for a redemption price of $1.10 billion, resulting in a pre-tax gain on early extinguishment of debt of $18 million ($14 million, net of tax).
During the year ended December 31, 2017, we issued $3.10 billion of senior notes and junior subordinated debentures. Also during 2017, we redeemed and repaid $4.67 billion of senior notes, of which $4.27 billion was
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Our 5.875% junior subordinated debentures due February 2057 and 6.25% junior subordinated debentures due February 2057 accrue interest at the stated fixed rates until February 28, 2022 and February 28, 2027, respectively, on which dates the rates will switch to floating rates based on three-month LIBOR plus 3.895% and 3.899%, respectively, reset quarterly. These debentures can be called by us 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 year ended December 31, 2017.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.
subsequent upgrades. At December 31, 2017,2019, the Company’s scheduled maturitiesoutstanding principal amount of long-term debt at face value, excluding capital leases, wereour 2.25% senior notes due February 2022 and 3.45% senior notes due October 2026 was $50 million and $124 million, respectively.
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 follows:well as certain optional redemption provisions for our junior debentures.
| 2023 and | ||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||||||||||
| Long-term debt | $ | — | $ | 600 | $ | — | $ | 300 | $ | 700 | $ | 7,940 | ||||||||||||||||
In January 2020, our commercial paper program was increased to $3.50 billion in conjunction with the new $3.50 billion revolving credit facility described below.
Credit Facility
At December 31, 2017, the Company2019, we had a $2.5$2.50 billion revolving credit facility held by CBS prior to the Merger (the “CBS Credit Facility”) with a maturity in June 2021 and a $2.50 billion revolving credit facility held by Viacom prior to the Merger (the “Viacom Credit Facility”), with a maturity in February 2024. At December 31, 2019, we had no borrowings outstanding under the CBS Credit Facility or the Viacom Credit Facility and the remaining availability, net of outstanding letters of credit, was $2.50 billion for each facility.
In January 2020, the CBS Credit Facility was terminated and the Viacom Credit Facility was amended and restated to a $3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”) which expires in June 2021.. The Company,Credit Facility is used for general corporate purposes and to support commercial paper outstanding, if any. We may, at itsour option, may also borrow in certain foreign currencies up to specified limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the Company’sour option at the time of each borrowing and are based generally on the prime rate in the U.S. or LIBOR plus a margin based on the Company’sour senior unsecured debt rating. The Company pays a facility fee based on the total amount of the commitments.Credit Facility 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
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Liquidity and Capital Resources
We believe that itsour operating cash flows, cash and cash equivalents, borrowing capacity under itsthe $3.50 billion Credit Facility, which had $2.49 billion of remaining availability at December 31, 2017, and access to capital markets are sufficient to fund itsour operating, investing and financing requirements for the next twelve months.
Funding for the Company’sour long-term debt obligations due over the next five years of $1.60$5.90 billion is expected to come from the Company’sour ability to refinance itsour debt and cash generated from operating activities.
Our access to capital markets can be impacted by factors outside our control, including economic conditions; however, we believe that our strong cash flows and balance sheet, our credit facility and our credit rating will provide us with adequate access to funding for our expected cash needs. The cost of any new borrowings are 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.
At December 31, 2017, the Company2019, we had $3.06$2.41 billion of remaining availability under itsour share repurchase program. Share repurchases under the program are expected to be funded by cash flows from operations and, as appropriate, with short-term borrowings, including commercial paper, and/or the issuance of long-term debt.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Contractual Obligations
As of December 31, 2017,2019, payments due by period under the Company’sour significant contractual obligations with remaining terms in excess of one year were as follows:
| Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||
| 2023 and | and | 2025 and | ||||||||||||||||||||||||||||||||||||
| Total | 2018 | 2019-2020 | 2021-2022 | thereafter | Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | |||||||||||||||||||||||||||||
| Off-Balance Sheet Arrangements | ||||||||||||||||||||||||||||||||||||||
Programming and talent commitments (a) | $ | 10,414 | $ | 2,281 | $ | 4,063 | $ | 3,276 | $ | 794 | $ | 10,355 | $ | 3,003 | $ | 5,350 | $ | 1,159 | $ | 843 | ||||||||||||||||||
Purchase obligations (b) | 790 | 218 | 423 | 78 | 71 | 1,517 | 609 | 744 | 82 | 82 | ||||||||||||||||||||||||||||
| On-Balance Sheet Arrangements | ||||||||||||||||||||||||||||||||||||||
Operating leases (c) | 1,122 | 155 | 240 | 200 | 527 | 2,709 | 371 | 648 | 456 | 1,234 | ||||||||||||||||||||||||||||
Long-term debt obligations (d) | 9,540 | — | 600 | 1,000 | 7,940 | 18,486 | — | 2,345 | 3,557 | 12,584 | ||||||||||||||||||||||||||||
Interest commitments on long-term debt (e) | 5,122 | 406 | 793 | 741 | 3,182 | 13,046 | 868 | 1,627 | 1,418 | 9,133 | ||||||||||||||||||||||||||||
Capital lease obligations (including interest) (f) | 62 | 19 | 27 | 16 | — | |||||||||||||||||||||||||||||||||
Finance leases (including interest) (f) | 47 | 21 | 23 | 2 | 1 | |||||||||||||||||||||||||||||||||
Other long-term contractual obligations (g) | 1,834 | — | 1,081 | 425 | 328 | 2,076 | — | 1,479 | 412 | 185 | ||||||||||||||||||||||||||||
| Total | $ | 28,884 | $ | 3,079 | $ | 7,227 | $ | 5,736 | $ | 12,842 | $ | 48,236 | $ | 4,872 | $ | 12,216 | $ | 7,086 | $ | 24,062 | ||||||||||||||||||
(a) ProgrammingOur programming and talent commitments of the Company primarily include $7.30$5.39 billion for sports programming rights, $2.44$3.80 billion relating to the production and licensing of television and film programming, and $672 million$1.17 billion for talent contracts.
(b) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.
(c) Consists of long-term noncancellable operating lease commitments for office space, equipment, satellite transponders and studio facilities.
(d) Long-term debt obligations are presented at face value, excluding capitalfinance leases.
(e) Future interest based on scheduled debt maturities, excluding capital leases.maturities. Interest payments on junior subordinated debentures subsequent to the expiration of their fixed-rate periods have been included based on their current fixed rates.
(f) Includes capital leasesfinance lease obligations for satellite transponders.transponders and equipment.
(g) Reflects long-term contractual obligations recorded on the Company’s Consolidated Balance Sheet, including program liabilities; participations due to producers; residuals; and a tax liability resulting from the enactment of the Tax Reform Act in December 2017. This tax liability reflects the estimatedremaining tax on the Company’sour historical accumulated foreign earnings and profits, which is payable to the IRS over eight years.in 2024 and 2025.
The table above excludes $138 million ofdoes not include payments relating to reserves for uncertain tax positions of $384 million, and the related accrued interest and penalties, asinterest under our credit facility and for commercial paper borrowings, redeemable noncontrolling interest of $254 million, our guarantee liability of $124 million relating to the Company cannot reasonably predict thesale of CBS Television City; lease indemnification obligations of $86 million or potential future contributions to our qualified defined benefit pension plans. The amount of and timing of cash payments relatingwith respect to this obligation.these items are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimations of future payments.
In 2018, the Company expects2020, we expect to make contributions of approximately $53$70 million to itsour non-qualified pension plans to satisfy the benefit payments due under these plans. Also in 2018, the Company expects2020, we expect to contribute approximately $49$43 million to itsour other postretirement benefit plans to satisfy the Company’sour portion of benefit payments due under these plans.
Guarantees
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
CBS Television City. During 2019, we completed the sale of CBS Television City. We have 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 on the Consolidated Balance Sheet at December 31, 2019 is a liability of $124 million, reflecting the present value of the estimated amount payable under the guarantee obligation.
Lease Guarantees. As noted above, we have indemnification obligations of $86 million with respect to leases primarily associated with the previously discontinued operations of Famous Players Inc.
Film Financing Arrangements. From time to time we enter into film or television programming (collectively referred to as “film”) financing arrangements that involve the sale of a partial copyright interest in a film to third-party investors. Since the investors typically have the risks and rewards of ownership proportionate to their ownership in the film, we generally record the amounts received for the sale of copyright interest as a reduction of the cost of the film and related cash flows are reflected in net cash flow from operating activities. We also enter into collaborative arrangements with other studios to jointly finance and distribute films (“co-financing arrangements”), under which each partner is responsible for distribution of the film in specific territories or distribution windows. The partners’ share in the profits and losses of the films under these arrangements are included within participations expense.
In the course of itsour business, the Companywe both providesprovide and receivesreceive indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Companywe 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. The Company recordsWe record a liability for its indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Critical Accounting Policies
The preparation of the Company’sour 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 at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates itswe 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.
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 the determination of the amount and timing of revenue recognition include the identification of distinct performance obligations in contracts containing bundled advertising sales and content licenses, and the allocation of consideration among individual performance obligations within these arrangements based on their relative standalone selling prices.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Advertising Revenues—Advertising revenues are recognized when the advertising spots are aired on television 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.
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.
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 subscribers to our digital streaming services, 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 toour 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.
Film and Television Production Costs
For television programming, our estimates of Ultimate Revenue are initially limited to the amount of revenue contracted for each episode in the initial market and estimates of revenue from a secondary market where we can demonstrate a history of earning such revenue in that market. Estimates for additional secondary market revenues such as domestic and foreign syndication and home entertainment are included in the estimates of Ultimate Revenues once it can be demonstrated that a program can be successfully licensed in such secondary market. For each television program, management bases these estimates on the performance in the initial markets, the existence of future firm commitments to sell and the past performance of similar television 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 theatrical release. For acquired film libraries, our estimate of Ultimate Revenues is for a period within 20 years from the date of acquisition. Prior to the release of feature films, we estimate Ultimate Revenues based on the historical performance of similar content and pre-release market research
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
(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. After their theatrical release the most sensitive factor affecting our estimates for feature films is the extent of home entertainment sales. In addition to theatrical performance, home entertainment sales vary based on a variety of factors including demand for our titles, the volume and quality of competing products, marketing and promotional strategies, as well as economic conditions.
Estimates of Ultimate Revenues for internally-produced television programming are updated regularly based on information available as the television program progresses through its life cycle. If Ultimate Revenue estimates are revised, the difference between amortization expense determined using the new estimate and any amounts previously expensed during that year are reflected in our Consolidated Statement of Operations in the quarter in which the estimates are revised. Overestimating Ultimate Revenues for internally-produced programming could result in the understatement of the amortization of capitalized production costs and future net realizable value adjustments, as well as the misstatement of accruals for participation expense.
Acquired Program Rights
The costs incurred in acquiring television series and feature film programming rights, including advances, are capitalized when the program is accepted and available for airing andat the commencement of the license period. 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. These costs are expensed over the shorter of the license period or the period in which an economic benefit is expected to be derived. The economic benefit is determined based on management’s estimates of revenues to be derived from the programming.programming, the expected number of future airings, which may differ from the contracted number of airings, and the length of the license period. If initial airings are expected to generate higher revenues an accelerated method of amortization is used. Management’s judgment is required in determining the value of the future economic benefit and the timing of the expensing of these costs.
The net realizable value of acquired programming is regularly evaluated either by title or estimated accruals for participation expense.on a daypart basis, which is defined as an aggregation of programs broadcast during a particular time of day or an aggregation of programs of a similar type based on the specific demographic targeted by each respective program or program service. Net realizable value is determined by estimating advertising revenues to be derived from the future airing of the programming within the daypart and allocating affiliate revenues to the programming, each as applicable. An impairment charge may be necessary if our estimates of future cash flows are below the carrying value of the programming or if programming is abandoned.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Goodwill and Intangible Assets Impairment Test
Television FCC Licenses and International Broadcast Licenses—FCC licenses are tested for impairment at the geographic market level. The Company considersWe consider each geographic market, which is comprised of
all of the Company’sour television stations within that geographic market, to be a single unit of accounting because the FCC licenses at this level represent their highest and best use. At December 31, 2017 the Company2019, we had eight reporting units with goodwill balances, and 14 television markets with FCC license book values. For broadcast licenses in Australia, we consider all of our broadcast licenses within the country to be a single unit of accounting because this represents their highest and best use.
For 2019, we performed a quantitative impairment test for our Australian broadcast licenses. The discount rate is determined based on the average of the weighted average cost of capital of comparable entities in the broadcast industry. The discount rates and perpetual nominal growth rates used for each television station for 2017rate were 7.5%11% and 2.0%0.5%, respectively.
The estimated fair values of the FCC licenses and Australian broadcast licenses are highly dependent on the assumptions of future economic conditions in the individual geographic markets in which the Company ownswe own and operatesoperate television stations. Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, or a decline in the local television advertising marketplace in the U.S. or further decline in the advertising marketplace in Australia could result in a downward revision to the Company’sour current assumptions and judgments. Various factors may contribute to a future decline in any local televisionan 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 the local television advertising revenues; a shift by advertisers to competing advertising platforms; changes in consumer behavior; and/or a change in population size.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 downward revision to the present value of future cash flows could result in impairment and a noncash charge would be required. Such a charge could have a material effect on the Company’s Consolidated Statement of Operations and Consolidated Balance Sheet.
For our annual impairment test, we perform a qualitative assessmentsassessment for each reporting unit that management estimates havehas a fair valuesvalue that significantly exceed theirexceeds its respective carrying values.value. For the 20172019 annual impairment test, the Companywe performed qualitative assessments for sevenall of our reporting units. For each of these reporting units, the Companyunit, 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 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, the Companywe considered growth projections from independent sources and significant developments or transactions within the industry. The CompanyWe also determined that the impact of macroeconomic factors on the discount rates and growth rates used for the most recent impairment tests would not significantly affect the fair value of the reporting units, and that the lower tax rate from tax law changes enacted since the most recent quantitative tests would positively impact the fair value of the reporting units. Based on the qualitative assessments, considering the aggregation of the relevant factors, the Companywe concluded that for these seven reporting units, it is not more likely than not that the fair value of each reporting unit is less than its respective carrying amount and therefore performing the quantitative impairment testtests was unnecessary.
A quantitative goodwill impairment test, for the CBS Sports Network reporting unit. The quantitative goodwill impairment test examines whether the carryingwhen performed, requires estimating fair value of a reporting unit exceeds its estimated fair value, which is computed based uponon a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions, including assumptions about the present valuetiming and amount of future cash flows, (“Discounted Cash Flow Method”) and the traded or transaction values of comparable businesses (“Market Comparable Method”). If the carrying value exceeds the estimated fair value, an impairment charge is recognized as the amount by which the carrying value exceeds the fair value. For 2017, the Discounted Cash Flow Method and Market Comparable Method for CBS Sports Network resulted in similar estimated fair values. The Discounted Cash Flow Method adds the present value of the estimated annual cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This technique requires the use of significant estimates and assumptions such as growth rates operating margins, capital expenditures and discount rates. The estimated growth rates, operating margins and capital expenditures for the projection period are based on the Company’s internal forecasts of future performance as well as historical trends. The residual value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections and for 2017 was 2.0%. The discount rate was determined based on the average of the weighted average cost of capital of comparable entities and for 2017 was 8.5%.
Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in the advertising market, a decrease in audience acceptance of programming, a shift by advertisers to competing advertising platforms; and/or changes in consumer behavior could result in changes to the Company’sour assumptions and judgments used in itsthe goodwill impairment tests. A downward revision of 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 Company’s Consolidated Statement of Operations and Consolidated Balance Sheet.
Legal Matters
Estimates of liabilities related to legal issues and discontinued businesses, including asbestos and environmental matters, require significant judgments by management. 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
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 the Company’sour pension plans’ expected future benefit payments, as determined for the projected 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, 2017,2019, the unrecognized actuarial losses included in accumulated other comprehensive income decreasedincreased from the prior year-end due primarily to the Company’s purchase of a group annuity contract, under which an insurance company has permanently assumed the obligation to pay and administer pension benefits to certain of the Company’s pension plan participants, or their designated beneficiaries, which accelerated the recognition of unamortized actuarial losses. This reduction in unrecognized actuarial losses was partially offset by the impact from a decrease in the discount rate.rate, partially offset by the favorable performance of pension plan assets. A 25 basis point change in the discount rate willwould result in an estimated change to the projected benefit obligation of approximately $104$137 million and would not have a material impact on 20182020 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 $7$8 million to 20182020 pension expense.
Income Taxes
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, the Company evaluateswe 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. The Company is continuallyWe 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 by U.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, the Company believeswe believe that itsthe reserve for uncertain tax positions of $138$384 million at December 31, 20172019 is properly recorded pursuant to the recognition and measurement provisions of FASB guidance for uncertainty in income taxes.
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, the Companywe vigorously defends itselfdefend ourselves in numerous lawsuits and proceedings and respondsrespond to various investigations and inquiries from federal, state, local and international authorities (collectively, ‘‘litigation’“litigation’’). Litigation may be brought against the Companyus without merit, is inherently uncertain and always difficult to predict. However, based on itsour understanding and evaluation of the relevant facts and circumstances, the Company believeswe believe that the below-described legal matters and other litigation to which it iswe are a party are not likely, in the aggregate, to have a material adverse effect on itsour results of operations, financial position or cash flows. Under
Litigation Relating to the Merger. On September 27, 2019, Bucks County Employees Retirement Fund (the “Bucks County Fund”), a purported holder of CBS Class B Common Stock, served us with a demand for inspection of books and records pursuant to 8 Del. C. § 220 in connection with the Merger (the “Demand”). On October 10, 2019, we offered to produce certain categories of documents properly within the scope of a books and records demand under § 220. The Bucks County Fund rejected our offer and filed litigation in the Court of Chancery of the State of Delaware on October 15, 2019, seeking to compel production of all documents requested in the Demand (the “Section 220 Complaint”). A trial on the Section 220 Complaint took place on November 22, 2019, and the Court ordered limited additional production on November 25, 2019. On December 2, 2019, we certified that we had completed production of all relevant documents. On February 20, 2020, the Bucks County Fund filed a putative derivative and class action complaint in the Court of Chancery of the State of Delaware against Shari Redstone, NAI, Sumner M. Redstone National Amusements Trust (“SMR Trust”), 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 ViacomCBS Inc. The complaint alleges breaches of fiduciary duties to CBS stockholders and waste in connection with the negotiation and approval of the Merger Agreement. The complaint seeks unspecified damages, costs and expenses as well as other relief. We believe that the claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
On January 23, 2020, the Court of Chancery of the State of Delaware consolidated four putative class action suits filed by purported Viacom stockholders against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the Viacom 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, in In re Viacom Inc. Stockholders Litigation. The four actions allege breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement, and seek unspecified damages, costs and expenses. On February 6, 2020, the Court appointed the California Public Employees’ Retirement System as the lead plaintiff in the consolidated action. We believe that the claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Investigation-Related Matters. As announced on August 1, 2018, the CBS Board of Directors (the “CBS Board”) 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 announced the completion of its investigation, certain findings of the investigation and the CBS Board’s determination, discussed below, with respect to the termination of Mr. Moonves’ employment. We have received subpoenas from the New York County District Attorney’s Office and the New York City Commission on Human Rights regarding the subject matter of this investigation and related matters. The New York State Attorney General’s Office and the United States Securities and Exchange Commission have also requested information about these 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.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
On August 27, 2018 and on October 1, 2018, each of Gene Samit and John Lantz, respectively, filed putative class action suits 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. 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 believe that the remaining claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Separation Agreement. On September 9, 2018, CBS entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of CBS. In October 2018, we contributed $120 million to a grantor trust pursuant to the Separation Agreement betweenAgreement. On December 17, 2018, the CompanyCBS Board announced that, following its consideration of the findings of the investigation referred to above, it had determined that there were grounds to terminate Mr. Moonves’ employment for cause under his employment agreement with CBS. Any dispute related to the CBS Board’s determination is subject to binding arbitration as set forth in the Separation Agreement. On January 16, 2019, Mr. Moonves commenced a binding arbitration proceeding with respect to this matter and Viacom Inc., the Companyrelated CBS Board investigation, which proceeding is ongoing. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. We are currently unable to determine the outcome of the arbitration and Viacom Inc. have agreed to defendthe amount, if any, that may be awarded thereunder and, indemnify the otheraccordingly, no accrual for this matter has been made in certain litigation in which the Company and/or Viacom Inc. is named.our consolidated financial statements.
Claims Related to Former Businesses: Asbestos. The Company isWe 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. The Company isWe 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 the Company’sour products is the basis of a claim. Claims against the Companyus in which a product has been identified principallymost commonly relate to exposures allegedly caused byallegations of exposure to asbestos-containing insulating material used in conjunction with turbines sold for power-generation, industrial and marine use.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. The Company doesWe do not report as pending those claims on inactive, stayed, deferred or similar dockets whichthat some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2017, the Company2019, we had pending approximately 31,66030,950 asbestos claims, as compared with approximately 33,61031,570 as of December 31, 20162018 and 36,03031,660 as of December 31, 2015.2017. During 2017, the Company2019, we received approximately 3,5303,460 new claims and closed or moved to an inactive docket approximately 5,4804,080 claims. The Company reportsWe report claims as closed when it becomeswe become aware that a dismissal order has been entered by a court or when the Company haswe 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
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
factors. The Company’sOur total costs for the years 20172019 and 20162018 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $57$58 million and $48$45 million, respectively. The Company’sOur 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 the Companyus are non-cancer claims. The Company believesIt 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 its reservesa liability has been incurred and
insurance are adequate to cover itsour asbestos liabilities. This beliefOur liability estimate is based upon many factors, and assumptions, 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. While the number of asbestos claims, filed against the Company has remained generally flat in recent years, it is difficult to predictas well as consultation with a third party firm on trends that may impact our future asbestos liabilities, as events and circumstances may occur including, among others, the number and types of claims and average cost to resolve such claims, which could affect the Company’s estimate of its asbestos liabilities.liability.
Other. The Company from From time to time receiveswe receive claims from federal and state environmental regulatory agencies and other entities asserting that it iswe are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations of the Company.operations. In addition, the Company from time to time receiveswe receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations of the Company and its predecessors.
Market Risk
Foreign Exchange Risk
At December 31, 20172019 and 2016,2018, the notional amount of all foreign currency contracts was $410$1.44 billion and $995 million, respectively. For 2019, $833 million related to future production costs and $433$606 million respectively, which represents hedges ofrelated to our foreign currency balances and other expected foreign currency cash flows. For 2018, $481 million related to future production costs and $514 million related to our foreign currency balances and other expected foreign currency cash flows.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Interest Risk
At December 31, 2019, the carrying value of our outstanding notes and debentures was $17.98 billion and the estimated fair value was $20.6 billion. A 1% increase or decrease in interest rates would decrease or increase the fair value of our notes and debentures by approximately $1.22 billion and $2.68 billion, respectively.
Credit Risk
Related Parties
For a discussion of related parties, see Note 76 to the consolidated financial statements.
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.”
| Item 8. | Financial Statements and Supplementary Data. |
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following Consolidated Financial Statements and schedule of the registrant and its subsidiaries are submitted herewith as part of this report:
| Item 15(a)(1) Financial Statements: | ||||
| 1. | II- | |||
| 2. | II- | |||
| 3. | December 31, | II- | ||
| 4. | December 31, | II- | ||
| 5. | II- | |||
| 6. | December 31, | II- | ||
| 7. | Consolidated Statements of December 31, | II- | ||
| 8. | II- | |||
| Item 15(a)(2) Financial Statement Schedule: | ||||
December 31, | F-1 | |||
All other Schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule.
MANAGEMENT’ S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the effectiveness of internal control over financial reporting, as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act. OurViacomCBS Inc. and its subsidiaries’ (the “Company”) internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172019 based on the framework set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20172019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
| By: | /s/ | ||
Chief Executive Officer | |||
| By: | /s/ | ||
Executive Vice President, Chief | |||
| �� | By: | /s/ | |
Executive Vice President, Controller and Chief Accounting Officer | |||
To the Board of Directors and Stockholders of CBS Corporation:ViacomCBS Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CBS CorporationViacomCBS Inc. and its subsidiaries (the “Company”) as of December 31, 20172019 and 2016,2018, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017,2019, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Merger with Viacom Inc.
As described in Note 1 to the consolidated financial statements, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”) on December 4, 2019 (the “Merger”), with CBS continuing as the surviving company. At the effective time of the Merger, the combined company changed its name to ViacomCBS Inc. The Merger has been accounted for as a transaction between entities under common control as National Amusements, Inc. was the controlling stockholder of each of CBS and Viacom. Upon the closing of the Merger, the net assets of Viacom were combined with those of CBS at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented in the consolidated financial statements.
The principal considerations for our determination that the Merger is a critical audit matter are significant audit effort was necessary to perform procedures and evaluate the audit evidence obtained relating to management’s accounting for the Merger due to the pervasive nature of the Merger on the composition of the Company’s consolidated financial statements and disclosures to include the entirety of the legacy Viacom businesses.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls over the accounting for the Merger, including the combination and presentation of the historical carrying amounts in the consolidated financial statements. The procedures also included evaluating management’s assessment of the accounting associated with the transaction between entities under common control and the completeness and accuracy of the consolidated financial statements, including the presentation of Viacom’s financial information given the change in Viacom’s fiscal year-end, and the retrospective combination of Viacom and CBS. Procedures were also performed to evaluate the sufficiency of the disclosures in the consolidated financial statements of the Company.
Amortization of Internally Produced Television Programming Inventory Based on Estimated Secondary Market Revenues
As described in Notes 1 and 3 to the consolidated financial statements, the Company’s internally produced television programming inventory was $6.3 billion as of December 31, 2019, a portion of which relates to costs that will be amortized based on estimated secondary market revenues. Television programming costs incurred subsequent to the establishment of the secondary market are initially capitalized and amortized, based on the proportion that current period revenues bear to the estimated remaining total lifetime revenues. Estimates for secondary market revenues such as domestic and foreign syndication are included in the estimated lifetime revenues once it can be demonstrated that a program can be successfully licensed in such secondary market. Management bases these estimates on the performance in the initial markets, the existence of future firm commitments to sell and the past performance of similar television programs.
The principal considerations for our determination that performing procedures relating to amortization of internally produced television programming inventory based on estimated secondary market revenues is a critical audit matter are there was significant judgment required by management when estimating secondary market revenues. This led to a high degree of auditor judgment, effort and subjectivity in performing procedures to evaluate management’s estimate of secondary market revenues and the significant assumptions, including consideration of the performance in the initial markets and past performance of similar television programs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to amortization of internally produced television programming inventory, including the control over the estimation of secondary market revenues. These procedures also included, among others, testing management’s process for estimating secondary market revenues, including evaluating whether the significant assumptions were reasonable considering information such as the historical performance in the initial markets and past performance of television programs. Procedures were also performed to test the reliability, completeness and relevance of management's data used in the estimate of ultimate revenues.
Amortization of Film Inventory
As described in Notes 1 and 3 to the consolidated financial statements, film inventory was approximately $1.6 billion as of December 31, 2019. Management uses an individual-film-forecast-computation method to amortize capitalized production costs based upon the ratio of current period revenues to estimated remaining total gross revenues to be earned (“Ultimate Revenues”) for each title. The estimate of Ultimate Revenues for feature films includes revenues from all sources that are estimated to be earned within 10 years from the date of a film’s initial theatrical release. Prior to the release of feature films, management estimates 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. Upon a film’s initial release, management updates their estimate of Ultimate Revenues based on actual and expected future performance. As disclosed by management, management believes the most sensitive factor affecting the estimate of Ultimate Revenues for films intended for theatrical release is theatrical exhibition, as revenues from subsequent markets have historically exhibited a high correlation to theatrical performance.
The principal considerations for our determination that performing procedures relating to amortization of film inventory is a critical audit matter are there was significant judgment by management when estimating ultimate revenues. This in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures to evaluate management’s estimate of ultimate revenues and the significant assumptions, including the historical performance of similar films and theatrical exhibition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls over management’s estimation of ultimate revenues and controls over the significant assumptions used in the ultimate revenues estimate. These procedures also included, among others, testing management’s process for estimating ultimate revenues, including evaluating whether the significant assumptions were reasonable considering information such as historical performance of similar content, market research performed, impact of competing products, marketing budget and strategy, economic conditions, and theatrical exhibition, including actual box office performance. Procedures were also performed to test the reliability, completeness and relevance of management's data used in the estimate of ultimate revenues.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
February 16, 201820, 2020
We have served as the Company’s or its predecessor’s auditor since 1970.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| Revenues | $ | 13,692 | $ | 13,166 | $ | 12,671 | $ | 27,812 | $ | 27,250 | $ | 26,535 | ||||||||||
| Costs and expenses: | ||||||||||||||||||||||
| Operating | 8,438 | 7,956 | 7,911 | 17,223 | 15,917 | 15,483 | ||||||||||||||||
| Selling, general and administrative | 2,212 | 2,124 | 1,961 | 5,647 | 5,206 | 5,156 | ||||||||||||||||
| Depreciation and amortization | 223 | 225 | 235 | 443 | 433 | 443 | ||||||||||||||||
| Pension settlement charges (Note 15) | 352 | 211 | — | |||||||||||||||||||
| Restructuring and merger and acquisition-related costs (Note 5) | 63 | 38 | 45 | |||||||||||||||||||
| Other operating items, net | (19 | ) | (9 | ) | (139 | ) | ||||||||||||||||
| Restructuring and other corporate matters | 775 | 490 | 258 | |||||||||||||||||||
| Total costs and expenses | 11,269 | 10,545 | 10,013 | 24,088 | 22,046 | 21,340 | ||||||||||||||||
| Gain on sale of assets | 549 | — | 146 | |||||||||||||||||||
| Operating income | 2,423 | 2,621 | 2,658 | 4,273 | 5,204 | 5,341 | ||||||||||||||||
| Interest expense | (457 | ) | (411 | ) | (392 | ) | (962 | ) | (1,030 | ) | (1,088 | ) | ||||||||||
| Interest income | 64 | 32 | 24 | 66 | 79 | 87 | ||||||||||||||||
| Loss on early extinguishment of debt | (49 | ) | — | — | ||||||||||||||||||
| Gain (loss) on marketable securities | 113 | (23 | ) | — | ||||||||||||||||||
| Gain (loss) on early extinguishment of debt | — | 18 | (38 | ) | ||||||||||||||||||
| Gain on sale of EPIX | — | — | 285 | |||||||||||||||||||
| Pension settlement charge | — | — | (352 | ) | ||||||||||||||||||
| Other items, net | (2 | ) | (12 | ) | (26 | ) | (145 | ) | (124 | ) | (115 | ) | ||||||||||
Earnings from continuing operations before income taxes and equity in loss of investee companies | 1,979 | 2,230 | 2,264 | |||||||||||||||||||
| Provision for income taxes | (633 | ) | (628 | ) | (676 | ) | ||||||||||||||||
| Equity in loss of investee companies, net of tax | (37 | ) | (50 | ) | (34 | ) | ||||||||||||||||
Earnings from continuing operations before income taxes and equity in earnings (loss) of investee companies | 3,345 | 4,124 | 4,120 | |||||||||||||||||||
| Benefit (provision) for income taxes | 9 | (617 | ) | (804 | ) | |||||||||||||||||
| Equity in earnings (loss) of investee companies, net of tax | (53 | ) | (47 | ) | 4 | |||||||||||||||||
| Net earnings from continuing operations | 1,309 | 1,552 | 1,554 | 3,301 | 3,460 | 3,320 | ||||||||||||||||
| Net loss from discontinued operations, net of tax (Note 4) | (952 | ) | (291 | ) | (141 | ) | ||||||||||||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | 1,413 | ||||||||||||||||
| Basic net earnings (loss) per common share: | ||||||||||||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | 38 | 32 | (947 | ) | ||||||||||||||||||
| Net earnings (ViacomCBS and noncontrolling interests) | 3,339 | 3,492 | 2,373 | |||||||||||||||||||
| Net earnings attributable to noncontrolling interests | (31 | ) | (37 | ) | (52 | ) | ||||||||||||||||
| Net earnings attributable to ViacomCBS | $ | 3,308 | $ | 3,455 | $ | 2,321 | ||||||||||||||||
| Amounts attributable to ViacomCBS: | ||||||||||||||||||||||
| Net earnings from continuing operations | $ | 3.26 | $ | 3.50 | $ | 3.21 | $ | 3,270 | $ | 3,423 | $ | 3,268 | ||||||||||
| Net loss from discontinued operations | $ | (2.37 | ) | $ | (.66 | ) | $ | (.29 | ) | |||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | 38 | 32 | (947 | ) | ||||||||||||||||||
| Net earnings attributable to ViacomCBS | $ | 3,308 | $ | 3,455 | $ | 2,321 | ||||||||||||||||
| Basic net earnings (loss) per common share attributable to ViacomCBS: | ||||||||||||||||||||||
| Net earnings from continuing operations | $ | 5.32 | $ | 5.55 | $ | 5.11 | ||||||||||||||||
| Net earnings (loss) from discontinued operations | $ | .06 | $ | .05 | $ | (1.48 | ) | |||||||||||||||
| Net earnings | $ | .89 | $ | 2.84 | $ | 2.92 | $ | 5.38 | $ | 5.60 | $ | 3.63 | ||||||||||
| Diluted net earnings (loss) per common share: | ||||||||||||||||||||||
| Diluted net earnings (loss) per common share attributable to ViacomCBS: | ||||||||||||||||||||||
| Net earnings from continuing operations | $ | 3.22 | $ | 3.46 | $ | 3.18 | $ | 5.30 | $ | 5.51 | $ | 5.05 | ||||||||||
| Net loss from discontinued operations | $ | (2.34 | ) | $ | (.65 | ) | $ | (.29 | ) | |||||||||||||
| Net earnings (loss) from discontinued operations | $ | .06 | $ | .05 | $ | (1.46 | ) | |||||||||||||||
| Net earnings | $ | .88 | $ | 2.81 | $ | 2.89 | $ | 5.36 | $ | 5.56 | $ | 3.59 | ||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||||||||
| Basic | 401 | 444 | 484 | 615 | 617 | 640 | ||||||||||||||||
| Diluted | 407 | 448 | 489 | 617 | 621 | 647 | ||||||||||||||||
| Dividends per common share | $ | .72 | $ | .66 | $ | .60 | ||||||||||||||||
See notes to consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | 1,413 | |||||
| Other comprehensive income (loss) from continuing operations, net of tax: | |||||||||||
| Cumulative translation adjustments | 8 | (1 | ) | (5 | ) | ||||||
| Net actuarial gain (loss) and prior service costs (Note 15) | 97 | 4 | (30 | ) | |||||||
| Total other comprehensive income (loss), net of tax | 105 | 3 | (35 | ) | |||||||
| Total comprehensive income | $ | 462 | $ | 1,264 | $ | 1,378 | |||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net earnings (ViacomCBS and noncontrolling interests) | $ | 3,339 | $ | 3,492 | $ | 2,373 | |||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Cumulative translation adjustments | 15 | (254 | ) | 192 | |||||||
| Net actuarial gain (loss) and prior service costs | (145 | ) | (61 | ) | 73 | ||||||
| Available-for-sale securities | — | — | 30 | ||||||||
Other comprehensive income (loss), net of tax (ViacomCBS and noncontrolling interests) | (130 | ) | (315 | ) | 295 | ||||||
| Comprehensive income | 3,209 | 3,177 | 2,668 | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 33 | 31 | 52 | ||||||||
| Comprehensive income attributable to ViacomCBS | $ | 3,176 | $ | 3,146 | $ | 2,616 | |||||
See notes to consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| At December 31, | |||||||||
| 2017 | 2016 | ||||||||
| ASSETS | |||||||||
| Current Assets: | |||||||||
| Cash and cash equivalents | $ | 285 | $ | 598 | |||||
| Receivables, less allowances of $49 (2017) and $60 (2016) | 3,697 | 3,314 | |||||||
| Programming and other inventory (Note 6) | 1,828 | 1,427 | |||||||
| Prepaid income taxes | 78 | 30 | |||||||
| Prepaid expenses | 194 | 185 | |||||||
| Other current assets | 190 | 204 | |||||||
| Current assets of discontinued operations (Note 4) | 1 | 305 | |||||||
| Total current assets | 6,273 | 6,063 | |||||||
| Property and equipment | 3,051 | 2,935 | |||||||
| Less accumulated depreciation and amortization | 1,771 | 1,694 | |||||||
| Net property and equipment (Note 2) | 1,280 | 1,241 | |||||||
| Programming and other inventory (Note 6) | 2,881 | 2,439 | |||||||
| Goodwill (Note 3) | 4,891 | 4,864 | |||||||
| Intangible assets (Note 3) | 2,666 | 2,633 | |||||||
| Other assets (Note 1) | 2,840 | 2,707 | |||||||
| Assets of discontinued operations (Note 4) | 12 | 4,291 | |||||||
| Total Assets | $ | 20,843 | $ | 24,238 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| Current Liabilities: | |||||||||
| Accounts payable | $ | 231 | $ | 148 | |||||
| Accrued expenses | 578 | 632 | |||||||
| Accrued compensation | 343 | 369 | |||||||
| Participants’ share and royalties payable | 986 | 1,024 | |||||||
| Program rights | 373 | 290 | |||||||
| Deferred revenues | 219 | 152 | |||||||
| Commercial paper (Note 9) | 679 | 450 | |||||||
| Current portion of long-term debt (Note 9) | 19 | 23 | |||||||
| Other current liabilities | 512 | 465 | |||||||
| Current liabilities of discontinued operations (Note 4) | 32 | 155 | |||||||
| Total current liabilities | 3,972 | 3,708 | |||||||
| Long-term debt (Note 9) | 9,464 | 8,902 | |||||||
| Participants’ share and royalties payable | 1,424 | 1,322 | |||||||
| Pension and postretirement benefit obligations (Note 15) | 1,328 | 1,769 | |||||||
| Deferred income tax liabilities, net (Note 14) | 480 | 590 | |||||||
| Other liabilities | 2,155 | 1,807 | |||||||
| Liabilities of discontinued operations (Note 4) | 42 | 2,451 | |||||||
| Commitments and contingencies (Note 16) | |||||||||
| Stockholders’ Equity: | |||||||||
Class A Common Stock, par value $.001 per share; 375 shares authorized; 38 (2017 and 2016) shares issued | — | — | |||||||
Class B Common Stock, par value $.001 per share; 5,000 shares authorized; 834 (2017) and 829 (2016) shares issued | 1 | 1 | |||||||
| Additional paid-in capital | 43,797 | 43,913 | |||||||
| Accumulated deficit | (18,900 | ) | (19,257 | ) | |||||
| Accumulated other comprehensive loss (Note 12) | (662 | ) | (767 | ) | |||||
| 24,236 | 23,890 | ||||||||
| Less treasury stock, at cost; 489 (2017) and 455 (2016) Class B Shares | 22,258 | 20,201 | |||||||
| Total Stockholders’ Equity | 1,978 | 3,689 | |||||||
Total Liabilities and Stockholders’ Equity | $ | 20,843 | $ | 24,238 | |||||
| At December 31, | |||||||||
| 2019 | 2018 | ||||||||
| ASSETS | |||||||||
| Current Assets: | |||||||||
| Cash and cash equivalents | $ | 632 | $ | 856 | |||||
| Receivables, net | 7,206 | 7,199 | |||||||
| Programming and other inventory | 2,876 | 2,785 | |||||||
| Prepaid expenses | 401 | 372 | |||||||
| Other current assets | 787 | 668 | |||||||
| Total current assets | 11,902 | 11,880 | |||||||
| Property and equipment, net | 2,085 | 2,079 | |||||||
| Programming and other inventory | 8,652 | 7,298 | |||||||
| Goodwill | 16,980 | 16,526 | |||||||
| Intangible assets, net | 2,993 | 2,943 | |||||||
| Operating lease assets | 1,939 | — | |||||||
| Deferred income tax assets, net | 939 | 266 | |||||||
| Other assets | 4,006 | 3,449 | |||||||
| Assets held for sale | 23 | 56 | |||||||
| Total Assets | $ | 49,519 | $ | 44,497 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| Current Liabilities: | |||||||||
| Accounts payable | $ | 667 | $ | 502 | |||||
| Accrued expenses | 1,760 | 1,633 | |||||||
| Participants’ share and royalties payable | 1,977 | 1,828 | |||||||
| Accrued programming and production costs | 1,500 | 1,453 | |||||||
| Deferred revenues | 739 | 643 | |||||||
| Debt | 717 | 1,013 | |||||||
| Other current liabilities | 1,688 | 1,249 | |||||||
| Total current liabilities | 9,048 | 8,321 | |||||||
| Long-term debt | 18,002 | 18,100 | |||||||
| Participants’ share and royalties payable | 1,546 | 1,587 | |||||||
| Pension and postretirement benefit obligations | 2,121 | 1,908 | |||||||
| Deferred income tax liabilities, net | 500 | 656 | |||||||
| Operating lease liabilities | 1,909 | — | |||||||
| Program rights obligations | 356 | 459 | |||||||
| Other liabilities | 2,494 | 2,724 | |||||||
| Redeemable noncontrolling interest | 254 | 239 | |||||||
| Commitments and contingencies | |||||||||
| ViacomCBS stockholders’ equity: | |||||||||
Class A Common Stock, par value $.001 per share; 375 shares authorized; 52 (2019) and 64 (2018) shares issued | — | — | |||||||
Class B Common Stock, par value $.001 per share; 5,000 shares authorized; 1,064 (2019) and 1,283 (2018) shares issued | 1 | 1 | |||||||
| Additional paid-in capital | 29,590 | 49,907 | |||||||
| Treasury stock, at cost; 501 (2019) and 734 (2018) Class B Shares | (22,908 | ) | (43,420 | ) | |||||
| Retained earnings | 8,494 | 5,569 | |||||||
| Accumulated other comprehensive loss | (1,970 | ) | (1,608 | ) | |||||
| Total ViacomCBS stockholders’ equity | 13,207 | 10,449 | |||||||
| Noncontrolling interests | 82 | 54 | |||||||
| Total Equity | 13,289 | 10,503 | |||||||
| Total Liabilities and Equity | $ | 49,519 | $ | 44,497 | |||||
See notes to consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||||
| Operating Activities: | ||||||||||||||||||||||||
| Net earnings | $ | 357 | $ | 1,261 | $ | 1,413 | ||||||||||||||||||
| Less: Net loss from discontinued operations | (952 | ) | (291 | ) | (141 | ) | ||||||||||||||||||
| Net earnings (ViacomCBS and noncontrolling interests) | $ | 3,339 | $ | 3,492 | $ | 2,373 | ||||||||||||||||||
| Less: Net earnings (loss) from discontinued operations, net of tax | 38 | 32 | (947 | ) | ||||||||||||||||||||
| Net earnings from continuing operations | 1,309 | 1,552 | 1,554 | 3,301 | 3,460 | 3,320 | ||||||||||||||||||
Adjustments to reconcile net earnings from continuing operations to net cash flow provided by operating activities from continuing operations: | ||||||||||||||||||||||||
| Depreciation and amortization | 223 | 225 | 235 | 443 | 433 | 443 | ||||||||||||||||||
| Television programming and feature film cost amortization | 12,554 | 11,595 | 10,911 | |||||||||||||||||||||
| Deferred tax (benefit) provision | (188 | ) | 144 | 445 | (769 | ) | 58 | (367 | ) | |||||||||||||||
| Stock-based compensation | 179 | 165 | 157 | 291 | 191 | 232 | ||||||||||||||||||
| Redemption of debt | 42 | — | — | |||||||||||||||||||||
| Net gain on disposition and write-down of assets | (9 | ) | (18 | ) | (139 | ) | ||||||||||||||||||
| Net (gain) loss on dispositions and impairment of assets | (498 | ) | 38 | (377 | ) | |||||||||||||||||||
| (Gain) loss on marketable securities | (113 | ) | 23 | — | ||||||||||||||||||||
| Equity in loss of investee companies, net of tax and distributions | 38 | 53 | 37 | 58 | 54 | 15 | ||||||||||||||||||
| Change in assets and liabilities, net of investing and financing activities | ||||||||||||||||||||||||
| (Increase) decrease in receivables | (268 | ) | 36 | (376 | ) | |||||||||||||||||||
| Change in assets and liabilities | ||||||||||||||||||||||||
| Increase in receivables | (256 | ) | (368 | ) | (147 | ) | ||||||||||||||||||
| Increase in inventory and related program and participation liabilities, net | (723 | ) | (804 | ) | (498 | ) | (14,215 | ) | (12,185 | ) | (11,544 | ) | ||||||||||||
| (Increase) decrease in other assets | (52 | ) | (85 | ) | 23 | |||||||||||||||||||
| (Decrease) increase in accounts payable and accrued expenses | (35 | ) | 23 | (220 | ) | |||||||||||||||||||
| (Decrease) increase in pension and postretirement benefit obligations | (238 | ) | 205 | (46 | ) | |||||||||||||||||||
| Increase (decrease) in income taxes | 456 | 94 | (56 | ) | ||||||||||||||||||||
| Increase (decrease) in deferred revenue | 54 | (137 | ) | 66 | ||||||||||||||||||||
| Increase (decrease) in accounts payable and other liabilities | 297 | (158 | ) | (248 | ) | |||||||||||||||||||
| Increase (decrease) in pension and postretirement benefit obligations | 16 | (65 | ) | (239 | ) | |||||||||||||||||||
| Increase in income taxes | 160 | 398 | 345 | |||||||||||||||||||||
| Other, net | 5 | 1 | 7 | (39 | ) | (11 | ) | 1 | ||||||||||||||||
| Net cash flow provided by operating activities from continuing operations | 793 | 1,454 | 1,189 | 1,230 | 3,463 | 2,345 | ||||||||||||||||||
| Net cash flow provided by operating activities from discontinued operations | 94 | 231 | 205 | — | 1 | 94 | ||||||||||||||||||
| Net cash flow provided by operating activities | 887 | 1,685 | 1,394 | 1,230 | 3,464 | 2,439 | ||||||||||||||||||
| Investing Activities: | ||||||||||||||||||||||||
| Acquisitions (including acquired television library), net of cash acquired | (270 | ) | (92 | ) | (12 | ) | ||||||||||||||||||
| Investments | (171 | ) | (161 | ) | (128 | ) | ||||||||||||||||||
| Capital expenditures | (185 | ) | (196 | ) | (171 | ) | (353 | ) | (352 | ) | (356 | ) | ||||||||||||
| Investments in and advances to investee companies | (110 | ) | (81 | ) | (98 | ) | ||||||||||||||||||
| Proceeds from sale of investments | 10 | — | 80 | |||||||||||||||||||||
| Acquisitions, net of cash acquired | (399 | ) | (118 | ) | (289 | ) | ||||||||||||||||||
| Proceeds from dispositions | 11 | 20 | 383 | 756 | 39 | 892 | ||||||||||||||||||
| Other investing activities | 21 | 15 | (3 | ) | 14 | 4 | 31 | |||||||||||||||||
| Net cash flow (used for) provided by investing activities from continuing operations | (523 | ) | (334 | ) | 179 | (153 | ) | (588 | ) | 150 | ||||||||||||||
| Net cash flow used for investing activities from discontinued operations | (24 | ) | (6 | ) | (25 | ) | (2 | ) | (23 | ) | (24 | ) | ||||||||||||
| Net cash flow (used for) provided by investing activities | (547 | ) | (340 | ) | 154 | (155 | ) | (611 | ) | 126 | ||||||||||||||
| Financing Activities: | ||||||||||||||||||||||||
| Proceeds from (repayments of) short-term debt borrowings, net | 229 | 450 | (616 | ) | 25 | (5 | ) | 229 | ||||||||||||||||
| Proceeds from issuance of senior notes | 1,773 | 684 | 1,959 | 492 | — | 3,157 | ||||||||||||||||||
| Repayment of senior notes and debentures | (1,244 | ) | (199 | ) | — | |||||||||||||||||||
| Proceeds from debt borrowings of CBS Radio | 40 | 1,452 | — | |||||||||||||||||||||
| Repayment of debt borrowings of CBS Radio | (43 | ) | (110 | ) | — | |||||||||||||||||||
| Payment of capital lease obligations | (18 | ) | (18 | ) | (17 | ) | ||||||||||||||||||
| Repayment of notes and debentures | (910 | ) | (1,102 | ) | (4,729 | ) | ||||||||||||||||||
| Dividends | (296 | ) | (288 | ) | (300 | ) | (595 | ) | (599 | ) | (616 | ) | ||||||||||||
| Purchase of Company common stock | (1,111 | ) | (2,997 | ) | (2,813 | ) | (57 | ) | (586 | ) | (1,111 | ) | ||||||||||||
| Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (89 | ) | (58 | ) | (96 | ) | (56 | ) | (67 | ) | (103 | ) | ||||||||||||
| Proceeds from exercise of stock options | 91 | 21 | 142 | 15 | 29 | 263 | ||||||||||||||||||
| Excess tax benefit from stock-based compensation | — | 17 | 88 | |||||||||||||||||||||
| Other financing activities | (9 | ) | — | — | (130 | ) | (201 | ) | (99 | ) | ||||||||||||||
| Net cash flow used for financing activities | (677 | ) | (1,046 | ) | (1,653 | ) | (1,216 | ) | (2,531 | ) | (3,009 | ) | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | (337 | ) | 299 | (105 | ) | |||||||||||||||||||
Cash and cash equivalents at beginning of year (includes $24 (2017) and $6 (2016 and 2015) of discontinued operations cash) | 622 | 323 | 428 | |||||||||||||||||||||
Cash and cash equivalents at end of year (includes $24 (2016) and $6 (2015) of discontinued operations cash) | $ | 285 | $ | 622 | $ | 323 | ||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1 | ) | (25 | ) | 58 | |||||||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (142 | ) | 297 | (386 | ) | |||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of year (includes $120 (2019) of restricted cash and $24 (2017) of discontinued operations cash) | 976 | 679 | 1,065 | |||||||||||||||||||||
Cash, cash equivalents and restricted cash at end of year (includes $202 (2019) and $120 (2018) of restricted cash) | $ | 834 | $ | 976 | $ | 679 | ||||||||||||||||||
See notes to consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Year Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||
| Class A Common Stock: | ||||||||||||||||||||
| Balance, beginning of year | 38 | $ | — | 38 | $ | — | 38 | $ | — | |||||||||||
| Conversion of A shares into B shares | — | — | — | — | — | — | ||||||||||||||
| Balance, end of year | 38 | — | 38 | — | 38 | — | ||||||||||||||
| Class B Common Stock: | ||||||||||||||||||||
| Balance, beginning of year | 829 | 1 | 826 | 1 | 818 | 1 | ||||||||||||||
| Conversion of A shares into B shares | — | — | — | — | — | — | ||||||||||||||
| Restricted stock unit vests | 3 | — | 3 | — | 4 | — | ||||||||||||||
| Exercise of stock options | 3 | — | 1 | — | 6 | — | ||||||||||||||
| Retirement of treasury stock | (1 | ) | — | (1 | ) | — | (2 | ) | — | |||||||||||
| Balance, end of year | 834 | 1 | 829 | 1 | 826 | 1 | ||||||||||||||
| Additional Paid-In Capital: | ||||||||||||||||||||
| Balance, beginning of year | 43,913 | 44,055 | 44,041 | |||||||||||||||||
| Stock-based compensation | 181 | 177 | 174 | |||||||||||||||||
Tax benefit related to employee stock-based transactions | — | 12 | 87 | |||||||||||||||||
| Exercise of stock options | 92 | 21 | 142 | |||||||||||||||||
| Retirement of treasury stock | (89 | ) | (58 | ) | (96 | ) | ||||||||||||||
| Dividends | (289 | ) | (294 | ) | (293 | ) | ||||||||||||||
| Decrease in noncontrolling interest | (11 | ) | — | — | ||||||||||||||||
| Balance, end of year | 43,797 | 43,913 | 44,055 | |||||||||||||||||
| Accumulated Deficit: | ||||||||||||||||||||
| Balance, beginning of year | (19,257 | ) | (20,518 | ) | (21,931 | ) | ||||||||||||||
| Net earnings | 357 | 1,261 | 1,413 | |||||||||||||||||
| Balance, end of year | (18,900 | ) | (19,257 | ) | (20,518 | ) | ||||||||||||||
| Accumulated Other Comprehensive Loss: | ||||||||||||||||||||
| Balance, beginning of year | (767 | ) | (770 | ) | (735 | ) | ||||||||||||||
| Other comprehensive income (loss) | 105 | 3 | (35 | ) | ||||||||||||||||
| Balance, end of year | (662 | ) | (767 | ) | (770 | ) | ||||||||||||||
| Treasury Stock, at cost: | ||||||||||||||||||||
| Balance beginning of year | 455 | (20,201 | ) | 401 | (17,205 | ) | 349 | (14,406 | ) | |||||||||||
| Class B Common Stock purchased | 16 | (1,050 | ) | 54 | (2,997 | ) | 52 | (2,800 | ) | |||||||||||
| CBS Radio Split-Off | 18 | (1,007 | ) | — | — | — | — | |||||||||||||
Shares paid for tax withholding for stock-based compensation | 1 | (89 | ) | 1 | (58 | ) | 2 | (96 | ) | |||||||||||
| Issuance of stock for deferred compensation | — | — | — | 1 | — | 1 | ||||||||||||||
| Retirement of treasury stock | (1 | ) | 89 | (1 | ) | 58 | (2 | ) | 96 | |||||||||||
| Balance, end of year | 489 | (22,258 | ) | 455 | (20,201 | ) | 401 | (17,205 | ) | |||||||||||
| Total Stockholders’ Equity | $ | 1,978 | $ | 3,689 | $ | 5,563 | ||||||||||||||
| Class A and B Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total ViacomCBS Stockholders’ Equity | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| (Shares) | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 648 | $ | 1 | $ | (40,997 | ) | $ | 50,499 | $ | 296 | $ | (1,564 | ) | $ | 8,235 | $ | 51 | $ | 8,286 | ||||||||||||||||||||||||
Stock-based compensation activity | 8 | — | 122 | 281 | — | — | 403 | — | 403 | ||||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | 89 | (89 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Class B Common Stock purchased | (16 | ) | — | (1,050 | ) | — | — | — | (1,050 | ) | — | (1,050 | ) | ||||||||||||||||||||||||||||||
| CBS Radio Split-off | (18 | ) | — | (1,007 | ) | — | — | — | (1,007 | ) | — | (1,007 | ) | ||||||||||||||||||||||||||||||
| Dividends | — | — | — | (612 | ) | — | — | (612 | ) | — | (612 | ) | |||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | (11 | ) | (55 | ) | — | (66 | ) | (22 | ) | (88 | ) | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 2,321 | — | 2,321 | 52 | 2,373 | ||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 295 | 295 | — | 295 | ||||||||||||||||||||||||||||||||||
| December 31, 2017 | 622 | 1 | (42,843 | ) | 50,068 | 2,562 | (1,269 | ) | 8,519 | 81 | 8,600 | ||||||||||||||||||||||||||||||||
Stock-based compensation activity | 3 | — | (36 | ) | 198 | — | — | 162 | — | 162 | |||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | 59 | (59 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Class B Common Stock purchased | (12 | ) | — | (600 | ) | — | — | — | (600 | ) | — | (600 | ) | ||||||||||||||||||||||||||||||
| Dividends | — | — | — | (300 | ) | (299 | ) | — | (599 | ) | — | (599 | ) | ||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | — | — | (58 | ) | (58 | ) | ||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 3,455 | — | 3,455 | 37 | 3,492 | ||||||||||||||||||||||||||||||||||
Adoption of accounting standards | — | — | — | — | (149 | ) | (30 | ) | (179 | ) | — | (179 | ) | ||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (309 | ) | (309 | ) | (6 | ) | (315 | ) | ||||||||||||||||||||||||||||||
| December 31, 2018 | 613 | 1 | (43,420 | ) | 49,907 | 5,569 | (1,608 | ) | 10,449 | 54 | 10,503 | ||||||||||||||||||||||||||||||||
Stock-based compensation activity and other | 3 | — | (15 | ) | 270 | (4 | ) | — | 251 | — | 251 | ||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | 20,577 | (20,577 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Class B Common Stock purchased | (1 | ) | — | (50 | ) | — | — | — | (50 | ) | — | (50 | ) | ||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (600 | ) | — | (600 | ) | — | (600 | ) | |||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | (10 | ) | (9 | ) | — | (19 | ) | (5 | ) | (24 | ) | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 3,308 | — | 3,308 | 31 | 3,339 | ||||||||||||||||||||||||||||||||||
Reclassification of income tax effect of the Tax Reform Act | — | — | — | — | 230 | (230 | ) | — | — | — | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | (132 | ) | (132 | ) | 2 | (130 | ) | |||||||||||||||||||||||||||||||
| December 31, 2019 | 615 | $ | 1 | $ | (22,908 | ) | $ | 29,590 | $ | 8,494 | $ | (1,970 | ) | $ | 13,207 | $ | 82 | $ | 13,289 | ||||||||||||||||||||||||
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business—ViacomCBS Inc. is comprised of the following segments: TV Entertainment (CBS Corporation (together withTelevision Network, CBS Television Studios, CBS Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Stations and CBS-branded streaming services), Cable Networks (Showtime Networks, Nickelodeon, MTV, BET, Comedy Central, Paramount Network, Nick Jr., VH1, TV Land, CMT, Pop TV, Smithsonian Networks, ViacomCBS Networks International, Network 10, Channel 5, Telefe and Pluto TV), Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios); and Publishing (Simon & Schuster). References to “ViacomCBS”, the “Company”, “we”, “us” and “our” refer to ViacomCBS Inc. and its consolidated subsidiaries, unless the context otherwise requires,requires.
Merger with Viacom Inc.—On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the “Company” or “CBS Corp.”surviving company (the “Merger”) is comprised. At the effective time of the following segments: Entertainment (CBS Television, comprisedMerger (the “Effective Time”), the combined company changed its name to ViacomCBS Inc. (“ViacomCBS”). At the Effective Time, (1) each share of Viacom Class A Common Stock issued and outstanding immediately prior to the Effective Time, other than shares held directly by Viacom as treasury shares or held by CBS, was converted automatically into 0.59625 shares of ViacomCBS Class A Common Stock, and (2) each share of Viacom Class B Common Stock issued and outstanding immediately prior to the Effective Time, other than shares held directly by Viacom as treasury shares or held by CBS, was converted automatically into 0.59625 shares of ViacomCBS Class B Common Stock (together with ViacomCBS Class A Common Stock, the “ViacomCBS Common Stock”). At the Effective Time, each share of CBS Class A Common Stock and each share of CBS Class B Common Stock (together with CBS Class A Common Stock, the “CBS Common Stock”) issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of ViacomCBS Class A Common Stock and ViacomCBS Class B Common Stock, respectively, and was not affected by the Merger.
Following the Merger, the CBS Common Stock was delisted from the New York Stock Exchange and the Viacom Common Stock ceased trading on the Nasdaq Stock Market LLC (“Nasdaq”). On December 5, 2019, ViacomCBS Class A Common Stock and ViacomCBS Class B Common Stock were listed on Nasdaq and began trading under the ticker symbols VIACA and VIAC, respectively.
Change in Reporting Entity—The Merger has been accounted for as a transaction between entities under common control as National Amusements, Inc. (“NAI”) was the controlling stockholder of each of CBS and Viacom (and remains the controlling stockholder of ViacomCBS). Upon the closing of the Merger, the net assets of Viacom were combined with those of CBS Television Network, CBS Television Studios, CBS Studios International,at their historical carrying amounts and CBS Television Distribution; Network Ten; CBS Interactive; and CBS Films;), Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks), Publishing (Simon & Schuster) and Local Media (CBS Television Stations and CBS Local Digital Media). the companies have been presented on a combined basis for all periods presented in the consolidated financial statements. This presentation constitutes a change in reporting entity. The following table provides the impact of the change in reporting entity on our results of operations for periods prior to the Merger.
| Period from January 1 | Year Ended December 31, | ||||||||||||
| to December 4, 2019 | 2018 | 2017 | |||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 1,353 | $ | 1,463 | $ | 1,959 | |||||||
Net earnings per common share from continuing operations attributable to ViacomCBS: | |||||||||||||
| Basic | $ | .44 | $ | .35 | $ | 1.85 | |||||||
| Diluted | $ | .45 | $ | .37 | $ | 1.83 | |||||||
| Other comprehensive income (loss) | $ | (148 | ) | $ | (202 | ) | $ | 190 | |||||
Discontinued Operations—Operations—On November 16, 2017, the Companywe completed the split-offdisposition of CBS Radio Inc. (“CBS Radio”) through an exchange offer, in which the Company accepted 17.9 million shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 101.4 million shares of CBS Radio common stock that it owned. Immediately following the exchange offer, each share of CBS Radio common stock was converted into one share of Entercom Communications Corp. (“Entercom”) Class A common stock upon completion of the merger of CBS Radio with Entercom.a split-off. CBS Radio has been presented as a discontinued operation in theour consolidated financial
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
statements for all periods presented (See(see Note 4)18). In addition, certain businesses that were previously disposed of by the Company prior to January 1, 2002, were accounted for asAlso included in discontinued operations in accordanceare liabilities associated with accounting rules in effect prior to 2002.indemnification obligations for leases primarily associated with the previously discontinued operations of Famous Players Inc.
Principles of Consolidation—Consolidation—The consolidated financial statements include the accounts of CBS Corp. and all ofViacomCBS, its subsidiaries in which a controlling interest is maintained.maintained and variable interest entities (“VIEs”) where we are considered the primary beneficiary, after the elimination of intercompany accounts and transactions. Controlling interest is determined by majority ownership interest and the absence of substantive third party participating rights. Investments over which the Company haswe have a significant influence, or ownership of more than 20% but less than or equal to 50%, without a controlling interest, are accounted for under the equity method. InvestmentsOur proportionate share of 20%net earnings or less, over whichloss of the Company has no significant influence, are accounted for underentity is recorded in “Equity in earnings (loss) of investee companies, net of tax” on the cost method if the fair value is not readily determinable and are accounted for as available for sale securities if the fair value is readily determinable. All significant intercompany transactions have been eliminated. Amounts attributable to noncontrolling interests are immaterial for all periods presentedConsolidated Statements of Operations.
Use of Estimates—Estimates—The preparation of the Company’sour financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosurethe disclosures of contingent assets and liabilities atas of the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. The Company bases itsperiods presented. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differvary from these estimates under different assumptions or conditions.
Business Combinations—We generally account for business combinations using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, 100% of the assets, liabilities and certain contingent liabilities acquired, as well as amounts attributed to noncontrolling interests, are recorded at fair value. Any transaction costs are expensed as incurred. The Merger was accounted for as a transaction between entities under common control as NAI was the controlling stockholder of each of CBS and Viacom.
Cash and Cash Equivalents—Equivalents—Cash and cash equivalents consist of cash on hand and short-term (maturitieshighly liquid investments with maturities of three months or less at the date of purchase) highly liquid investments,purchase, including money market funds, commercial paper and bank time deposits. At December 31, 2019 and 2018, we had restricted cash of $202 million and $120 million, respectively, consisting of amounts held in grantor trusts related to agreements with former executives. Restricted cash is included within “Other current assets” and “Other assets” on the Consolidated Balance Sheets.
Programming Inventory—The Company acquiresInventory—We acquire rights to programming and producesproduce programming to exhibit on itsour broadcast and cable networks, on our broadcast television stations, direct to consumers through itsour digital streaming services, and the internet, and in theaters. We also produce programming for third parties.
Internally-Produced Programming—Costs incurred to produce television programs and feature films (which include direct production costs, production overhead, acquisition costs and development costs) are capitalized when incurred. We use an individual-film-forecast-computation method to amortize capitalized production costs and to accrue estimated liabilities for residuals and participations 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. The estimate of Ultimate Revenues impacts the timing of amortization and accrual of residuals and participations. For television programming, Ultimate Revenue estimates are initially limited to the amount of revenue contracted for each episode in the initial market and estimates of revenue from a secondary market where we can demonstrate a history of earning such revenue in that market. Television programming costs and participation costs incurred in acquiringexcess of such amounts are expensed as incurred on an episode by episode basis. Estimates for additional secondary market revenues such as domestic and producing programsforeign syndication and home entertainment are capitalized and amortized overincluded in the license period or projected useful life ofestimated lifetime revenues once it can be demonstrated that a program can be successfully licensed in such secondary market. For each television program, management bases these estimates on the programming. Program rights andperformance in the related liabilitiesinitial markets, the existence
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Ultimate Revenue estimates are periodically reviewed and adjustments, if any, will result in changes to inventory amortization rates and estimated accruals for residuals and participations. An impairment charge is recorded if the fair value of a television program or feature film falls below the unamortized production costs. Film development costs that have not been set for production are expensed within three years unless they are abandoned earlier, in which case these projects are written down to their estimated fair value in the period the decision to abandon the project is determined.
Acquired Programming Rights—Costs incurred in acquiring television series and feature film programmingprogram rights, including advances, are capitalized when the license period has begun and the program is accepted and available for airing. These costs are amortized over the shorter of the license period or the period in which an economic benefit is expected to be derived based on the timing of the Company’sour usage of and benefit from such programming. The net realizable value of acquired programming rights is regularly evaluated by us either by title or on a daypart basis, which is defined as an aggregation of programs broadcast during a particular time of day or an aggregation of programs of a similar type based on the specific demographic targeted by each respective program or program service. Net realizable value is determined by estimating advertising revenues to be derived from the future airing of the programming and allocating affiliate revenue to the programming, each as applicable. An impairment charge is recorded if our estimates of future cash flows are below the carrying amount of the programming or if programming is abandoned.
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. These costs are expensed over the period in which an economic benefit is expected to be derived based on the relative value of the events broadcast by the Companyus during a period. The relative value for an event is determined based on the revenues generated for that event in relation to the estimated total revenues over the remaining term of the sports programming agreement.
Television and feature film programming and production costs, including inventory amortization, development costs, residuals and participations and impairment charges, if any, are included within “Operating expenses” in the Consolidated Statements of Operations.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Property and Equipment—Equipment—Property and equipment is stated at cost. Depreciation is computed bycalculated using the straight-line method over estimated useful lives as follows:
| Buildings and building improvements | 10 to 40 years |
| Leasehold | Shorter of lease term or useful life |
| Equipment and other (including | 3 to 20 years |
Costs associated with repairs and maintenance of property and equipment are expensed as incurred.
Impairment of Long-Lived Assets—Assets—The Company assesses long-lived assets and intangible assets, other than goodwill and intangible assets with indefinite lives, for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows expected to be generated by these assets which is the estimated fair value, to their net carrying value. TheIf the carrying value is not recoverable, the amount of impairment loss,charge, if any, will generally beis measured by the difference between the net carrying value and the estimated fair value of the asset.
Goodwill and Intangible Assets—Assets—Goodwill is allocated to various reporting units, which are generallyat or one level below the Company’sour operating segments. Intangible assets with finite lives, which primarily consist of trade names, licenses, and customer agreements are generally amortized using the straight-line method over their estimated useful lives, which range from 4 to 40 years. Goodwill and other intangible assets with indefinite lives, which consist primarily of FCC licenses in the U.S. and broadcast licenses in Australia, are not amortized but are tested for impairment on an annual basis and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value below its carrying amount. If the carrying value of goodwill or the indefinite-lived intangible asset exceeds its fair value, an impairment charge is recognized (see Note 4).
Guarantees—At the inception of a guarantee, we recognize a liability for the fair value of an obligation assumed by issuing the guarantee. The related liability is subsequently reduced as utilized or extinguished and increased if there is a probable loss associated with the guarantee which exceeds the value of the recorded liability.
Treasury Stock—Treasury stock is accounted for using the cost method. Retirements of treasury stock are reflected as a reduction to additional paid-in capital.
Fair Value Measurements—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The framework for measuring fair value provides a hierarchy that prioritizes the inputs to valuation techniques 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
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
about the assumptions that market participants would use in pricing the asset or liability. Certain assets and liabilities, including foreign currency hedges and deferred compensation liabilities, are measured and recorded at fair value on a recurring basis. Film and television production costs, goodwill, intangible assets, and equity method investments are recorded at fair value only if an impairment charge is recognized. Impairment charges, if applicable, are determined using discounted cash flows, which is a Level 3 valuation technique.
Derivative Financial Instruments—Derivative financial instruments are recorded on the Consolidated Balance Sheets as assets or liabilities and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair value of both the derivatives and the hedged items are recorded in “Other items, net”in the Consolidated Statements of Operations. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives is recorded in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets and subsequently recognized in net earnings.
Pension and Postretirement Benefits—The service cost component of net benefit cost for our pension and postretirement benefits is recorded on the same line items in the Consolidated Statements of Operations as other compensation costs of the related employees. All of the other components of net benefit cost are presented separately from the service cost component and below the subtotal of operating income in “Other items, net” or “Pension settlement charge” in the Consolidated Statements of Operations.
Other Liabilities—Other liabilities consist primarily of the noncurrent portion of residual liabilities of previously disposed businesses, long-term income tax liabilities, deferred compensation and other employee benefit accruals.
Revenues
Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service.
Advertising Revenues—Advertising revenues are recognized when the advertising spots are aired on television or displayed on digital platforms. Advertising spots are typically sold as part of advertising campaigns consisting of multiple commercial units. 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. Audience ratings and impressions are determined based on data provided by independent third-party companies. 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. Advertising contracts, which are generally short-term, are billed monthly, with payments due shortly after the invoice date.
Advertising revenues are generated by the TV Entertainment and Cable Networks segments.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Affiliate Revenues—Affiliate revenues primarily consist of fees received from multichannel video programming distributors (“MVPDs”) and third-party live television digital streaming offerings (“virtual MVPDs”) for carriage of our cable networks (“cable affiliate fees”) and television stations (“retransmission fees”); fees from television stations affiliated with the CBS Television Network (“station affiliation fees”); and subscription fees for our digital streaming subscription offerings, including CBS All Access, the Showtime streaming subscription offering (“Showtime OTT”) andBET+. Costs incurred for advertising, marketing and other services provided to us by cable, satellite and other distributors that are in exchange for a distinct service are recorded as expenses. If a distinct service is not received, such costs are recorded as a reduction to 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 subscribers to our digital streaming services, 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 toour 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. For affiliate revenues, payments are generally due monthly.
Affiliate revenues are generated by the TV Entertainment and Cable Networks segments.
Content Licensing Revenues—Content licensing revenues are generated from the licensing of exhibition rights for our internally-produced television and film programming to television stations, cable networks and subscription streaming services; licensing of our content for distribution on transactional video-on-demand services; the distribution of our content through DVD and Blu-ray disc sales to wholesale and retail partners; the use of our trademarks and brands for consumer products, recreation and live events; and fees from the distribution of third-party programming.
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. Estimation of standalone selling prices requires judgment, which can impact the timing of recognizing revenues. Agreements to license programming are often long term, with collection terms ranging from one to five years.
When payment is due from a customer more than one year before or after revenue is recognized, we consider the contract to contain a significant financing component and the transaction price is adjusted for the effects of the time value of money. We do not adjust the transaction price for the time value of money if payment is expected within one year of recognizing revenues.
We also license our programming to distributors of transactional video-on-demand and similar services. Under these arrangements, our performance obligation is the delivery of our content to such distributors who then license our content to the end customer. Our revenues are determined each month based on a contractual rate applied to the number of licenses to the distributors’ end customers. Similarly, revenues earned from electronic sell-through services are recognized as each program is downloaded by the end customer.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Revenues associated with the licensing of our brands for consumer products, recreation and live events are generally determined based on contractual royalty rates applied to sales reported by the licensees. For consumer products and recreation arrangements that include minimum guaranteed consideration, revenue is recognized as sales occur by the licensee, if the sales-based consideration is expected to exceed the minimum guarantee, or ratably if it is not expected to exceed the minimum guarantee. For live events, we recognize revenue when the event is held.
Revenues from the sales of DVDs and Blu-ray discs to wholesalers and retailers are recognized upon the later of the physical delivery to the customer or the date that any sales restrictions on the retailers are lifted.
We earn revenues from the distribution of content on behalf of third parties. We also have arrangements for the distribution or sale of our content by third parties. Under such arrangements, we determine whether revenues should be recognized based on the gross amount of consideration received from the customer or the net amount of revenue we retain after payment to the third party producer or distributor, based on an assessment of which party controls the good or service being transferred.
Content licensing revenues are generated by the TV Entertainment, Cable Networks and Filmed Entertainment segments.
Theatrical Revenues—Theatrical revenue is earned from the theatrical distribution of our films during the exhibition period. Under these arrangements, revenues are recognized based on sales to the end customer. Theatrical revenues are generated by the Filmed Entertainment segment.
Publishing—Publishing revenues are recognized when merchandise is shipped or electronically delivered to the consumer. Payments for publishing revenues are due shortly after shipment or electronic delivery.
Revenue Allowances—Print books, DVDs and Blu-ray discs are generally sold with a noncash charge (See Note 3).right of return. We record a provision for sales returns and allowances at the time of sale based upon an estimate of future returns, rebates and other incentives. In determining this provision, we consider sources of qualitative and quantitative evidence including forecast sales data, customers’ rights of return, sales levels for units already shipped, historical return rates for similar products, current economic trends, the competitive environment, promotions and our sales strategies. Reserves for sales returns and allowances of $153 million and $186 million at December 31, 2019 and 2018, respectively, are recorded in “Other current liabilities” on the Consolidated Balance Sheets.
Noncurrent Accounts Receivables—Included in “Other assets” on the Consolidated Balance Sheets are noncurrent accounts receivables of $2.12$2.11 billion and $1.84 billion at December 31, 20172019 and $2.11 billion at December 31, 2016, which are2018, respectively. Noncurrent accounts receivables primarily relatedrelate to revenues recognized under long-term television licensing arrangements. Television license fee revenues 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Contract liabilities are included in “Deferred revenues” and “Other liabilities” on the Consolidated Balance Sheets and were $910 million and $745 million at December 31, 2019 and December 31, 2018, respectively. The amounts classified as current arechange in contract liabilities for the year ended December 31, 2019 primarily reflects cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period partially offset by $501 million of revenues recognized that were included in deferred revenues at December 31, 2018. For the year ended December 31, 2018, we recognized revenues of $560 million that were included in deferred revenues at December 31, 2017.
Unrecognized Revenues Under Contract—As of December 31, 2019, unrecognized revenues attributable to unsatisfied performance obligations under our long-term contracts was $7.72 billion, of which $4.27 billion is expected to be earned withinrecognized in 2020, $1.93 billion in 2021, $1.04 billion in 2022, and $478 million thereafter. These amounts only include contracts subject to a guaranteed fixed amount or the next twelve months.
Performance Obligations Satisfied in Previous Periods—Under certain licensing arrangements, the amount and recognized in accordance with the applicabletiming of our revenue recognition criteriais determined based on our licensees’ subsequent sale to its end customers. As a result, under such arrangements, which primarily include licensing of our content to distributors of transactional video-on-demand and electronic sell-through services, we often satisfy our performance obligation of delivery of our content in advance of revenue recognition. During the years ended December 31, 2019 and 2018, we recognized revenues of approximately $235 million and $172 million, respectively in our Filmed Entertainment segment for the specific unit of accounting.such performance obligations satisfied, or partially satisfied, in a prior period.
Collaborative Arrangements—Arrangements—Collaborative arrangements primarily consist of joint efforts with third parties to produce and distribute programming such as television series and live sporting events, including the agreement between the Companyus and Turner Broadcasting System, Inc. to telecast the NCAA Division I Men’s Basketball Championship (“NCAA Tournament”), which runs through 2032. In connection with this agreement for the NCAA Tournament, advertisements aired on the CBS Television Network are recorded as revenues and the Company’sour share of the program rights fees and other operating costs are recorded as operating expenses.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Amounts attributable to transactions arising from collaborative arrangements between participants were not material to the Company’s consolidated financial statements for all periodsany period presented.
Adoption of Revenue Recognition Standard— On January 1, 2018, we adopted FASB guidance on the recognition of revenues, which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The primary impact to our revenue recognition policies resulting from this standard relates to the timing of revenue recognition for the renewal of an existing licensing agreement, which under the new standard is recognized as revenue when the renewal term begins. Under previous guidance, these revenues were recognized upon the execution of such renewal. In addition, under the new standard, revenues for certain distribution arrangements are recognized based on the gross amount of consideration received from the customer, with an offsetting increase to operating expenses. Under previous accounting guidance, such revenues were recognized at the net amount retained by us after the payment of fees to the third party. Results for reporting periods beginning after January 1, 2018 are presented under the new standard while prior periods have not been adjusted. We applied the modified retrospective method of adoption with the cumulative effect of the initial adoption of $350 million reflected as an adjustment to the opening balance of retained earnings as of January 1, 2018.
Leases—We have operating leases primarily for office space, equipment, satellite transponders and studio facilities and finance leases for satellite transponders and equipment. We determine that a contract contains a lease if we obtain substantially all of the economic benefits of, and the right to direct the use of, an asset identified in the contract. For leases with terms greater than 12 months, we record a right-of-use asset and a lease liability representing the present value of future lease payments. The discount rate used to measure the lease asset and liability is determined at the beginning of the lease term using the rate implicit in the lease, if readily determinable, or our collateralized incremental borrowing rate. For those contracts that include fixed rental payments for both the use of the asset (“lease costs”) as well as for other occupancy or service costs relating to the asset (“non-lease costs”), we generally include both the lease costs and non-lease costs in the measurement of the lease asset and liability. We also own buildings and production facilities where we lease space to lessees.
Our leases have remaining terms ranging from one to 17 years and often contain renewal options to extend the lease for periods of generally up to ten years. For leases that contain renewal options, we include the renewal period in the lease term if it is reasonably certain that the option will be exercised. Lease expense and income for our operating leases are recognized on a straight-line basis over the lease term, with the exception of variable lease costs, which are expensed as incurred, and leases of assets used in the production of programming, which are capitalized in programming assets and amortized over the projected useful life of the related programming. For finance leases, amortization of the right-of-use asset is recognized in amortization expense on a straight-line basis over the lease term and interest expense is accreted on the lease liability using the effective interest method. This results in an accelerated recognition of cost over the lease term.
Advertising—Advertising costs are expensed as incurred. The CompanyWe incurred total advertising expenses of $426 million$1.70 billion in 2017, $373 million2019, $1.41 billion in 20162018 and $338 million$1.58 billion in 2015.2017.
Income Taxes—Taxes—The provision for income taxes includes federal, state, local, and foreign taxes. 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. The Company evaluates
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
We evaluate the realizability of deferred tax assets and establishesestablish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Deferred tax assets and deferred tax liabilities are classified as noncurrent on the Consolidated Balance Sheets.
For tax positions taken in a previously filed tax return or expected to be taken in a future tax return, the Company evaluateswe 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 be recognized 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. 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. We recognize interest and penalty charges related to the reserve for uncertain tax positions as income tax expense.
Foreign Currency Translation and Transactions—The Company’s assetsTransactions—Assets and liabilities denominated in foreign currenciesof subsidiaries with a functional currency other than the United States (“U.S.”) Dollar are translated into U.S. Dollars at foreign exchange rates in effect at the balance sheet date, while results of operations are translated at average foreign exchange rates for the respective periods. The resulting translation gains orand losses are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). Foreign in the Consolidated Balance Sheet. Effective July 1, 2018, Argentina has been designated as a highly inflationary economy. Transactions denominated in currencies other than the functional currency transactionwill result in remeasurement gains and losses, have beenwhich are included in “Other items, net” in the Consolidated Statements of Operations.
Net Earnings (Loss) per Common Share—Basic earnings (loss) per share (“EPS”) is based upon net earnings (loss) divided by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted stock units (“RSUs”) only in the periods in which such effect would have been dilutive. Excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, were 419 million stock options and RSUs for each of the years ended December 31, 2017, 20162019 and 2015.2018 and 14 million stock options and RSUs for the year ended December 31, 2017.
The table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS.
| Year Ended December 31, | 2019 | 2018 | 2017 | |||||
| (in millions) | ||||||||
| Weighted average shares for basic EPS | 615 | 617 | 640 | |||||
| Dilutive effect of shares issuable under stock-based compensation plans | 2 | 4 | 7 | |||||
| Weighted average shares for diluted EPS | 617 | 621 | 647 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | |||||
| (in millions) | ||||||||
| Weighted average shares for basic EPS | 401 | 444 | 484 | |||||
| Dilutive effect of shares issuable under stock-based compensation plans | 6 | 4 | 5 | |||||
| Weighted average shares for diluted EPS | 407 | 448 | 489 | |||||
Stock-based Compensation—The Company measuresCompensation—We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized over the vesting period during which an employee is required to provide service in exchange for the award.
Recently Adopted Accounting Pronouncements
During the first quarter of 2017, the Company2019, we adopted amended FASB guidance which simplifies several aspects of the accounting for employee share-based payment transactions. Under this amended guidance, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement in the period in which the awards vest or are exercised. In the statement of cash flows, excess tax benefits are classified with other income tax cash flows in operating activities. As a result of the adoption of this guidance, the Company’s excess tax benefits associated with the exercise of stock options and vesting of RSUs for the year ended December 31, 2017 were recorded in the provision for income taxes on the Consolidated Statements of Operations. The guidance requires the income statement classification to be applied prospectively, and therefore, excess tax benefits for prior periods remain classified in stockholders’ equity on the balance sheet. The Company elected to apply the cash flow classification provision of this guidance prospectively and therefore, excess tax benefits for prior periods remain classified as financing activities on the statements of cash flows. The amended guidance also gives the option to make a policy election to account for forfeitures as they occur. The Company, however, has elected to continue its existing practice of estimating forfeitures.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
balance sheet a lease liability and a right-of-use asset representing itsour right to use the underlying asset for the lease term. The new guidance retains a distinction between finance leases and operating leases and the classification criteria is substantially similar to previous guidance. Additionally, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed. We applied the modified retrospective method of adoption and therefore, results for reporting periods beginning after January 1, 2019 are presented under the new guidance while prior periods have not been adjusted. This guidance did not have an impact on the Consolidated Statement of Operations. See Note 9 for the impact of this guidance on the Consolidated Balance Sheet and additional information.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
During the first quarter of 2019, we adopted FASB guidance that permits an entity to reclassify certain income tax effects of federal tax legislation enacted in December 2017 (the “Tax Reform Act”) on items within accumulated other comprehensive income (“AOCI”) to retained earnings. As a result of the Tax Reform Act, in 2017, we remeasured our deferred income tax assets and liabilities to reflect the reduction in the federal income tax rate from 35% to 21%. The Company isremeasurement was recognized in net earnings and as a result, the income tax effects of the Tax Reform Act on items within AOCI remained at historical rates (“stranded tax effects”). During the first quarter of 2019, as a result of the adoption of this guidance, we elected to reclassify the stranded tax effects of $230 million relating to our pension and postretirement benefit obligations from AOCI to retained earnings. This guidance also requires entities to disclose their accounting policy for releasing stranded tax effects unrelated to the Tax Reform Act from AOCI. For pension and postretirement benefit plans, we release stranded tax effects from AOCI when the pension and postretirement plans are terminated.
Accounting Pronouncements Not Yet Adopted
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance on the accounting for income taxes that, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. We are currently reviewing its lease portfolio, evaluating the impact of this guidance, on its consolidated balance sheet and assessing system requirements. This guidancewhich is effective for interim and annual reporting periods beginning after December 15, 2018,2020, with early adoption permitted.
In March 2019, the FASB issued guidance on the accounting for costs of films and episodic television series, which aligns the accounting for capitalizing production costs of episodic television series with the guidance for films. As a result, the capitalization of costs incurred to produce episodic television series will no longer be limited to the amount of revenue contracted in the initial market until persuasive evidence of a secondary market exists. In addition, this guidance requires an entity to test for impairment of films or television series on a title-by-title basis or together with other films and series as part of a group, based on the predominant monetization strategy of the film or series. Further, this guidance requires that an entity reassess estimates of the use of a film or series in a film group and account for changes, if any, prospectively. In addition, this guidance eliminates existing balance sheet classification guidance and adds new disclosure requirements relating to costs for acquired and produced television series. We are currently
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2019.
Collaborative Arrangements: Clarifying the Interaction with the New Revenue from Contracts with CustomersStandard
In May 2014,November 2018, the FASB issued guidance onto clarify that certain transactions between parties to collaborative arrangements should be accounted for in accordance with FASB revenue guidance when the recognition of revenues which providescounterparty is a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers.customer. This guidance is effective foralso prohibits the Company beginning in the first quarterpresentation of 2018. The Company has identified the changes to its accounting policies and is in the process of preparing the expanded disclosures required under the new standard, including the disaggregation of revenuecollaborative arrangements as revenues from contracts with customers into categories that depict howif the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. The adoption of this guidancecounterparty is not expecteda customer. This guidance, which is required to have a significant impact on the Company’s total revenues. The Company has identified changes to its revenue recognition policies primarily relating to two areas of its content licensingbe applied retrospectively and distribution operations. First, revenues from certain distribution arrangements of third-party content will be recognized based on the gross amount of consideration received by the Company, with participation expense recognizedis effective for the fees paid to the third party. Under current accounting guidance, such revenues are recognized at the net amount retained by the Companyinterim and annual periods beginning after the payment of fees to the third party. This accounting change if adopted in 2017 would have increased 2017 revenues and participation expense by approximately $275 million, with no impact on the Company’s operating income. Second, revenues associated with the extension of an existing licensing arrangement, which are currently recognized upon the execution of such extension, will be recognized at a later date once the extension period begins. The Company will apply the modified retrospective method of adoption with the cumulative effect of the initial adoption, currently estimated at $263 million, reflected as an adjustment to the opening balance of accumulated deficit as of January 1, 2018. This changeDecember 15, 2019, is not expected to have a material impact on the Company’s operating incomeconsolidated financial statements.
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
In August 2018, the FASB issued guidance on anthe accounting for implementation costs of a cloud computing arrangement that is considered to be a service contract. This guidance requires companies to follow the guidance for capitalizing costs associated with internal-use software to determine which costs to capitalize in a cloud computing arrangement that is a service contract. The guidance also specifies the financial statement presentation for capitalized implementation costs and the related amortization, as well as required financial statement disclosures. We are currently evaluating the impact of this guidance, which is effective for interim and annual basis, since revenues from extensions executed each year approximate revenues from extensionsperiods beginning after December 15, 2019.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued amended guidance that eliminates, adds and clarifies certain disclosure requirements for defined benefit pension or other postretirement plans. We are currently evaluating the impact of this guidance, which is required to be applied retrospectively and is effective for annual periods ending after December 15, 2020.
Financial Instruments
In June 2016, the license period has begun.FASB issued amended guidance on the accounting for credit losses on financial instruments. Among other provisions, this guidance introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for losses. This guidance is effective for interim and annual periods beginning after December 15, 2019. We are currently evaluating the impact of this guidance.
2) PROPERTY AND EQUIPMENT
| At December 31, | 2019 | 2018 | |||||
| Land | $ | 439 | $ | 439 | |||
| Buildings | 1,263 | 1,242 | |||||
Finance leases (a) | 195 | 335 | |||||
| Equipment and other | 4,096 | 3,899 | |||||
| 5,993 | 5,915 | ||||||
| Less accumulated depreciation and amortization | 3,908 | 3,836 | |||||
| Net property and equipment | $ | 2,085 | $ | 2,079 | |||
| At December 31, | 2017 | 2016 | |||||
| Land | $ | 193 | $ | 195 | |||
| Buildings | 769 | 733 | |||||
Capital leases (a) | 162 | 164 | |||||
| Equipment and other | 1,927 | 1,843 | |||||
| 3,051 | 2,935 | ||||||
| Less accumulated depreciation and amortization | 1,771 | 1,694 | |||||
| Net property and equipment | $ | 1,280 | $ | 1,241 | |||
(a) Accumulated amortization of capitalfinance leases was $112$160 million and $98$279 million at December 31, 20172019 and 2016,2018, respectively.
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
Depreciation expense, including capitalized lease amortization (a) | $ | 203 | $ | 205 | $ | 212 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
Depreciation expense, including amortization of finance leases (a) | $ | 366 | $ | 382 | $ | 395 | |||||
(a) Amortization expense related to finance leases was $23 million, $28 million and $32 million in 2019, 2018 and 2017, respectively.
During 2019, we completed the sale of our CBS Television City property and sound stage operation (“CBS Television City”) for $750 million. We have 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 on the Consolidated Balance Sheet at December 31, 2019 is a liability of $124 million, reflecting the present value of the estimated amount payable under the guarantee obligation. This transaction resulted in a gain of $549 million ($386 million, net of tax), which included a reduction for the guarantee obligation. CBS Television City was classified as held for sale on the Consolidated Balance Sheet at December 31, 2018.
In 2017, we recorded a net gain of $19 million relating to the disposition of property and equipment, which is included within “Gain on sale of assets” on the Consolidated Statement of Operations.
3)PROGRAMMING AND OTHER INVENTORY
| At December 31, | 2019 | 2018 | |||||
| Acquired television program rights | $ | 3,477 | $ | 3,655 | |||
| Acquired television library | 99 | 99 | |||||
| Internally produced television programming: | |||||||
| Released | 3,627 | 2,986 | |||||
| In process and other | 2,626 | 1,917 | |||||
| Film inventory: | |||||||
| Released | 502 | 619 | |||||
| Completed, not yet released | 55 | 31 | |||||
| In process and other | 1,037 | 674 | |||||
| Home entertainment and Publishing (primarily finished goods) | 105 | 102 | |||||
| Total programming and other inventory | 11,528 | 10,083 | |||||
| Less current portion | 2,876 | 2,785 | |||||
| Total noncurrent programming and other inventory | $ | 8,652 | $ | 7,298 | |||
We expect to amortize approximately $2.95 billion of our internally produced television and film programming inventory, including released and completed, not yet released, during the year ended December 31, 2020. In addition, while it is difficult to determine the precise timing of the amortization of the remaining internally produced programming, we estimate that substantially all of the released internally produced television programming and 85% of the film inventory at December 31, 2019 will be amortized over the next three years.
During 2019, we recorded programming charges of $589 million. See Note 5 for additional information.
4) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and Intangible Assets Impairment Test
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except for the Publishing reporting unit, which is the same as its operating segment because this operating segment has only one component. per share amounts)
FCC licenses are tested for impairment at the geographic market level. The Company considersWe consider each geographic market, which is comprised of all of the Company’sour television stations within that geographic market, to be a single unit of accounting because the FCC licenses at this level represent their highest and best use. At December 31, 2017, the Company2019, we had eight reporting units with goodwill balances, and 14 television markets with FCC license book values. For broadcast licenses in Australia, we consider all of our licenses within the country to be a single unit of accounting because this represents their highest and best use.
Goodwill is tested for impairment at the reporting unit level, which is an operating segment, or one level below. At December 31, 2019, we had 6 reporting units with goodwill balances, which were determined based on the post-Merger reporting structure.
For itsour annual impairment test, the Company performswe perform qualitative assessments for eachthe reporting unitunits, U.S. television markets with FCC licenses, and market with FCCAustralian broadcast licenses that management estimates have fair values that significantly exceed their respective carrying values. In selecting markets and reporting units for a qualitative assessment, the Companymaking this determination, we also considersconsider the duration of time since a quantitative test was performed. For the 20172019 annual impairment test, the Companywe performed qualitative assessments for seven all of our U.S. television markets and all of ourreporting units and 11 television markets.units. As of the date of our annual impairment tests, which were performed prior to the Merger, we had 10 reporting units. For each reporting unit, the Companywe weighed the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. For each television market, the Companywe weighed the relative impact of market-specific and macroeconomic factors. Based on the qualitative assessments, considering the aggregation of the relevant factors, the Companywe concluded that it is not more likely than not that the fair values of these reporting units and the fair value of FCC licenses within each market are less than their respective carrying values. Therefore, performing the quantitative impairment test was unnecessary.
A quantitative impairment test that compares theof broadcast licenses calculates an estimated fair value of the FCC licenses by geographic market with their respective carrying values. The estimated fair value of each FCC license is computed using the Greenfield Discounted Cash Flow Method, (‘‘Greenfield Method’’), which attempts to isolate the income that is attributable to the license alone. The Greenfield Method is based upon modelingvalues a hypothetical start-up station and building it up to a normalized operation that,in the relevant market by design, lacks inherent goodwill and whose other assets have essentially been added as part of the build-up process. The Greenfield Method adds the present value of the estimated annual cash flows of the start-up station over a projection period to the residual value at the end of the projection period. The annualadding discounted cash flows over a five-year build-up period to a residual value. The assumptions for the projectionbuild-up period include assumptions forindustry projections of overall advertising revenues in the relevant geographic market revenues; the start-up station’s operating costs and capital expenditures, and a five-year build-up period for the start-up station to reach a normalized state of operations, which reflects the point at which it achieves an average market share. The overall market advertising revenue in the subject market is estimated based on recent industry projections. Operating costs and capital expenditures are estimated based on both industry and internal data.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 perpetual nominal growth rate, which is based on projected long-range inflation in the U.S. and long-term industry projections.
For 2019, we performed a quantitative impairment test for our Australian broadcast licenses. The discount rate is determined based on the average of the weighted average cost of capital of comparable entities in the broadcast industry. For each television station, the discount rate used for 2017 was 7.5% and the perpetual nominal growth rate was 2.0%. For the 2017 quantitativewere 11% and 0.5%, respectively. The impairment test the Company concludedindicated that the estimated fair value of FCCthe broadcast licenses was lower than the carrying value, which was the result of a sustained decline in eachthe advertising marketplace in Australia. Accordingly, we recorded an impairment charge during the fourth quarter of 2019 of $20 million, which is included within “Depreciation and amortization” on the three television markets for which the quantitative test was performed exceeded their respective carrying values.Consolidated Statements of Operations, and recorded in our Cable Networks segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Balance at | Acquisitions / | Foreign | Balance at | ||||||||||||||||||
| December 31, 2018 | (Dispositions) | Currency | December 31, 2019 | ||||||||||||||||||
| TV Entertainment: | |||||||||||||||||||||
| Goodwill | $ | 17,618 | $ | (3 | ) | $ | — | $ | 17,615 | ||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | 4,264 | (3 | ) | — | 4,261 | ||||||||||||||||
| Cable Networks: | |||||||||||||||||||||
| Goodwill | 10,234 | 451 | (a) | 6 | 10,691 | ||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 10,234 | 451 | 6 | 10,691 | |||||||||||||||||
| Filmed Entertainment: | |||||||||||||||||||||
| Goodwill | 1,593 | — | — | 1,593 | |||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 1,593 | — | — | 1,593 | |||||||||||||||||
| Publishing: | |||||||||||||||||||||
| Goodwill | 435 | — | — | 435 | |||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 435 | — | — | 435 | |||||||||||||||||
| Total: | |||||||||||||||||||||
| Goodwill | 29,880 | 448 | 6 | 30,334 | |||||||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | $ | 16,526 | $ | 448 | $ | 6 | $ | 16,980 | |||||||||||||
(a) Primarily reflects the carrying valueacquisitions of a reporting unit exceeds its estimated fair value, which is computed based upon the present value of future cash flows (“Discounted Cash Flow Method”)Pluto Inc. and the traded or transaction values of comparable businesses (“Market Comparable Method”). If the carrying value exceeds the estimated fair value, an impairment charge is recognized as the amount by which the carrying value exceeds the fair value. For 2017, the Discounted Cash Flow Method and Market Comparable Method for CBS Sports Network resulted in similar estimated fair values. The Discounted Cash Flow Method includes the Company’s assumptions for growth rates, operating margins and capital expenditures for the projection period plus the residual value of the business at the end of the projection period. The estimated growth rates, operating margins and capital expenditures for the projection period are based on the Company’s internal forecasts of future performance as well as historical trends. The residual value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections and for 2017 was 2.0%. The discount rate was determined based on the average of the weighted average cost of capital of comparable entities and for 2017was8.5%Pop TV.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Balance at | Foreign | Balance at | |||||||||||||||||||
| December 31, 2017 | Acquisitions | Currency | December 31, 2018 | ||||||||||||||||||
| TV Entertainment: | |||||||||||||||||||||
| Goodwill | $ | 17,591 | $ | 27 | $ | — | $ | 17,618 | |||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | 4,237 | 27 | — | 4,264 | |||||||||||||||||
| Cable Networks: | |||||||||||||||||||||
| Goodwill | 10,286 | 64 | (116 | ) | 10,234 | ||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 10,286 | 64 | (116 | ) | 10,234 | ||||||||||||||||
| Filmed Entertainment: | |||||||||||||||||||||
| Goodwill | 1,593 | — | — | 1,593 | |||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 1,593 | — | — | 1,593 | |||||||||||||||||
| Publishing: | |||||||||||||||||||||
| Goodwill | 435 | — | 435 | ||||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 435 | — | — | 435 | |||||||||||||||||
| Total: | |||||||||||||||||||||
| Goodwill | 29,905 | 91 | (116 | ) | 29,880 | ||||||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | $ | 16,551 | $ | 91 | $ | (116 | ) | $ | 16,526 | ||||||||||||
Our intangible assets were as follows:
| Balance at | Balance at | ||||||||||||||||||||
| December 31, 2016 | Acquisitions | Dispositions | December 31, 2017 | ||||||||||||||||||
| Entertainment: | |||||||||||||||||||||
| Goodwill | $ | 9,300 | $ | 23 | (a) | $ | — | $ | 9,323 | ||||||||||||
| Accumulated impairment losses | (6,294 | ) | — | — | (6,294 | ) | |||||||||||||||
| Goodwill, net of impairment | 3,006 | 23 | — | 3,029 | |||||||||||||||||
| Cable Networks: | |||||||||||||||||||||
| Goodwill | 480 | — | — | 480 | |||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 480 | — | — | 480 | |||||||||||||||||
| Publishing: | |||||||||||||||||||||
| Goodwill | 431 | 4 | (b) | — | 435 | ||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 431 | 4 | — | 435 | |||||||||||||||||
| Local Media: | |||||||||||||||||||||
| Goodwill | 8,007 | — | — | 8,007 | |||||||||||||||||
| Accumulated impairment losses | (7,060 | ) | — | — | (7,060 | ) | |||||||||||||||
| Goodwill, net of impairment | 947 | — | — | 947 | |||||||||||||||||
| Total: | |||||||||||||||||||||
| Goodwill | 18,218 | 27 | — | 18,245 | |||||||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | $ | 4,864 | $ | 27 | $ | — | $ | 4,891 | |||||||||||||
| Accumulated | |||||||||||
| At December 31, 2019 | Gross | Amortization | Net | ||||||||
| Intangible assets subject to amortization: | |||||||||||
| Trade names | $ | 404 | $ | (171 | ) | $ | 233 | ||||
| Licenses | 159 | (38 | ) | 121 | |||||||
| Customer agreements | 119 | (92 | ) | 27 | |||||||
| Other intangible assets | 263 | (151 | ) | 112 | |||||||
| Total intangible assets subject to amortization | 945 | (452 | ) | 493 | |||||||
| FCC licenses | 2,441 | — | 2,441 | ||||||||
| International broadcast licenses | 25 | — | 25 | ||||||||
| Other intangible assets | 34 | 34 | |||||||||
| Total intangible assets | $ | 3,445 | $ | (452 | ) | $ | 2,993 | ||||
| Accumulated | |||||||||||
| At December 31, 2018 | Gross | Amortization | Net | ||||||||
| Intangible assets subject to amortization: | |||||||||||
| Trade names | $ | 384 | $ | (148 | ) | $ | 236 | ||||
| Licenses | 145 | (29 | ) | 116 | |||||||
| Customer agreements | 92 | (88 | ) | 4 | |||||||
| Other intangible assets | 195 | (128 | ) | 67 | |||||||
| Total intangible assets subject to amortization | 816 | (393 | ) | 423 | |||||||
| FCC licenses | 2,441 | — | 2,441 | ||||||||
| International broadcast licenses | 45 | — | 45 | ||||||||
| Other intangible assets | 34 | — | 34 | ||||||||
| Total intangible assets | $ | 3,336 | $ | (393 | ) | $ | 2,943 | ||||
| Balance at | Balance at | ||||||||||||||||||||
| December 31, 2015 | Acquisitions | Dispositions | December 31, 2016 | ||||||||||||||||||
| Entertainment: | |||||||||||||||||||||
| Goodwill | $ | 9,250 | $ | 52 | (c) | $ | (2 | ) | (d) | $ | 9,300 | ||||||||||
| Accumulated impairment losses | (6,294 | ) | — | — | (6,294 | ) | |||||||||||||||
| Goodwill, net of impairment | 2,956 | 52 | (2 | ) | 3,006 | ||||||||||||||||
| Cable Networks: | |||||||||||||||||||||
| Goodwill | 480 | — | — | 480 | |||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 480 | — | — | 480 | |||||||||||||||||
| Publishing: | |||||||||||||||||||||
| Goodwill | 406 | 25 | (b) | — | 431 | ||||||||||||||||
| Accumulated impairment losses | — | — | — | — | |||||||||||||||||
| Goodwill, net of impairment | 406 | 25 | — | 431 | |||||||||||||||||
| Local Media: | |||||||||||||||||||||
| Goodwill | 8,007 | — | — | 8,007 | |||||||||||||||||
| Accumulated impairment losses | (7,060 | ) | — | — | (7,060 | ) | |||||||||||||||
| Goodwill, net of impairment | 947 | — | — | 947 | |||||||||||||||||
| Total: | |||||||||||||||||||||
| Goodwill | 18,143 | 77 | (2 | ) | 18,218 | ||||||||||||||||
| Accumulated impairment losses | (13,354 | ) | — | — | (13,354 | ) | |||||||||||||||
| Goodwill, net of impairment | $ | 4,789 | $ | 77 | $ | (2 | ) | $ | 4,864 | ||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Accumulated | |||||||||||
| At December 31, 2017 | Gross | Amortization | Net | ||||||||
| Intangible assets subject to amortization: | 190 | ||||||||||
| Trade names | $ | 190 | $ | (51 | ) | $ | 139 | ||||
| Other intangible assets | 134 | (101 | ) | 33 | |||||||
| Total intangible assets subject to amortization | 324 | (152 | ) | 172 | |||||||
| FCC licenses | 2,441 | — | 2,441 | ||||||||
International broadcast licenses (a) | 53 | — | 53 | ||||||||
| Total intangible assets | $ | 2,818 | $ | (152 | ) | $ | 2,666 | ||||
| Accumulated | |||||||||||
| At December 31, 2016 | Gross | Amortization | Net | ||||||||
| Intangible assets subject to amortization: | |||||||||||
| Trade names | $ | 188 | $ | (41 | ) | $ | 147 | ||||
| Other intangible assets | 147 | (107 | ) | 40 | |||||||
| Total intangible assets subject to amortization | 335 | (148 | ) | 187 | |||||||
| FCC licenses | 2,446 | — | 2,446 | ||||||||
| Total intangible assets | $ | 2,781 | $ | (148 | ) | $ | 2,633 | ||||
Amortization expense was as follows:
| Year Ended December 31, | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||
| Amortization expense | $ | 20 | $ | 20 | $ | 23 | $ | 77 | $ | 51 | $ | 48 | ||||||||||||||||||||||
We expect our aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 20182020 through 2022,2024, to be as follows:
| 2020 | 2021 | 2022 | 2023 | 2024 | |||||||||||||||||||||||||
| Future amortization expense | $ | 64 | $ | 55 | $ | 52 | $ | 47 | $ | 39 | |||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||||||||||
| Future amortization expense | $ | 19 | $ | 18 | $ | 15 | $ | 13 | $ | 12 | |||||||||||||||||||
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Severance | $ | 401 | $ | 235 | $ | 224 | |||||
| Exit costs and other | 23 | 75 | 12 | ||||||||
| Asset impairment | — | — | 22 | ||||||||
| Restructuring charges | 424 | 310 | 258 | ||||||||
| Restructuring-related costs | — | 52 | — | ||||||||
| Merger-related costs | 294 | — | — | ||||||||
| Other corporate matters | 57 | 128 | — | ||||||||
| Restructuring and other corporate matters | $ | 775 | $ | 490 | $ | 258 | |||||
| Programming charges | $ | 589 | $ | 162 | $ | 144 | |||||
Restructuring Charges and Related Costs
During the Company entered into an agreementyear ended December 31, 2019, we recorded restructuring charges of $424 million, primarily for severance and the acceleration of stock-based compensation in connection with Entercomthe Merger; costs related to combinea restructuring plan initiated in the Company’s radio business, CBS Radio,first quarter of 2019 under which severance payments are being provided to certain eligible employees who voluntarily elected to participate.
During the year ended December 31, 2018, we recorded restructuring charges of $310 million resulting from cost transformation initiatives to improve margins. In addition, in 2018 we recorded restructuring-related costs of $52 million, comprised of third-party professional services associated with Entercomsuch initiatives.
During the year ended December 31, 2017, we recorded restructuring charges of $258 million, resulting from the execution of a strategy for certain of our flagship brands and strategic initiatives at Paramount, as well as costs relating to other restructuring plans across several of our businesses in a merger effected throughcontinued effort to reduce our cost structure. The restructuring charges for 2017 included a Reverse Morris Trust transaction,non-cash impairment charge resulting from the decision to abandon an international trade name in connection with the strategic initiatives.
The following is a rollforward of our restructuring liability, which was tax-free to CBS Corp.is recorded in “Other current liabilities” and its stockholders. Beginning“Other liabilities” in the fourth quarterConsolidated Balance Sheets. The remaining restructuring liability at December 31, 2019, which primarily relates to severance payments, is expected to be substantially paid by the end of 2016, CBS Radio has been presented as a discontinued operation in the consolidated financial statements for all periods presented.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Fair value of CBS Corp. Class B Common Stock accepted | ||||
| (17,854,689 shares at $56.40 per share on November 16, 2017) | $ | 1,007 | ||
Carrying value of CBS Radio (a) | (1,112 | ) | ||
| Net loss on split-off of CBS Radio | $ | (105 | ) | |
| Balance at | 2019 Activity | Balance at | |||||||||||||||||||||||
| December 31, 2018 | Charges (a) | Payments | Other | December 31, 2019 | |||||||||||||||||||||
| TV Entertainment | $ | 54 | $ | 93 | $ | (82 | ) | $ | (1 | ) | $ | 64 | |||||||||||||
| Cable Networks | 151 | 93 | (104 | ) | (7 | ) | 133 | ||||||||||||||||||
| Filmed Entertainment | 22 | 8 | (12 | ) | (1 | ) | 17 | ||||||||||||||||||
| Publishing | 2 | 6 | (4 | ) | — | 4 | |||||||||||||||||||
| Corporate | 57 | 157 | (32 | ) | — | 182 | |||||||||||||||||||
| Total | $ | 286 | $ | 357 | $ | (234 | ) | $ | (9 | ) | $ | 400 | |||||||||||||
| Balance at | 2018 Activity | Balance at | |||||||||||||||||||||||
| December 31, 2017 | Charges (a) | Payments | Other | December 31, 2018 | |||||||||||||||||||||
| TV Entertainment | $ | 50 | $ | 45 | $ | (40 | ) | $ | (1 | ) | $ | 54 | |||||||||||||
| Cable Networks | 91 | 185 | (117 | ) | (8 | ) | 151 | ||||||||||||||||||
| Filmed Entertainment | 32 | 18 | (28 | ) | — | 22 | |||||||||||||||||||
| Publishing | 3 | 1 | (2 | ) | — | 2 | |||||||||||||||||||
| Corporate | 37 | 53 | (32 | ) | (1 | ) | 57 | ||||||||||||||||||
| Total | $ | 213 | $ | 302 | $ | (219 | ) | $ | (10 | ) | $ | 286 | |||||||||||||
(a) NetExcludes stock-based compensation expense of $67 million and $8 million in 2019 and 2018, respectively.
Merger-related Costs and Other Corporate Matters
In 2019, in addition to the above-mentioned restructuring charges and related costs, we incurred costs of $294 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, transaction-related bonuses, and contractual executive compensation, including the accelerated vesting of stock-based compensation, that was triggered by the Merger. We also incurred costs of $40 million in connection with the settlement of a market value adjustmentcommercial dispute and $17 million associated with legal proceedings involving the Company (see Note 19) and other corporate matters.
In 2018, we recorded expenses of $980$128 million recorded priorprimarily for professional fees related to legal proceedings, investigations at our Company and the split-off.evaluation of potential merger activity.
Programming Charges
During 2019, in connection with the loss.
Merger, we implemented management changes across the organization. In connection with the Company’s plan to disposethese changes, we performed an evaluation of CBS Radio, in October 2016, CBS Radio borrowed $1.46 billion through a $1.06 billion senior secured term loan due 2023 and the issuanceour programming portfolio across all of $400 million of 7.25% senior unsecured notes due 2024 through a private placement.
| Year Ended December 31, 2017 | CBS Radio | Other | Total | ||||||||||
| Revenues | $ | 1,018 | $ | — | $ | 1,018 | |||||||
| Costs and expenses: | |||||||||||||
| Operating | 364 | — | 364 | ||||||||||
| Selling, general and administrative | 446 | (1 | ) | 445 | |||||||||
| Market value adjustment | 980 | (a) | — | 980 | |||||||||
| Restructuring charges | 7 | (b) | — | 7 | |||||||||
| Total costs and expenses | 1,797 | (1 | ) | 1,796 | |||||||||
| Operating income (loss) | (779 | ) | 1 | (778 | ) | ||||||||
| Interest expense | (70 | ) | — | (70 | ) | ||||||||
| Earnings (loss) from discontinued operations | (849 | ) | 1 | (848 | ) | ||||||||
| Income tax benefit (provision) | (55 | ) | 45 | (c) | (10 | ) | |||||||
| Earnings (loss) from discontinued operations, net of tax | (904 | ) | 46 | (858 | ) | ||||||||
| Net gain (loss) on disposal | (109 | ) | 13 | (96 | ) | ||||||||
| Income tax benefit (provision) | 4 | (2 | ) | 2 | |||||||||
| Net gain (loss) on disposal, net of tax | (105 | ) | 11 | (d) | (94 | ) | |||||||
| Net earnings (loss) from discontinued operations, net of tax | $ | (1,009 | ) | $ | 57 | $ | (952 | ) | |||||
| First Quarter 2017 | $ | (715 | ) | |
| Second Quarter 2017 | (365 | ) | ||
| Third Quarter 2017 | 100 | |||
| $ | (980 | ) | ||
During 2018, in connection with management changes, we recorded programming charges of $162 million, relating to changes to our programming strategy, including severance costs and costsat CBS Films, which shifted its focus from theatrical films to developing content for our digital streaming services, as well as at our Cable Networks segment where we ceased the use of certain programming.
During 2017, we recorded programming charges of $144 million associated with exiting contractual obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, 2016 | CBS Radio | Other (b) | Total | ||||||||||
| Revenues | $ | 1,220 | $ | — | $ | 1,220 | |||||||
| Costs and expenses: | |||||||||||||
| Operating | 397 | — | 397 | ||||||||||
| Selling, general and administrative | 497 | — | 497 | ||||||||||
| Depreciation and amortization | 26 | — | 26 | ||||||||||
| Restructuring charges | 8 | (a) | — | 8 | |||||||||
| Impairment charge | 444 | — | 444 | ||||||||||
| Total costs and expenses | 1,372 | — | 1,372 | ||||||||||
| Operating loss | (152 | ) | — | (152 | ) | ||||||||
| Interest expense | (17 | ) | — | (17 | ) | ||||||||
| Other income | 2 | — | 2 | ||||||||||
| Loss from discontinued operations | (167 | ) | — | (167 | ) | ||||||||
| Income tax provision | (88 | ) | (36 | ) | (124 | ) | |||||||
| Net loss from discontinued operations, net of tax | $ | (255 | ) | $ | (36 | ) | $ | (291 | ) | ||||
| Year Ended December 31, 2015 | CBS Radio | Other (b) | Total | ||||||||||
| Revenues | $ | 1,223 | $ | — | $ | 1,223 | |||||||
| Costs and expenses: | |||||||||||||
| Operating | 415 | — | 415 | ||||||||||
| Selling, general and administrative | 500 | — | 500 | ||||||||||
| Depreciation and amortization | 29 | — | 29 | ||||||||||
| Restructuring charges | 36 | (a) | — | 36 | |||||||||
| Impairment charge | 484 | — | 484 | ||||||||||
| Total costs and expenses | 1,464 | — | 1,464 | ||||||||||
| Operating loss | (241 | ) | — | (241 | ) | ||||||||
| Other income | 1 | — | 1 | ||||||||||
| Loss from discontinued operations | (240 | ) | — | (240 | ) | ||||||||
| Income tax benefit | 89 | — | 89 | ||||||||||
| Loss from discontinued operations, net of tax | (151 | ) | — | (151 | ) | ||||||||
| Net gain on disposal | — | 17 | 17 | ||||||||||
| Income tax provision | — | (7 | ) | (7 | ) | ||||||||
| Net gain on disposal, net of tax | — | 10 | 10 | ||||||||||
| Net earnings (loss) from discontinued operations, net of tax | $ | (151 | ) | $ | 10 | $ | (141 | ) | |||||
The following table presentsprogramming charges for 2019, 2018, and 2017 were included within “Operating expenses” in the major classesConsolidated Statements of assets and liabilities of the Company’s discontinued operations.
| At December 31, | 2017 (a) | 2016 | |||||
| Receivables, net | $ | — | $ | 244 | |||
| Other current assets | 1 | 61 | |||||
| Goodwill | — | 1,285 | |||||
| Intangible assets | — | 2,832 | |||||
| Net property and equipment | — | 145 | |||||
| Other assets | 12 | 29 | |||||
| Total Assets | $ | 13 | $ | 4,596 | |||
| Current portion of long-term debt | $ | — | $ | 10 | |||
| Other current liabilities | 32 | 145 | |||||
| Long-term debt | — | 1,335 | |||||
| Deferred income tax liabilities | — | 998 | |||||
| Other liabilities | 42 | 118 | |||||
| Total Liabilities | $ | 74 | $ | 2,606 | |||
| Term Loan due October 2023, net of discount | $ | 955 | |||
| 7.250% Senior Notes due November 2024 | 400 | ||||
| Revolving Credit Facility | 10 | ||||
| Deferred financing costs | (20 | ) | |||
| Total long-term debt, including current portion | $ | 1,345 | |||
| Balance at | 2017 | 2017 | Balance at | ||||||||||||||||||
| December 31, 2016 | Charges | Settlements | December 31, 2017 | ||||||||||||||||||
| Entertainment | $ | 20 | $ | 44 | $ | (18 | ) | $ | 46 | ||||||||||||
| Cable Networks | 4 | — | (3 | ) | 1 | ||||||||||||||||
| Publishing | 1 | 5 | (3 | ) | 3 | ||||||||||||||||
| Local Media | 12 | 12 | (7 | ) | 17 | ||||||||||||||||
| Corporate | 2 | 2 | (1 | ) | 3 | ||||||||||||||||
| Total | $ | 39 | $ | 63 | $ | (32 | ) | $ | 70 | ||||||||||||
| Balance at | 2016 | 2016 | Balance at | ||||||||||||||||||
| December 31, 2015 | Charges | Settlements | December 31, 2016 | ||||||||||||||||||
| Entertainment | $ | 19 | $ | 16 | $ | (15 | ) | $ | 20 | ||||||||||||
| Cable Networks | — | 4 | — | 4 | |||||||||||||||||
| Publishing | — | 1 | — | 1 | |||||||||||||||||
| Local Media | 11 | 6 | (5 | ) | 12 | ||||||||||||||||
| Corporate | 1 | 3 | (2 | ) | 2 | ||||||||||||||||
| Total | $ | 31 | $ | 30 | $ | (22 | ) | $ | 39 | ||||||||||||
6) PROGRAMMING AND OTHER INVENTORY
| At December 31, | 2017 | 2016 | |||||
| Acquired program rights | $ | 2,234 | $ | 1,773 | |||
| Acquired television library | 99 | — | |||||
| Internally produced programming: | |||||||
| Released | 1,780 | 1,746 | |||||
| In process and other | 543 | 298 | |||||
| Publishing, primarily finished goods | 53 | 49 | |||||
| Total programming and other inventory | 4,709 | 3,866 | |||||
| Less current portion | 1,828 | 1,427 | |||||
| Total noncurrent programming and other inventory | $ | 2,881 | $ | 2,439 | |||
National Amusements, Inc. National Amusements, Inc. (“NAI”) NAI is the controlling stockholder of ViacomCBS and was the controlling stockholder of each of CBS Corp. and Viacom Inc. Mr.prior to the Merger. Sumner M. Redstone is the controlling stockholder, chairmanChairman of the boardBoard of directorsDirectors and chief executive officerChief Executive Officer of NAI, is the Chairman Emeritus of CBS Corp. and the Chairman Emeritus of Viacom Inc. In addition, Ms.NAI. Shari E. Redstone, Mr. Sumner M. Redstone’s daughter, is the presidentPresident and a director of NAINAI. She is the non-executive Chair of our Board of Directors and was the vice chairnon-executive Vice Chair of the Board of Directors of each of CBS Corp. and Viacom Inc. Mr. David R. Andelman is a director of CBS Corp. and serves as a director of NAI.prior to the Merger. At December 31, 2017,2019, NAI directly or indirectly owned approximately 79.5%79.4% of CBS Corp.’sour voting Class A Common Stock and owned approximately 10.2% of CBS Corp.’sour Class A Common Stock and non-voting Class B Common Stock on a combined basis. NAI is controlled by Mr. Redstone through the Sumner M. Redstone National Amusements Trust (the “SMR Trust”), which owns 80% of the voting interest of NAI, and such voting interest of NAI held by the SMR Trust is voted solely by Mr. Redstone until his incapacity or death. The SMR Trust provides that in the event of Mr. Redstone’s death or incapacity, voting control of the NAI voting interest held by the SMR Trust will pass to seven7 trustees, who will include CBS Corporation directors Ms. Shari Redstone and Mr. David R. Andelman.Redstone. No member of the Company’sour management is a trustee of the SMR Trust. Pursuant to a settlement and release agreement entered into by us, NAI and others, with respect to legal proceedings involving these parties, we paid $30 million for professional fees incurred by NAI during 2018 relating to these legal proceedings, which are included in “Restructuring and other corporate matters” on the Consolidated Statement of Operations for the year ended December 31, 2018.
these transactions.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Revenues | $ | 179 | $ | 170 | $ | 183 | |||||
| Operating expenses | $ | 14 | $ | 22 | $ | 41 | |||||
| At December 31, | 2019 | 2018 | |||||
| Amounts due to/from other related parties | |||||||
| Accounts receivable | $ | 45 | $ | 83 | |||
| Accounts payable | $ | 3 | $ | 9 | |||
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.
7) ACQUISITIONS AND INVESTMENTS
Pluto TV Acquisition
On March 1, 2019, we acquired Pluto Inc., the provider of Pluto TV, a leading free streaming television service in the U.S., for $324 million, net of cash acquired. The purchase price excludes $18 million of post-combination expenses that are subject to continuous employment and will be recognized over the required service period in the Consolidated Statements of Operations within “Selling, general and administrative expenses”. Pluto TV expands our presence across next-generation distribution platforms and accelerates the growth of our advanced marketing solutions business. Pluto TV is available across mobile devices, desktops, streaming players and game consoles and is integrated across a growing number of Smart TVs and other video and broadband platforms.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presentssummarizes our allocation of the amounts duepurchase price as of the acquisition date for Pluto TV.
| Year Ended | |||||
| December 31, 2019 | |||||
| Assets | |||||
| Receivables | $ | 31 | |||
| Prepaid expenses and other current assets | 3 | ||||
| Goodwill | 277 | ||||
| Intangible assets | 41 | ||||
| Other assets (noncurrent) | 8 | ||||
| Assets acquired | $ | 360 | |||
| Liabilities | |||||
| Accounts payable | $ | 27 | |||
| Accrued expenses | 4 | ||||
| Other liabilities | 5 | ||||
| Liabilities assumed | $ | 36 | |||
| Total purchase price | $ | 324 | |||
The goodwill, which is not deductible for tax purposes, reflects the Company-specific synergies arising from Viacom Inc.the acquisition and is included in the normal courseCable Networks segment. Intangible assets consist of businessdistribution relationships, developed technology and trade names, all with useful lives of five years.
The operating results of Pluto TV from the date of acquisition through December 31, 2019 were not material to our consolidated financial statements.
Other Acquisitions
In 2019, we acquired the remaining 50% interest in Pop TV, a general entertainment cable network, for $39 million, net of cash acquired, bringing our ownership to 100%. The assets acquired primarily consist of goodwill and other identifiable intangible assets. The results of Pop TV are included in the Cable Networks segment from the date of acquisition.
In 2018, we made payments totaling $118 million, which were net of cash acquired, for acquisitions that included WhoSay Inc., a leading influence marketing firm; Pop Culture Media, a digital entertainment media company; VidCon LLC, a host of conferences dedicated to online video; and Awesomeness TV Holdings, LLC, a multi-platform media company serving global Gen-Z audiences as reflecteda digital-first destination for original programming.
In 2017, we acquired Ten Network Holdings Limited (“Network 10”) for approximately $124 million, net of cash acquired. Included in this acquisition was Network 10, one of three major commercial broadcast networks in Australia, as well as two multi-channel networks, channels One and Eleven. The assets acquired primarily consist of broadcast licenses, net operating loss carryforwards and working capital.
The operating results of these acquisitions were not material to our consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Miramax Acquisition
In December 2019, we entered into a definitive agreement with beIN Media Group to acquire a 49% stake in Miramax, a global film and television studio, for $375 million, which includes an upfront cash payment of approximately $150 million, along with a commitment to invest $45 million annually over the next five years, or $225 million, to be used for new film and television productions and working capital. In conjunction with this agreement, we entered into a series of commercial agreements with Miramax under which we will have exclusive, long-term distribution rights to Miramax’s catalog adding more than 700 titles to our existing library. In addition to maximizing library content, the agreement will enable us to co-produce, co-finance and distribute new film and television projects under the Miramax banner. The investment will be accounted for as a consolidated variable interest entity. The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2020.
Investments
At December 31, 2019 and 2018, we had investments of $753 million and $719 million, respectively, consisting of marketable securities, non-marketable equity investments and equity-method investments. Our investments are included in “Other assets” on the Company’s Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at December 31, 2017 and 2016.
| At December 31, | 2017 | 2016 | |||||
| Receivables | $ | 93 | $ | 113 | |||
| Other assets (Receivables, noncurrent) | 11 | 35 | |||||
| Total amounts due from Viacom Inc. | $ | 104 | $ | 148 | |||
Africa; and a 49% interest in Viacom18, a joint venture in India which owns and operates COLORS pay television channel, a digital advertising platform and a filmed entertainment business. At December 31, 20172019 and 2016,2018, respectively, the Companywe had $283$494 million and $227$573 million of equity investments that are included in “Other assets” on the Consolidated Balance Sheets.equity-method investments.
Investments of 20% or less, over which the Company has no significant influence, that do not havewithout a readily determinable fair value for which we have no significant influence are accountedmeasured at cost less impairment, if any, and adjusted for under the cost method.any observable price changes. At December 31, 20172019 and 2016,2018, respectively, the Companywe had $24$113 million and $112 million of such investments.
The fair value of our marketable securities was $146 million and $34 million as of costDecember 31, 2019 and 2018, respectively, as determined based on quoted market prices in active markets (Level 1 in the fair value hierarchy). During the years ended December 31, 2019 and 2018, we recorded an unrealized gain of $113 million and an unrealized loss of $23 million, respectively, resulting from changes in the fair value of our marketable securities. Beginning in the first quarter of 2018, in connection with the adoption of FASB guidance on financial instruments, changes in the fair value of marketable securities are recognized in the Consolidated Statements of Operations. Prior to the adoption of this guidance, we recorded unrealized gains and losses on marketable securities in other comprehensive income.
We invested $171 million, $161 million and $128 million into our investments that areduring the years ended December 31, 2019, 2018 and 2017, respectively.
In 2019, we completed the sale of an international joint venture resulting in a gain of $10 million. In 2018, we completed the sale of a 1% equity interest in Viacom18 to our joint venture partner for $20 million, resulting in a gain of $16 million. These gains have been included in “Other assets” onitems, net” in the Consolidated Balance Sheets.Statements of Operations.
During 2017, we completed the sale of our 49.76% interest in EPIX, a premium entertainment network, for $593 million, net of transaction costs of $4 million, resulting in a gain of $285 million. In addition, prior to the closing of the sale, EPIX paid a dividend, of which our pro rata share was $37 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
For 2019, 2018, and 2017, included in “Other items, net” on the Consolidated Statements of Operations was $50 million, $46 million and$18 million, respectively, for the impairment of investments without readily determinable fair values.
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 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 Company invested $110 million, $81Consolidated Balance Sheets include assets and liabilities related to consolidated VIEs totaling $141 million and $98$22 million, into its equity and cost investments during the years endedrespectively, as of December 31, 2019, and $63 million and $4 million, respectively, as of December 31, 2018. In 2017, 2016a consolidated VIE completed the sale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction for $147 million, a portion of which was used to repay outstanding debt, resulting in a pre-tax gain of $127 million, with $11 million attributable to the noncontrolling interest. Other than this gain, the consolidated VIEs’ revenues, expenses and 2015, respectively.
all periods presented.
| At December 31, | 2017 | 2016 | |||||
| Commercial paper | $ | 679 | $ | 450 | |||
| 1.95% Senior Notes due 2017 | — | 399 | |||||
| 4.625% Senior Notes due 2018 | — | 305 | |||||
| 2.30% Senior Notes due 2019 | 604 | 606 | |||||
| 5.75% Senior Notes due 2020 | — | 499 | |||||
| 4.30% Senior Notes due 2021 | 299 | 299 | |||||
| 3.375% Senior Notes due 2022 | 696 | 695 | |||||
| 2.50% Senior Notes due 2023 | 396 | — | |||||
| 2.90% Senior Notes due 2023 | 395 | — | |||||
| 7.875% Debentures due 2023 | 187 | 187 | |||||
7.125% Senior Notes due 2023 (b) | 46 | 46 | |||||
| 3.70% Senior Notes due 2024 | 597 | 596 | |||||
| 3.50% Senior Notes due 2025 | 589 | 587 | |||||
| 4.00% Senior Notes due 2026 | 785 | 783 | |||||
| 2.90% Senior Notes due 2027 | 684 | 683 | |||||
| 3.375% Senior Notes due 2028 | 493 | — | |||||
| 3.70% Senior Notes due 2028 | 489 | — | |||||
| 7.875% Senior Debentures due 2030 | 832 | 833 | |||||
| 5.50% Senior Debentures due 2033 | 425 | 425 | |||||
| 5.90% Senior Notes due 2040 | 297 | 297 | |||||
| 4.85% Senior Notes due 2042 | 485 | 485 | |||||
| 4.90% Senior Notes due 2044 | 539 | 538 | |||||
| 4.60% Senior Notes due 2045 | 588 | 587 | |||||
| Obligations under capital leases | 57 | 75 | |||||
Total debt (c) | 10,162 | 9,375 | |||||
| Less commercial paper | 679 | 450 | |||||
| Less current portion | 19 | 23 | |||||
| Total long-term debt, net of current portion | $ | 9,464 | $ | 8,902 | |||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Our debt consists of the following:
| At December 31, | 2019 | 2018 | |||||
| Commercial paper | $ | 699 | $ | 674 | |||
| 2.30% Senior Notes due 2019 | — | 601 | |||||
| 5.625% Senior Notes due 2019 | — | 221 | |||||
| 2.750% Senior Notes due 2019 | — | 90 | |||||
| 4.30% Senior Notes due 2021 | 300 | 300 | |||||
| 4.50% Senior Notes due 2021 | 499 | 498 | |||||
| 3.875% Senior Notes due 2021 | 597 | 596 | |||||
| 2.250% Senior Notes due 2022 | 49 | 49 | |||||
| 3.375% Senior Notes due 2022 | 698 | 697 | |||||
| 3.125% Senior Notes due 2022 | 194 | 194 | |||||
| 2.50% Senior Notes due 2023 | 398 | 397 | |||||
| 3.25% Senior Notes due 2023 | 181 | 181 | |||||
| 2.90% Senior Notes due 2023 | 396 | 396 | |||||
| 4.25% Senior Notes due 2023 | 1,242 | 1,240 | |||||
| 7.875% Debentures due 2023 | 187 | 187 | |||||
| 7.125% Senior Notes due 2023 | 46 | 46 | |||||
| 3.875% Senior Notes due 2024 | 489 | 489 | |||||
| 3.70% Senior Notes due 2024 | 598 | 597 | |||||
| 3.50% Senior Notes due 2025 | 592 | 590 | |||||
| 4.00% Senior Notes due 2026 | 789 | 787 | |||||
| 3.45% Senior Notes due 2026 | 123 | 123 | |||||
| 2.90% Senior Notes due 2027 | 688 | 686 | |||||
| 3.375% Senior Notes due 2028 | 494 | 493 | |||||
| 3.70% Senior Notes due 2028 | 491 | 490 | |||||
| 4.20% Senior Notes due 2029 | 493 | — | |||||
| 7.875% Senior Debentures due 2030 | 831 | 832 | |||||
| 5.50% Senior Debentures due 2033 | 426 | 426 | |||||
| 4.85% Senior Debentures due 2034 | 87 | 86 | |||||
| 6.875% Senior Debentures due 2036 | 1,068 | 1,068 | |||||
| 6.75% Senior Debentures due 2037 | 75 | 75 | |||||
| 5.90% Senior Notes due 2040 | 297 | 297 | |||||
| 4.50% Senior Debentures due 2042 | 45 | 45 | |||||
| 4.85% Senior Notes due 2042 | 486 | 486 | |||||
| 4.375% Senior Debentures due 2043 | 1,109 | 1,103 | |||||
| 4.875% Senior Debentures due 2043 | 18 | 18 | |||||
| 5.850% Senior Debentures due 2043 | 1,231 | 1,230 | |||||
| 5.25% Senior Debentures due 2044 | 345 | 345 | |||||
| 4.90% Senior Notes due 2044 | 539 | 539 | |||||
| 4.60% Senior Notes due 2045 | 589 | 588 | |||||
| 5.875% Junior Subordinated Debentures due 2057 | 643 | 642 | |||||
| 6.25% Junior Subordinated Debentures due 2057 | 643 | 642 | |||||
| Obligations under finance leases | 44 | 69 | |||||
Total debt (a) | 18,719 | 19,113 | |||||
| Less commercial paper | 699 | 674 | |||||
| Less current portion | 18 | 339 | |||||
| Total long-term debt, net of current portion | $ | 18,002 | $ | 18,100 | |||
(a) At December 31, 2019 and 2018, the senior and junior subordinated debt balances included (i) a net unamortized discount of $412 million and $422 million, respectively, (ii) unamortized deferred financing costs of $92 million and $98 million, respectively, and (iii) a decrease in the carrying value of the debt relating to previously settled fair value hedges of $6 million and $5 million, respectively. The face value of our total debt was $19.23 billion at December 31, 2019 and $19.64 billion at December 31, 2018.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During the year ended December 31, 2019, we issued $500 million of 4.20% senior notes due 2029. We used the net proceeds from this issuance in the redemption of our $600 million outstanding 2.30% senior notes due August 2019. During 2019, we also repaid the $220 million aggregate principal amount of our 5.625% senior notes due September 2019 and the $90 million aggregate principal amount of our 2.75% senior notes due December 2019.
During the year ended December 31, 2018, we redeemed $1.13 billion of senior notes and debentures for a redemption price of $1.10 billion, resulting in a pre-tax gain on early extinguishment of debt of $18 million ($14 million, net of tax).
During the year ended December 31, 2017, debt issuances, redemptions and repayments were as follows:
Our 5.875% junior subordinated debentures due February 2057 and 6.25% junior subordinated debentures due February 2057 accrue interest at the year ended December 31, 2017.stated fixed rates until February 28, 2022 and February 28, 2027, respectively, on which dates the rates will switch to floating rates based on three-month LIBOR plus 3.895% and 3.899%, respectively, reset quarterly. These debentures can be called by us at any time after the expiration of the fixed-rate period.
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 repaymentmajority of short-term borrowings, including commercial paper. During January 2016, the Company repaid its $200 millionnotes and debentures in the event of outstanding 7.625% senior debentures upon maturity.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.
At December 31, 2017, the Company’s2019, our scheduled maturities of long-term debt at face value, excluding capitalfinance leases, and the related interest payments were as follows:
| 2025 and | ||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | |||||||||||||||||||||||
| Long-term debt | $ | — | $ | 1,400 | $ | 945 | $ | 2,465 | $ | 1,092 | $ | 12,584 | ||||||||||||||||
| 2023 and | ||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||||||||||
| Long-term debt | $ | — | $ | 600 | $ | — | $ | 300 | $ | 700 | $ | 7,940 | ||||||||||||||||
Commercial Paper
In January 2020, our commercial paper program was increased to $3.50 billion in conjunction with the new $3.50 billion revolving credit facility described below.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Credit Facility
At December 31, 2017, the Company2019, we had a $2.5$2.50 billion revolving credit facility held by CBS prior to the Merger (the “CBS Credit Facility”) with a maturity in June 2021 and a $2.50 billion revolving credit facility held by Viacom prior to the Merger (the “Viacom Credit Facility”), with a maturity in February 2024. At December 31, 2019, we had no borrowings outstanding under the CBS Credit Facility or the Viacom Credit Facility and the remaining availability, net of outstanding letters of credit, was $2.50 billion for each facility.
In January 2020, the CBS Credit Facility was terminated and the Viacom Credit Facility was amended and restated to a $3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”) which expires in June 2021.. The Company,credit facility is used for general corporate purposes and to support commercial paper outstanding, if any. We may, at itsour option, may also borrow in certain foreign currencies up to specified limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the Company’sour option at the time of each borrowing and are based generally on the prime rate in the U.S. or LIBOR plus a margin based on the Company’sour senior unsecured debt rating. The Company paysCredit Facility 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 facility fee basedqualified acquisition) at the end of each quarter, to be applied retrospectively from December 31, 2019. 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. We met the covenant as of December 31, 2019.
9) LEASES
On January 1, 2019, we adopted FASB guidance on the total amountaccounting for leases. We applied the modified retrospective method of adoption and therefore, results for reporting periods beginning after January 1, 2019 are presented under the commitments.new guidance while prior periods have not been adjusted.
The adoption of this guidance resulted in the recognition on the Consolidated Balance Sheet of right-of-use assets and lease liabilities representing the present value of future lease payments of all leases with terms in excess of one year. At December 31, 2019, the following amounts were recorded on the Consolidated Balance Sheet relating to our leases.
| Leases | |||||||
| Operating | Finance | ||||||
| Right-of-Use Assets | |||||||
| Operating lease assets | $ | 1,939 | $ | — | |||
| Property and equipment, net | $ | — | $ | 35 | |||
| Lease Liabilities | |||||||
| Other current liabilities | $ | 292 | $ | — | |||
| Debt | — | 19 | |||||
| Operating lease liabilities | 1,909 | — | |||||
| Long-term debt | — | 25 | |||||
| Total lease liabilities | $ | 2,201 | $ | 44 | |||
| Leases | |||||
| Operating | Finance | ||||
| Weighted average remaining lease term | 9 years | 3 years | |||
| Weighted average discount rate | 4.1 | % | 4.5 | % | |
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
For existing leases at the time of adoption, we elected to not reassess (i) whether each contract is or contains a lease, (ii) the classification of leases as operating or finance leases, and (iii) initial direct costs for existing leases.
Lessee Contracts
We have operating leases primarily for office space, equipment, satellite transponders and studio facilities. We also have finance leases for satellite transponders and equipment. Lease costs are generally fixed, with certain contracts containing variable payments for non-lease costs based on usage and escalations in the lessors’ annual costs.
The Credit Facility requiresfollowing table presents our lease cost.
| Year Ended | |||||
| December 31, 2019 | |||||
Operating lease cost (a) (b) | $ | 406 | |||
| Finance lease cost: | |||||
| Amortization of right-of-use assets | 23 | ||||
| Interest expense on lease liabilities | 3 | ||||
Short-term lease cost (b) (c) | 242 | ||||
Variable lease cost (d) | 80 | ||||
| Sublease income | (31 | ) | |||
| Total lease cost | $ | 723 | |||
(a) Includes fixed lease costs and non-lease costs (consisting of other occupancy and service costs relating to the Company to maintain a maximum Consolidated Leverage Ratiouse of 4.5x atan asset) associated with long-term operating leases.
(b) Includes costs capitalized in programming assets during the end of each quarter as further describedperiod for leased assets used in the Credit Facility. production of programming.
(c) Short-term leases have a term of 12 months or less and exclude month-to-month leases. Short-term leases are not recorded on the Consolidated Balance Sheet.
(d) Primarily includes non-lease costs (consisting of other occupancy and service costs relating to the use of an asset) and costs for equipment leases that vary based on usage.
The following table presents supplemental cash flow information related to our leases.
| Year Ended | |||||
| December 31, 2019 | |||||
| Cash paid for amounts included in lease liabilities | |||||
| Operating lease payments, included in operating cash flows | $ | 341 | |||
| Finance lease payments, included in financing cash flows | $ | 27 | |||
| Noncash additions to operating lease assets | $ | 389 | |||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The expected future payments relating to our operating and finance lease liabilities at December 31, 2019 are as follows:
| Leases | |||||||
| Operating | Finance | ||||||
| 2020 | $ | 371 | $ | 21 | |||
| 2021 | 352 | 16 | |||||
| 2022 | 296 | 7 | |||||
| 2023 | 251 | 1 | |||||
| 2024 | 205 | 1 | |||||
| 2025 and thereafter | 1,234 | 1 | |||||
| Total minimum payments | 2,709 | 47 | |||||
| Less amounts representing interest | 508 | 3 | |||||
| Present value of minimum payments | $ | 2,201 | $ | 44 | |||
The following table presents the future payments under our operating and finance leases as of December 31, 2018 based on lease guidance in effect prior to the adoption of new FASB lease guidance on January 1, 2019.
| Leases | |||||||
Operating (a) | Finance | ||||||
| 2019 | $ | 305 | $ | 29 | |||
| 2020 | 309 | 20 | |||||
| 2021 | 282 | 15 | |||||
| 2022 | 247 | 7 | |||||
| 2023 | 211 | 2 | |||||
| 2024 and thereafter | 1,228 | 2 | |||||
| Total minimum payments | $ | 2,582 | $ | 75 | |||
| Less amounts representing interest | 6 | ||||||
| Present value of minimum payments | $ | 69 | |||||
(a) Future minimum operating lease payments have been reduced by future minimum sublease income of $57 million. Rent expense based on lease guidance in effect prior to January 1, 2019 was $474 million in 2018 and $449 million in 2017. Included in net earnings (loss) from discontinued operations was rent expense of $32 million in 2017.
As of December 31, 2019, we had signed additional operating leases with lease terms ranging from two to 11 years that have not yet commenced. The total future undiscounted lease payments under these leases are
$98 million, which were not recorded on the Consolidated Balance Sheet at December 31, 2019.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Lessor Contracts
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 of $149 million, including both fixed and variable amounts, for the year ended December 31, 2019.
At December 31, 2017, the Company’s Consolidated Leverage Ratio was approximately 3.1x.2019, future fixed lease income under noncancellable operating leases is as follows:
| 2020 | $ | 68 | |
| 2021 | 52 | ||
| 2022 | 45 | ||
| 2023 | 44 | ||
| 2024 | 36 | ||
| 2025 and thereafter | 57 | ||
| Total | $ | 302 | |
10) FINANCIAL INSTRUMENTS
The carrying value of financial instruments approximates fair value, except for notes and debentures, which are not recorded at fair value. At December 31, 20172019 and 2016,2018, the carrying value of the Company’s senior debtour notes and debentures was $9.43$17.98 billion and $8.85$18.37 billion, respectively, and the fair value, which is estimateddetermined based on quoted market prices for similar liabilitiesin active markets (Level 2) and includes accrued interest,1 in the fair value hierarchy) was $10.16$20.6 billion and $9.51$18.4 billion, respectively.
Foreign Exchange Contracts
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. The Company designatesWe designate foreign exchange forward contracts used to hedge committed and forecasted foreign currency transactions 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, the Company enterswe enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.
At December 31, 20172019 and 2016,2018, the notional amount of all foreign currency contracts was $410$1.44 billion and $995 million, respectively. For 2019, $833 million related to future production costs and $433$606 million respectively.related to our foreign currency balances and other expected foreign currency cash flows. For 2018, $481 million related to future production costs and $514 million related to our foreign currency balances and other expected foreign currency cash flows.
Gains (losses) recognized on derivative financial instruments were as follows:
| Year Ended December 31, | 2019 | 2018 | Financial Statement Account | ||||||||||
| Non-designated foreign exchange contracts | $ | (4 | ) | $ | 25 | Other items, net | |||||||
| Year Ended December 31, | 2017 | 2016 | Financial Statement Account | ||||||||||
| Non-designated foreign exchange contracts | $ | (27 | ) | $ | 33 | Other items, net | |||||||
The fair value of the Company’sour derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Our receivables do not represent significant concentrations of credit risk at December 31, 20172019 and 2016,2018, due to the wide variety of customers, markets and geographic areas to which the Company’sour products and services are sold.
11) FAIR VALUE MEASUREMENTS
The following tables set forth the Company’sour assets and liabilities measured at fair value on a recurring basis at December 31, 20172019 and 2016.2018. 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 the Company’sour own assumptions about the assumptions that market participants would use in pricing the asset or liability.
| At December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| At December 31, 2019 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||
| Marketable securities | $ | 146 | $ | — | $ | — | $ | 146 | ||||||||||||||||||||||
| Foreign currency hedges | $ | — | $ | 5 | $ | — | $ | 5 | — | 13 | — | 13 | ||||||||||||||||||
| Total Assets | $ | — | $ | 5 | $ | — | $ | 5 | $ | 146 | $ | 13 | $ | — | $ | 159 | ||||||||||||||
| Liabilities: | $ | — | $ | — | ||||||||||||||||||||||||||
| Deferred compensation | $ | — | $ | 363 | $ | — | $ | 363 | $ | — | $ | 490 | $ | — | $ | 490 | ||||||||||||||
| Foreign currency hedges | — | 10 | — | 10 | — | 14 | — | 14 | ||||||||||||||||||||||
| Total Liabilities | $ | — | $ | 373 | $ | — | $ | 373 | $ | — | $ | 504 | $ | — | $ | 504 | ||||||||||||||
| At December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| At December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||
| Marketable securities | $ | 34 | $ | — | $ | — | $ | 34 | ||||||||||||||||||||||
| Foreign currency hedges | $ | — | $ | 34 | $ | — | $ | 34 | — | 21 | — | 21 | ||||||||||||||||||
| Total Assets | $ | — | $ | 34 | $ | — | $ | 34 | $ | 34 | $ | 21 | $ | — | $ | 55 | ||||||||||||||
| Liabilities: | $ | — | $ | — | ||||||||||||||||||||||||||
| Deferred compensation | $ | — | $ | 347 | $ | — | $ | 347 | $ | — | $ | 501 | $ | — | $ | 501 | ||||||||||||||
| Foreign currency hedges | — | 1 | — | 1 | — | 18 | — | 18 | ||||||||||||||||||||||
| Total Liabilities | $ | — | $ | 348 | $ | — | $ | 348 | $ | — | $ | 519 | $ | — | $ | 519 | ||||||||||||||
The fair value of marketable securities is determined based on quoted market prices in active markets. 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.
12) STOCKHOLDERS’ EQUITY
In general, CBS Corp.ViacomCBS Class A Common Stock and CBS Corp.ViacomCBS Class B Common Stock have the same economic rights; however, holders of CBS Corp.ViacomCBS Class B Common Stock do not have any voting rights, except as required by law. Holders of CBS Corp.ViacomCBS Class A Common Stock are entitled to one vote per share with respect to all matters on which the holders of CBS Corp.ViacomCBS Common Stock are entitled to vote.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Dividends—On December 19, 2019, ViacomCBS declared a quarterly cash dividend of $.24 per share on its Class A and Class B Common Stock, resulting in total dividends of $150 million, which were paid on January 10, 2020. Prior to the Merger, Viacom and CBS each declared a quarterly cash dividend during each of the first three quarters of 2019 and during each of the four quarters of 2018 and 2017. During 2019, CBS declared total per share dividends of $.54, resulting in total dividends of $205 million. For each of the years ended December 31, 2018 and 2017, CBS declared total per share dividends of $.72, resulting in total annual dividends of $274 million and $289 million, respectively. During 2019, Viacom declared total per share dividends of $.60, resulting in total dividends of $245 million. For each of the years ended December 31, 2018 and 2017, Viacom declared total per share dividends of $.80, resulting in total annual dividends of $325 million and $323 million, respectively. For 2017, dividends were recorded as a reduction to additional paid-in capital as we had an accumulated deficit balance. During 2018, our retained earnings became positive and as a result, dividends for 2018 were recorded as a reduction to additional paid-in-capital until such time as retained earnings became positive. For the remainder of 2018 and for 2019, dividends have been recorded to retained earnings.
Treasury Stock—During December 2019, we repurchased 1.2 million shares of ViacomCBS Class B Common Stock under our share repurchase program for $50 million, at an average cost of $40.78 per share. At December 31, 2019, $2.41 billion of authorization remained under the share repurchase program.
In the Merger, all shares of Viacom Class B Common Stock held by Viacom as treasury stock that it owned (See Note 4).were canceled and recorded to additional paid-in-capital.
Conversion Rights—Holders of Class A Common Stock have the right to convert their shares to Class B Common Stock as long as there are at least 5,000 shares of Class A Common Stock outstanding. Conversions of CBS Corp. Class A Common Stock into Class B Common Stock were 0.112.2 million for each2019 and 2.5 million for 2018. Conversions of the years 2016 and 2015.Class A Common Stock into Class B Common Stock for 2017 were minimal.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Accumulated Other Comprehensive Income (Loss)—The following table presents the changes in the components of accumulated other comprehensive income (loss).
| Net Actuarial | Accumulated | Net Actuarial | Accumulated | |||||||||||||||||||||||||||||||
| Cumulative | Loss and | Other | Cumulative | Loss and | Other | |||||||||||||||||||||||||||||
| Translation | Prior | Comprehensive | Translation | Prior | Available-For-Sale | Comprehensive | ||||||||||||||||||||||||||||
| Adjustments | Service Cost | Loss | Adjustments | Service Cost | Securities | Loss | ||||||||||||||||||||||||||||
| At December 31, 2014 | $ | 157 | $ | (892 | ) | $ | (735 | ) | ||||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | (5 | ) | (66 | ) | (71 | ) | ||||||||||||||||||||||||||||
| Reclassifications to net earnings | — | 36 | (a) | 36 | ||||||||||||||||||||||||||||||
| Other comprehensive loss | (5 | ) | (30 | ) | (35 | ) | ||||||||||||||||||||||||||||
| At December 31, 2015 | 152 | (922 | ) | (770 | ) | |||||||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | (1 | ) | (165 | ) | (166 | ) | ||||||||||||||||||||||||||||
| Reclassifications to net earnings | — | 169 | (a) | 169 | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (1 | ) | 4 | 3 | ||||||||||||||||||||||||||||||
| At December 31, 2016 | 151 | (918 | ) | (767 | ) | $ | (420 | ) | $ | (1,144 | ) | $ | — | $ | (1,564 | ) | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 6 | (173 | ) | (167 | ) | 190 | (201 | ) | 30 | 19 | ||||||||||||||||||||||||
| Reclassifications to net earnings | 2 | 270 | (a) | 272 | 2 | 274 | (a) | — | 276 | |||||||||||||||||||||||||
| Other comprehensive income | 8 | 97 | 105 | 192 | 73 | 30 | 295 | |||||||||||||||||||||||||||
| At December 31, 2017 | $ | 159 | $ | (821 | ) | $ | (662 | ) | (228 | ) | (1,071 | ) | 30 | (1,269 | ) | |||||||||||||||||||
| Other comprehensive loss before reclassifications | (248 | ) | (123 | ) | — | (371 | ) | |||||||||||||||||||||||||||
| Reclassifications to net earnings | — | 62 | (a) | — | 62 | |||||||||||||||||||||||||||||
| Other comprehensive loss | (248 | ) | (61 | ) | — | (309 | ) | |||||||||||||||||||||||||||
| Adoption of accounting standard | — | — | (30 | ) | (30 | ) | ||||||||||||||||||||||||||||
| At December 31, 2018 | (476 | ) | (1,132 | ) | — | (1,608 | ) | |||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 13 | (205 | ) | — | (192 | ) | ||||||||||||||||||||||||||||
| Reclassifications to net earnings | — | 60 | (a) | — | 60 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 13 | (145 | ) | — | (132 | ) | ||||||||||||||||||||||||||||
| Tax effects reclassified to retained earnings | — | (230 | ) | (b) | — | (230 | ) | |||||||||||||||||||||||||||
| At December 31, 2019 | $ | (463 | ) | $ | (1,507 | ) | $ | — | $ | (1,970 | ) | |||||||||||||||||||||||
(a) Reflects amortization of net actuarial losseswhichlosses, which, for the year ended December 31, 2017 includes the accelerated recognition of a portion of the unamortized actuarial losses as a result of pension settlements for the years ended December 31, 2017 and 2016 (See(see Note 15).
(b) Reflects the reclassification of certain income tax effects of the Tax Reform Act on items within accumulated other comprehensive loss to retained earnings upon the adoption of new FASB guidance (see Note 1).
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 (provision) benefit for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 of $(106)$44 million, $(3)$23 million and $19$(90) million, respectively. The tax provision related to the other comprehensive loss from discontinued operations and the tax provision related to the unrealized gain on available-for-sale securities were minimalincluded in other comprehensive income for all periods presented.
2017 is net of a tax provision of $18 million.
13) STOCK-BASED COMPENSATION
At the Effective Time, each RSU for Viacom Class B common stock was converted into 0.59625 RSUs for ViacomCBS Class B Common Stock and each outstanding stock option for Viacom Class B common stock was converted into 0.59625 options for ViacomCBS Class B common stock. The exercise price of stock options was
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
adjusted by dividing the exercise price of the Viacom stock options by 0.59625. RSU and stock option information is presented herein as if Viacom and CBS had been combined for all periods presented, unless otherwise noted.
The following table summarizes the Company’s stock-based compensation expense for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
| Year Ended December 31, | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||||||||||||||||
| RSUs and PSUs | $ | 152 | $ | 137 | $ | 129 | $ | 173 | $ | 170 | $ | 181 | ||||||||||
| Stock options | 27 | 28 | 28 | 28 | 35 | 39 | ||||||||||||||||
| Compensation cost included in operating and SG&A expense | 201 | 205 | 220 | |||||||||||||||||||
Compensation cost included in restructuring and other corporate matters (a) | 90 | (14 | ) | 12 | ||||||||||||||||||
| Stock-based compensation expense, before income taxes | 179 | 165 | 157 | 291 | 191 | 232 | ||||||||||||||||
| Related tax benefit | (69 | ) | (63 | ) | (61 | ) | (59 | ) | (45 | ) | (84 | ) | ||||||||||
| Stock-based compensation expense, net of tax benefit | $ | 110 | $ | 102 | $ | 96 | $ | 232 | $ | 146 | $ | 148 | ||||||||||
RSUs and PSUs
Compensation expense for RSUs is determined based upon the market price of the shares underlying the awards on the date of grant and expensed over the vesting period, which is generally a one- to four-year service period. Certain RSU awards are also subject to satisfying internal performance conditions. Compensation expense is recorded based on the probable outcome of the internal performance conditions. Forfeitures for RSUs are estimated on the date of grant based on historical forfeiture rates. On an annual basis, the Company adjustsWe adjust the compensation expense based on actual forfeitures and reviseson an annual basis we revise the forfeiture rate as necessary. RSUs accrue dividends each time we declare a quarterly cash dividend, which are paid upon vesting when the shares are delivered and are forfeited if the award does not vest.
The weighted average grant date fair value of RSUs granted was $41.71, $53.90 and $64.26 in 2019, 2018, and 2017, respectively. The total market value of RSUs that vested during 2019, 2018, and 2017 was $159 million, $158 million and $228 million, respectively. Total unrecognized compensation cost related to non-vested RSUs at December 31, 2019 was $445 million which is expected to be recognized over a weighted average period of 3.0 years.
During 2018 and 2017, and 2016, the Companywe also granted PSU awards. The number of shares that willto be issued upon vesting of the PSUs iswas based on the Company’s stock price performance of CBS Class B Common Stock or the total shareholder return of Viacom Class B Common Stock measured against the companies comprising the S&P 500 Index, as applicable, over a designated measurement period, as well as the achievement of established operating goals. The fair value of PSU awards is determined using a Monte Carlo simulation model. Compensation expense for PSUs is expensed over the required employee service period. The fair value of the PSU awards granted during the years ended December 31, 2018 and 2017 and 2016 was $23$35 million and $4$32 million, respectively. There were no PSU awards granted in 2019. As a result of the Merger, all outstanding PSU awards for which the performance period had not been completed were converted into time-based RSUs based on the target number of shares included in the terms of the original PSU award.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in 2017, 2016, and 2015, respectively. The total market value of RSUs that vested during 2017, 2016, and 2015 was $193 million, $129 million and $212 million, respectively. Total unrecognized compensation cost related to non-vested RSUs at December 31, 2017 was $192 million which is expected to be recognized over a weighted average period of 2.2 years.millions, except per share amounts)
The following table summarizes the Company’sour RSU activity.and PSU share activity:
| Weighted Average | |||||||||
| Shares | Grant Date Fair Value | ||||||||
| Non-vested at December 31, 2018 | 8,011,104 | $ | 55.96 | ||||||
| Granted | 10,620,187 | $ | 41.71 | ||||||
| Vested | (3,374,331 | ) | $ | 55.90 | |||||
| Forfeited | (767,231 | ) | $ | 53.89 | |||||
| Non-vested at December 31, 2019 | 14,489,729 | $ | 45.64 | ||||||
| Weighted Average | ||||||||||
| RSUs | Grant Date Fair Value | |||||||||
| Non-vested at December 31, 2016 | 6,457,620 | $ | 52.57 | |||||||
| Granted | 2,506,607 | $ | 66.59 | |||||||
| Vested | (2,892,533 | ) | $ | 52.69 | ||||||
| Forfeited | (747,707 | ) | $ | 59.04 | ||||||
| Non-vested at December 31, 2017 | 5,323,987 | $ | 58.19 | |||||||
Stock Options
Compensation expense for stock options is determined based on the grant date fair value of the award calculated using the Black-Scholes options-pricing model. Stock options generally vest over a three- to four-year service period and expire eight years from the date of grant. Forfeitures are estimated on the date of grant based on historical forfeiture rates. On an annual basis, the Company adjustsWe adjust the compensation expense based on actual forfeitures and revises the forfeiture rate as necessary.
forfeitures.
The weighted average fair value of stock options granted for CBS Class B Common Stock as of the grant date was $14.48 and $17.50 $12.30in 2018 and $15.732017, respectively. CBS did not have any stock option grants in 2017, 2016, and 2015, respectively.2019. The fair value of each option grant iswas estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
| 2018 | 2017 | ||||
| Expected dividend yield | 1.33 | % | 1.09 | % | |
| Expected stock price volatility | 29.52 | % | 29.89 | % | |
| Risk-free interest rate | 2.73 | % | 2.00 | % | |
| Expected term of options (years) | 5.00 | 5.00 | |||
| 2017 | 2016 | 2015 | ||||||
| Expected dividend yield | 1.09 | % | 1.31 | % | 1.25 | % | ||
| Expected stock price volatility | 29.89 | % | 32.55 | % | 31.45 | % | ||
| Risk-free interest rate | 2.00 | % | 1.35 | % | 1.63 | % | ||
| Expected term of options (years) | 5.00 | 5.00 | 5.00 | |||||
| 2018 | 2017 | ||||
| Expected dividend yield | 2.52 | % | 2.48 | % | |
| Expected stock price volatility | 32.60 | % | 29.83 | % | |
| Risk-free interest rate | 2.81 | % | 1.96 | % | |
| Expected term of options (years) | 5.12 | 4.94 | |||
The expected stock price volatility isfor stock options for CBS Class B Common Stock was determined using a weighted average of historical volatility for CBS Corp. Class B Common Stock and implied volatility of publicly traded options to purchase CBS Corp.Class B Common Stock. The expected stock price volatility for stock options for Viacom Class B Common Stock was principally determined based on the implied volatility of publicly traded options to purchase Viacom Class B Common Stock. Given the existence of an actively traded market for CBS Corp.and Viacom options prior to the Company wasclosing of the Merger, we were able to derive implied volatility using publicly traded options to purchase CBS Corp. Class B Common Stock that were trading near the grant date of the employee stock options at a similar exercise price and a remaining term of greater than one year.
The risk-free interest rate is based on a U.S. Treasury rate in effect on the date of grant with a term equal to the expected term. The expected term is determined based on historical employee exercise and post-vesting termination
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
behavior. The expected dividend yield represents the Company’sour future expectation of the annual dividend yield based on current ratesthe dividend rate on the grant date and historical patterns of dividend changes.
Total unrecognized compensation cost related to non-vested stock option awards at December 31, 20172019 was $37 million, which is expected to be recognized over a weighted average period of 2.32.1 years.
The following table summarizes the Company’sour stock option activity under the Plans.
| Weighted Average | ||||||||||
| Stock Options | Exercise Price | |||||||||
| Outstanding at December 31, 2018 | 21,725,132 | $ | 65.52 | |||||||
| Granted | — | $ | — | |||||||
| Exercised | (605,867 | ) | $ | 24.72 | ||||||
| Forfeited or expired | (4,827,556 | ) | $ | 92.70 | ||||||
| Outstanding at December 31, 2019 | 16,291,709 | $ | 58.98 | |||||||
| Exercisable at December 31, 2019 | 11,458,112 | $ | 60.65 | |||||||
| Weighted Average | ||||||||||
| Stock Options | Exercise Price | |||||||||
| Outstanding at December 31, 2016 | 11,911,647 | $ | 44.14 | |||||||
| Granted | 1,361,464 | $ | 66.31 | |||||||
| Exercised | (2,940,667 | ) | $ | 31.12 | ||||||
| Forfeited or expired | (218,608 | ) | $ | 59.04 | ||||||
| Outstanding at December 31, 2017 | 10,113,836 | $ | 50.59 | |||||||
| Exercisable at December 31, 2017 | 6,376,286 | $ | 46.30 | |||||||
The following table summarizes other information relating to stock option exercises during the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Cash received from stock option exercises | $ | 15 | $ | 29 | $ | 263 | |||||
| Tax benefit of stock option exercises | $ | 4 | $ | 4 | $ | 52 | |||||
| Intrinsic value of stock option exercises | $ | 15 | $ | 16 | $ | 138 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Cash received from stock option exercises | $ | 91 | $ | 21 | $ | 142 | |||||
| Tax benefit of stock option exercises | $ | 36 | $ | 14 | $ | 74 | |||||
| Intrinsic value of stock option exercises | $ | 96 | $ | 37 | $ | 192 | |||||
14) INCOME TAXES
The U.S. and foreign components of earnings from continuing operations before income taxes and equity in earnings (loss) of investee companies were as follows:
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| United States | $ | 2,337 | $ | 3,044 | $ | 3,006 | |||||
| Foreign | 1,008 | 1,080 | 1,114 | ||||||||
| Total | $ | 3,345 | $ | 4,124 | $ | 4,120 | |||||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Outstanding | Exercisable | ||||||||||||||||||
| Remaining | Weighted | Weighted | |||||||||||||||||
| Range of | Number | Contractual | Average | Number | Average | ||||||||||||||
| Exercise Price | of Options | Life (Years) | Exercise Price | of Options | Exercise Price | ||||||||||||||
| $5 to 9.99 | 25,465 | 1.08 | $ | 5.72 | 25,465 | $ | 5.72 | ||||||||||||
| $10 to 19.99 | 174,668 | 0.95 | $ | 14.46 | 174,668 | $ | 14.46 | ||||||||||||
| $20 to 29.99 | 1,086,770 | 1.70 | $ | 26.62 | 1,086,770 | $ | 26.62 | ||||||||||||
| $30 to 39.99 | 791,703 | 2.82 | $ | 34.27 | 791,703 | $ | 34.27 | ||||||||||||
| $40 to 49.99 | 3,213,930 | 4.61 | $ | 45.17 | 1,977,910 | $ | 44.77 | ||||||||||||
| $50 to 59.99 | 1,635,410 | 5.13 | $ | 59.54 | 772,552 | $ | 59.54 | ||||||||||||
| $60 to 69.99 | 3,185,890 | 5.38 | $ | 66.04 | 1,547,218 | $ | 65.89 | ||||||||||||
| 10,113,836 | 6,376,286 | ||||||||||||||||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| United States | $ | 1,441 | $ | 1,803 | $ | 1,840 | |||||
| Foreign | 538 | 427 | 424 | ||||||||
| Total | $ | 1,979 | $ | 2,230 | $ | 2,264 | |||||
The components of the (benefit) provision for income taxes were as follows:
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Current: | |||||||||||
| Federal | $ | 389 | $ | 296 | $ | 883 | |||||
| State and local | 167 | 97 | 93 | ||||||||
| Foreign | 204 | 166 | 195 | ||||||||
| Total current | 760 | 559 | 1,171 | ||||||||
| Deferred: | |||||||||||
| Federal | (66 | ) | 25 | (388 | ) | ||||||
| State and local | (48 | ) | 22 | 10 | |||||||
| Foreign | (655 | ) | 11 | 11 | |||||||
| Total deferred | (769 | ) | 58 | (367 | ) | ||||||
| (Benefit) provision for income taxes | $ | (9 | ) | $ | 617 | $ | 804 | ||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Current: | |||||||||||
| Federal | $ | 720 | $ | 359 | $ | 110 | |||||
| State and local | 38 | 64 | 30 | ||||||||
| Foreign | 63 | 61 | 91 | ||||||||
| 821 | 484 | 231 | |||||||||
| Deferred | (188 | ) | 144 | 445 | |||||||
| Provision for income taxes | $ | 633 | $ | 628 | $ | 676 | |||||
In addition, included in net loss from discontinued operations was an income tax (provision) benefitprovision of $(8)$12 million $(124) for 2019 and $10 million for each of 2018 and $82 million in 2017, 2016, and 2015, respectively.2017.
The equity in lossearnings (loss) of investee companies is shown net of tax on the Company’s Consolidated Statements of Operations. The tax (provisions) benefits relating to earnings and losses from equity investments in 2019, 2018, and 2017 2016, and 2015 were $22$19 million, $25$15 million, and $22$(10) million, respectively, which represented an effective tax rate of 37.9%26.5%, 33.5%24.2% and 38.7%71.4% for 2017, 2016,2019, 2018, and 2015,2017, respectively.
The difference between income taxes expected at the U.S. federal statutory income tax rate (21% in 2019 and 2018 and 35% in 2017) and the (benefit) provision for income taxes is summarized as follows:
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Taxes on income at U.S. federal statutory rate | $ | 702 | $ | 865 | $ | 1,451 | |||||
| State and local taxes, net of federal tax benefit | 114 | 114 | 78 | ||||||||
| Effect of foreign operations | (50 | ) | (105 | ) | (294 | ) | |||||
Reorganization of foreign operations (a) | (768 | ) | — | — | |||||||
| Bankruptcy of an investee | (39 | ) | — | — | |||||||
| Foreign tax credits on distribution of securities | — | — | (279 | ) | |||||||
| Impact of tax law changes | — | (80 | ) | 8 | |||||||
Tax benefits from positions relating to the Tax Reform Act (b) | (44 | ) | — | — | |||||||
| Merger related costs | 41 | — | — | ||||||||
Establishment (reversal) of valuation allowance (c) | 1 | (153 | ) | (25 | ) | ||||||
| Excess tax benefits from stock-based compensation | 20 | 8 | (26 | ) | |||||||
| Domestic production deduction | (1 | ) | 24 | (100 | ) | ||||||
| Tax accounting method change | — | (78 | ) | — | |||||||
Other, net | 15 | 22 | (9 | ) | |||||||
| (Benefit) provision for income taxes | $ | (9 | ) | $ | 617 | $ | 804 | ||||
(a) Reflects a deferred tax benefit resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations. The related deferred tax asset is primarily expected to be realized over the next 25 years.
(b) Reflects tax benefits realized in connection with the preparation of the 2018 federal tax return, based on further clarity provided by the United States government on tax positions relating to the Tax Reform Act.
(c) 2018 includes the reversal of a valuation allowance of $140 million relating to capital loss carryforwards that were utilized in connection with the sale of CBS CORPORATIONTelevision City in 2019.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Taxes on income at U.S. federal statutory rate | $ | 693 | $ | 780 | $ | 792 | |||||
| State and local taxes, net of federal tax benefit | 47 | 59 | 55 | ||||||||
| Effect of foreign operations | (162 | ) | (112 | ) | (100 | ) | |||||
| Impact of federal tax legislation | 129 | — | — | ||||||||
| Excess tax benefits from stock-based compensation | (44 | ) | — | — | |||||||
| Domestic production deduction | (31 | ) | (42 | ) | (25 | ) | |||||
| Sales of businesses | — | — | (42 | ) | |||||||
| Audit settlements, net | — | — | (9 | ) | |||||||
Other, net (a) | 1 | (57 | ) | 5 | |||||||
| Provision for income taxes | $ | 633 | $ | 628 | $ | 676 | |||||
The following table summarizes the components of deferred income tax assets and liabilities.
| At December 31, | 2019 | 2018 | |||||
| Deferred income tax assets: | |||||||
| Reserves and other accrued liabilities | $ | 540 | $ | 566 | |||
| Pension, postretirement and other employee benefits | 761 | 741 | |||||
| Lease liability | 531 | — | |||||
| Tax credit and loss carryforwards | 394 | 849 | |||||
| Other | 85 | 41 | |||||
| Total deferred income tax assets | 2,311 | 2,197 | |||||
| Valuation allowance | (550 | ) | (841 | ) | |||
| Deferred income tax assets, net | 1,761 | 1,356 | |||||
| Deferred income tax liabilities: | |||||||
| Intangible assets | (241 | ) | (1,090 | ) | |||
| Unbilled licensing receivables | (390 | ) | (420 | ) | |||
| Lease asset | (467 | ) | — | ||||
| Property, equipment and other assets | (152 | ) | (166 | ) | |||
| Financing obligations | (72 | ) | (70 | ) | |||
| Total deferred income tax liabilities | (1,322 | ) | (1,746 | ) | |||
| Deferred income tax assets (liabilities), net | $ | 439 | $ | (390 | ) | ||
| At December 31, | 2017 | 2016 | |||||
| Deferred income tax assets: | |||||||
| Reserves and other accrued liabilities | $ | 391 | $ | 671 | |||
| Pension, postretirement and other employee benefits | 478 | 843 | |||||
| Tax credit and loss carryforwards | 835 | 966 | |||||
| Other | 70 | 113 | |||||
| Total deferred income tax assets | 1,774 | 2,593 | |||||
| Valuation allowance | (974 | ) | (928 | ) | |||
| Deferred income tax assets, net | 800 | 1,665 | |||||
| Deferred income tax liabilities: | |||||||
| Intangible assets | (847 | ) | (1,469 | ) | |||
| Unbilled licensing receivables | (291 | ) | (636 | ) | |||
| Property, equipment and other assets | (86 | ) | (140 | ) | |||
| Total deferred income tax liabilities | (1,224 | ) | (2,245 | ) | |||
| Deferred income tax liabilities, net | $ | (424 | ) | $ | (580 | ) | |
In addition to the deferred income taxes reflected in the table above, included in the liabilities of discontinued operations“Other liabilities” on the Consolidated Balance Sheets are net deferred income tax assets (liabilities) of $12$10 million and $(975)$12 million at December 31, 20172019 and 2016, respectively.2018, respectively, relating to discontinued operations.
At December 31, 2017, the Company2019, we had federal foreign tax credit carryforwards of $6 million and net operating loss carryforwards for federal, state and local, and foreign jurisdictions of approximately $1.74$1.73 billion, the majority of which expire in various years from 20182020 through 2037.2039.
The 20172019 and 20162018 deferred income tax assets were reduced by a valuation allowance of $974$550 million and $928$841 million, respectively, principally relating to income tax benefits from capital losses and net operating losses in foreign jurisdictions which are not expected to be realized.
The Tax Reform Act includes a deduction for foreign derived intangible income and a tax on global intangible low-taxed income (“GILTI”), which imposes a U.S. tax on certain income earned by our foreign subsidiaries. We elected to treat the tax on GILTI as a period cost when incurred and therefore, the tax on GILTI is included in our tax provision for the years ended December 31, 2019 and 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Generally, the future remittance of foreign undistributed earnings will not be subject to U.S. federal income taxes under the provisions of the Tax Reform Act and as a result, for substantially all of itsour foreign subsidiaries, the Company no longer intendswe do not intend to assert indefinite reinvestment of both cash held outside of the U.S. and future cash earnings. However, a future repatriation of cash could be subject to state and local income taxes, foreign income taxes, and withholding taxes. Accordingly, the Companywe recorded an estimated deferred income tax liabilityliabilities associated with future repatriations, which waswere not material to the Company’s consolidated financial statements. Additional income taxes have not been provided for outside basis differences inherent in these entities, which could be recognized upon sale or other transaction, as these amounts continue to be indefinitely invested in foreign operations. The determination of the U.S. federal deferred income tax liability for such outside basis difference is not practicable.
The following table sets forth the change in the reserve for uncertain tax positions, excluding related accrued interest and penalties.
| At January 1, 2017 | $ | 268 | |
| Additions for current year tax positions | 86 | ||
| Additions for prior year tax positions | 45 | ||
| Reductions for prior year tax positions | (56 | ) | |
| Cash settlements | (13 | ) | |
| Statute of limitations lapses | (30 | ) | |
| At December 31, 2017 | 300 | ||
| Additions for current year tax positions | 27 | ||
| Additions for prior year tax positions | 204 | ||
| Reductions for prior year tax positions | (60 | ) | |
| Cash settlements | (19 | ) | |
| Statute of limitations lapses | (6 | ) | |
| At December 31, 2018 | 446 | ||
| Additions for current year tax positions | 49 | ||
| Additions for prior year tax positions | 67 | ||
| Reductions for prior year tax positions | (26 | ) | |
| Cash settlements | (149 | ) | |
| Statute of limitations lapses | (3 | ) | |
| At December 31, 2019 | $ | 384 | |
| At January 1, 2015 | $ | 140 | |
| Additions for current year tax positions | 14 | ||
| Additions for prior year tax positions | 6 | ||
| Reductions for prior year tax positions | (32 | ) | |
| Cash settlements | (23 | ) | |
| Statute of limitations lapses | (1 | ) | |
| At December 31, 2015 | 104 | ||
| Additions for current year tax positions | 9 | ||
| Additions for prior year tax positions | 4 | ||
| Reductions for prior year tax positions | (8 | ) | |
| Cash settlements | (6 | ) | |
| Statute of limitations lapses | (1 | ) | |
| At December 31, 2016 | 102 | ||
| Additions for current year tax positions | 50 | ||
| Additions for prior year tax positions | 39 | ||
| Reductions for prior year tax positions | (41 | ) | |
| Cash settlements | (5 | ) | |
| Statute of limitations lapses | (7 | ) | |
| At December 31, 2017 | $ | 138 | |
The reserve for uncertain tax positions of $138$384 million at December 31, 20172019 includes $127$295 million which would affect the Company’sour effective income tax rate, including discontinued operations, if and when recognized in future years.
We recognize interest and penalty charges related to the reserve for uncertain tax positions as income tax expense. The CompanyWe recognized interest and penalties of $6 million for the year ended December 31, 2017, and $7$24 million for each of the years ended December 31, 20162019 and 2015,2018 and $16 million for the year ended December 31, 2017, in the Consolidated Statements of Operations. As of December 31, 20172019 and 2016, the Company has2018, we have recorded liabilities for accrued interest and penalties of $14$51 million and $35$47 million, respectively, on the Consolidated Balance Sheets.
ViacomCBS and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and international jurisdictions. For periods prior to the Merger, Viacom and CBS filed separate tax returns. For CBS, the U.S. federal statute of limitations for the 2015 tax year expired in September 2019. During 2015, the Companythird quarter of 2019, CBS and the IRS settled the Company’s income tax audit for the years 2011 and 2012,year 2016, which did not have a material effect on the Company’s consolidated financial statements. The statute of limitations for the 2013 tax year expired in September 2017. The IRS is expected to commencecommenced its examination of the years2017 tax year during the fourth quarter of 2019 and commenced its examination of the 2018 tax year in February 2020. For Viacom, the IRS began its examination of the 2014 2015, and 2016 during 2018. In addition, various2015 tax years in April 2017. 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, the Company does notwe currently believe that it is reasonably possible that the reserve for uncertain tax positions will significantly changemay decrease by $125 million within the next twelve months;12
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
months primarily related to potential resolutions of matters involving multiple tax periods and jurisdictions; however, it is difficult to predict the final outcome or timing of resolution of any particular tax matter and accordingly, unforeseen events could cause the Company’sour current expectation to change in the future.
15) PENSION AND OTHER POSTRETIREMENT BENEFITS
During the fourth quarter of 2017, the Companywe purchased a group annuity contract under which an insurance company has permanently assumed the Company’sour obligation to pay and administer pension benefits to certain of the Company’s pension plan participants, or their designated beneficiaries, who had been receiving pension benefits. The purchase of this group annuity contract was funded with pension plan assets. As a result, the Company’sour outstanding pension benefit obligation was reduced by approximately $800 million, representing approximately 20% of the total obligations of the Company’s qualified pension plans.million. In connection with this transaction, the Companywe recorded a settlement charge of $352 million in the fourth quarter of 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Companywe made discretionary contributions totaling $600 million to prefund itsour qualified pension plans.
In addition, the CompanyViacomCBS sponsors health and welfare plans that provide postretirement health care and life insurance benefits to eligible retired employees and their covered dependents. Eligibility is based in part on certain age and service requirements at the time of their retirement. Most of the plans are contributory and contain cost-sharing features such as deductibles and coinsurance which are adjusted annually, as well as caps on the annual dollar amount the Companywe will contribute toward the cost of coverage. Claims and premiums for which we are responsible are paid primarily with the Company’sour own funds.
The Company usespension plan disclosures herein include information related to our domestic plans only, unless otherwise noted. At December 31, 2019 and 2018, the Consolidated Balance Sheets include a liability of $80 million and $67 million, respectively, in “Pension and postretirement benefit obligations” relating to our non-U.S. pension plans.
We use a December 31 measurement date for all pension and other postretirement benefit plans.
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Change in benefit obligation: | |||||||||||||||
| Benefit obligation, beginning of year | $ | 4,660 | $ | 4,911 | $ | 447 | $ | 486 | |||||||
| Service cost | 29 | 29 | — | — | |||||||||||
| Interest cost | 191 | 215 | 18 | 20 | |||||||||||
| Actuarial loss (gain) | 337 | 353 | 19 | (5 | ) | ||||||||||
| Benefits paid | (326 | ) | (328 | ) | (73 | ) | (69 | ) | |||||||
| Participants’ contributions | — | — | 10 | 11 | |||||||||||
| Retiree Medicare drug subsidy | — | — | 3 | 4 | |||||||||||
| Settlements | (862 | ) | (518 | ) | — | — | |||||||||
| Cumulative translation adjustments | 11 | (2 | ) | — | — | ||||||||||
| Benefit obligation, end of year | $ | 4,040 | $ | 4,660 | $ | 424 | $ | 447 | |||||||
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Change in plan assets: | |||||||||||||||
| Fair value of plan assets, beginning of year | $ | 3,244 | $ | 3,734 | $ | 4 | $ | 4 | |||||||
| Actual return on plan assets | 328 | 305 | — | — | |||||||||||
| Employer contributions | 650 | 52 | 56 | 54 | |||||||||||
| Benefits paid | (326 | ) | (328 | ) | (73 | ) | (69 | ) | |||||||
| Participants’ contributions | — | — | 10 | 11 | |||||||||||
| Retiree Medicare drug subsidy | — | — | 3 | 4 | |||||||||||
| Settlements | (862 | ) | (518 | ) | — | — | |||||||||
| Cumulative translation adjustments | 12 | (1 | ) | — | — | ||||||||||
| Fair value of plan assets, end of year | $ | 3,046 | $ | 3,244 | $ | — | $ | 4 | |||||||
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| At December 31, | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Funded status at end of year | $ | (994 | ) | $ | (1,416 | ) | $ | (424 | ) | $ | (443 | ) | |||
| Amounts recognized on the Consolidated Balance Sheets: | |||||||||||||||
| Other assets | $ | 12 | $ | 13 | $ | — | $ | — | |||||||
| Current liabilities | (53 | ) | (53 | ) | (49 | ) | (50 | ) | |||||||
| Noncurrent liabilities | (953 | ) | (1,376 | ) | (375 | ) | (393 | ) | |||||||
| Net amounts recognized | $ | (994 | ) | $ | (1,416 | ) | $ | (424 | ) | $ | (443 | ) | |||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company’sfollowing table sets forth the change in benefit obligation for our pension and postretirement benefit plans.
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Change in benefit obligation: | |||||||||||||||
| Benefit obligation, beginning of year | $ | 4,511 | $ | 4,877 | $ | 376 | $ | 456 | |||||||
| Service cost | 28 | 30 | 1 | 1 | |||||||||||
| Interest cost | 191 | 180 | 16 | 17 | |||||||||||
| Actuarial loss (gain) | 593 | (240 | ) | 8 | (8 | ) | |||||||||
| Benefits paid | (360 | ) | (336 | ) | (59 | ) | (106 | ) | |||||||
| Participants’ contributions | — | — | 13 | 12 | |||||||||||
| Retiree Medicare drug subsidy | — | — | 5 | 4 | |||||||||||
| Benefit obligation, end of year | $ | 4,963 | $ | 4,511 | $ | 360 | $ | 376 | |||||||
The following table sets forth the change in plan assets for our pension and postretirement benefit plans.
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Change in plan assets: | |||||||||||||||
| Fair value of plan assets, beginning of year | $ | 2,932 | $ | 3,412 | $ | 1 | $ | — | |||||||
| Actual return on plan assets | 530 | (205 | ) | (1 | ) | — | |||||||||
| Employer contributions | 74 | 61 | 41 | 91 | |||||||||||
| Benefits paid | (360 | ) | (336 | ) | (59 | ) | (106 | ) | |||||||
| Participants’ contributions | — | — | 13 | 12 | |||||||||||
| Retiree Medicare drug subsidy | — | — | 5 | 4 | |||||||||||
| Fair value of plan assets, end of year | $ | 3,176 | $ | 2,932 | $ | — | $ | 1 | |||||||
The funded status of pension and postretirement benefit obligations and the related amounts recognized on the Consolidated Balance Sheets were as follows:
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| At December 31, | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Funded status at end of year | $ | (1,787 | ) | $ | (1,579 | ) | $ | (360 | ) | $ | (375 | ) | |||
| Amounts recognized on the Consolidated Balance Sheets: | |||||||||||||||
| Other assets | $ | 5 | $ | 5 | $ | — | $ | — | |||||||
| Current liabilities | (69 | ) | (70 | ) | (42 | ) | (48 | ) | |||||||
| Noncurrent liabilities | (1,723 | ) | (1,514 | ) | (318 | ) | (327 | ) | |||||||
| Net amounts recognized | $ | (1,787 | ) | $ | (1,579 | ) | $ | (360 | ) | $ | (375 | ) | |||
Our qualified pension plans were underfunded by $309$734 million and $742$623 million at December 31, 20172019 and 2016,2018, respectively.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following amounts were recognized in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| At December 31, | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Net actuarial (loss) gain | $ | (2,153 | ) | $ | (2,001 | ) | $ | 147 | $ | 174 | |||||
| Net prior service cost | (3 | ) | (5 | ) | (1 | ) | (2 | ) | |||||||
| Share of equity investee | (2 | ) | (1 | ) | — | — | |||||||||
| (2,158 | ) | (2,007 | ) | 146 | 172 | ||||||||||
Deferred income taxes (a) | 563 | 756 | (14 | ) | (19 | ) | |||||||||
Net amount recognized in accumulated other comprehensive income (loss) | $ | (1,595 | ) | $ | (1,251 | ) | $ | 132 | $ | 153 | |||||
| Pension Benefits | Postretirement Benefits | ||||||||||||||
| At December 31, | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Net actuarial (loss) gain | $ | (1,583 | ) | $ | (1,827 | ) | $ | 189 | $ | 230 | |||||
| Net prior service cost | (6 | ) | (7 | ) | — | — | |||||||||
| Share of equity investee | (2 | ) | (1 | ) | — | — | |||||||||
| (1,591 | ) | (1,835 | ) | 189 | 230 | ||||||||||
| Deferred income taxes | 606 | 725 | (25 | ) | (38 | ) | |||||||||
Net amount recognized in accumulated other comprehensive income (loss) | $ | (985 | ) | $ | (1,110 | ) | $ | 164 | $ | 192 | |||||
The accumulated benefit obligation for all defined benefit pension plans was $3.96$4.87 billion and $4.59$4.43 billion at December 31, 20172019 and 2016,2018, respectively.
Information for the pension plans with an accumulated benefit obligation in excess of plan assets is set forth below.
| At December 31, | 2019 | 2018 | |||||
| Projected benefit obligation | $ | 4,962 | $ | 4,511 | |||
| Accumulated benefit obligation | $ | 4,873 | $ | 4,427 | |||
| Fair value of plan assets | $ | 3,170 | $ | 2,926 | |||
| At December 31, | 2017 | 2016 | |||||
| Projected benefit obligation | $ | 3,933 | $ | 4,558 | |||
| Accumulated benefit obligation | $ | 3,852 | $ | 4,485 | |||
| Fair value of plan assets | $ | 2,928 | $ | 3,129 | |||
The following tables present the components of net periodic benefit cost and amounts recognized in other comprehensive income (loss).
| Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||
| Year Ended December 31, | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||
| Components of net periodic cost: | |||||||||||||||||||||||
| Service cost | $ | 28 | $ | 30 | $ | 28 | $ | 1 | $ | 1 | $ | 1 | |||||||||||
| Interest cost | 191 | 180 | 219 | 16 | 17 | 19 | |||||||||||||||||
| Expected return on plan assets | (183 | ) | (214 | ) | (230 | ) | — | — | — | ||||||||||||||
| Amortization of actuarial losses (gains) | 94 | 87 | 105 | (18 | ) | (18 | ) | (22 | ) | ||||||||||||||
| Amortization of prior service cost | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||
| Settlements | — | — | 352 | — | — | — | |||||||||||||||||
| Net periodic cost | $ | 131 | $ | 84 | $ | 475 | $ | — | $ | 1 | $ | (1 | ) | ||||||||||
| Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||
| Year Ended December 31, | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||
| Components of net periodic cost: | |||||||||||||||||||||||
| Service cost | $ | 29 | $ | 29 | $ | 31 | $ | — | $ | — | $ | — | |||||||||||
| Interest cost | 191 | 215 | 209 | 18 | 20 | 20 | |||||||||||||||||
| Expected return on plan assets | (201 | ) | (227 | ) | (261 | ) | — | — | — | ||||||||||||||
| Amortization of actuarial losses (gains) | 101 | 84 | 79 | (22 | ) | (21 | ) | (21 | ) | ||||||||||||||
| Amortization of prior service cost | 2 | 1 | 1 | — | — | — | |||||||||||||||||
| Settlements | 352 | 211 | — | — | — | — | |||||||||||||||||
| Net periodic cost | $ | 474 | $ | 313 | $ | 59 | $ | (4 | ) | $ | (1 | ) | $ | (1 | ) | ||||||||
| Pension | Postretirement | ||||||||||
| Year Ended December 31, 2017 | Benefits | Benefits | |||||||||
| Other comprehensive income (loss): | 45 | ||||||||||
| Actuarial loss | $ | (210 | ) | $ | (19 | ) | |||||
Amortization of actuarial losses (gains) (a) | 101 | (22 | ) | ||||||||
Amortization of prior service cost (a) | 2 | — | |||||||||
Settlements (a) | 352 | — | |||||||||
| Cumulative translation adjustments | (1 | ) | — | ||||||||
| 244 | (41 | ) | |||||||||
| Deferred income taxes | (119 | ) | 13 | ||||||||
| Recognized in other comprehensive income (loss), net of tax | $ | 125 | $ | (28 | ) | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||
| Year Ended December 31, | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||
| Other comprehensive income (loss): | -200 | 45 | |||||||||||||||||||||
| Actuarial (loss) gain | $ | (246 | ) | $ | (179 | ) | $ | (269 | ) | $ | (9 | ) | $ | 8 | $ | (20 | ) | ||||||
Amortization of actuarial losses (gains) (a) | 94 | 87 | 105 | (18 | ) | (18 | ) | (22 | ) | ||||||||||||||
Amortization of prior service cost (a) | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||
Settlements (a) | — | — | 352 | — | — | — | |||||||||||||||||
| (151 | ) | (91 | ) | 189 | (26 | ) | (9 | ) | (41 | ) | |||||||||||||
| Deferred income taxes | 37 | 25 | (94 | ) | 5 | 2 | 13 | ||||||||||||||||
Recognized in other comprehensive income (loss), net of tax | $ | (114 | ) | $ | (66 | ) | $ | 95 | $ | (21 | ) | $ | (7 | ) | $ | (28 | ) | ||||||
(a)Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings.
Estimated net actuarial losses and prior service costs related to the defined benefit pension plans of approximately $81$103 million and $1 million, respectively, will be amortized from accumulated other comprehensive income (loss)loss into net periodic benefit costs in 2018.2020.
Estimated net actuarial gains related to the other postretirement benefit plans of approximately $18$15 million will be amortized from accumulated other comprehensive income (loss)loss into net periodic benefit costs in 2018.2020.
| Pension | Postretirement | |||||||||||||||||||||||||||
| Benefits | Benefits | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||
| Weighted average assumptions used to determine benefit obligations at December 31: | ||||||||||||||||||||||||||||
| Discount rate | 3.9 | % | 4.3 | % | 3.9 | % | 4.1 | % | 3.5 | % | 4.5 | % | 3.9 | % | 3.3 | % | 4.4 | % | 3.9 | % | ||||||||
| Rate of compensation increase | 3.0 | % | 3.0 | % | N/A | N/A | 3.0 | % | 3.0 | % | 3.0 | % | N/A | N/A | N/A | |||||||||||||
| Weighted average assumptions used to determine net periodic costs for the year ended December 31: | ||||||||||||||||||||||||||||
| Discount rate | 4.3 | % | 4.6 | % | 4.1 | % | 4.2 | % | 4.5 | % | 3.8 | % | 4.2 | % | 4.4 | % | 3.9 | % | 4.1 | % | ||||||||
| Expected long-term return on plan assets | 6.4 | % | 6.4 | % | 2.0 | % | 2.0 | % | 6.6 | % | 6.6 | % | 6.6 | % | N/A | N/A | 2.0 | % | ||||||||||
| Rate of compensation increase | 3.0 | % | 3.0 | % | N/A | N/A | 3.0 | % | 3.0 | % | 3.0 | % | N/A | N/A | N/A | |||||||||||||
N/A - not applicable
The discount rates are determined primarily based on the yield onof a portfolio of high quality bonds, constructed to provideproviding cash flows necessary to meet the Company’s pension plans’ expected future benefit payments, as determined for the projected benefit obligations. 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.
The following additional assumptions were used in accounting for postretirement benefits.
| CBS | Viacom | ||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||
| Projected health care cost trend rate (pre-65) | 7.0 | % | 6.6 | % | 6.3 | % | 6.7 | % | |||
| Projected health care cost trend rate (post-65) | 7.0 | % | 6.6 | % | 5.7 | % | 5.9 | % | |||
| Ultimate trend rate | 5.0 | % | 5.0 | % | 4.5 | % | 4.5 | % | |||
| Year ultimate trend rate is achieved | 2025 | 2023 | 2026 | 2026 | |||||||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| 2017 | 2016 | ||||
| Projected health care cost trend rate | 7.0 | % | 6.6 | % | |
| Ultimate trend rate | 5.0 | % | 5.0 | % | |
| Year ultimate trend rate is achieved | 2023 | 2021 | |||
A one percentage point change in assumed health care cost trend rates would have the following effects:
| One Percentage | One Percentage | ||||||||||
| Point Increase | Point Decrease | ||||||||||
| Effect on total service and interest cost components | $ | — | $ | — | |||||||
| Effect on the accumulated postretirement benefit obligation | $ | 5 | $ | (5 | ) | ||||||
| One Percentage | One Percentage | ||||||||||
| Point Increase | Point Decrease | ||||||||||
| Effect on total service and interest cost components | $ | — | $ | — | |||||||
| Effect on the accumulated postretirement benefit obligation | $ | 6 | $ | (5 | ) | ||||||
Plan Assets
The target asset allocation for Viacom’s domestic pension plans is to invest 70% - 90% in return-seeking investments, 10% - 30% in liability hedging and 0% - 10% in cash and cash equivalents. Return-seeking investments consist of diversified equity and credit funds and liability hedging investments consist of U.S. treasury rate funds. At December 31, 2019, the Viacom Pension Plan was invested 76% in return seeking, 18% in liability hedging and 6% in cash and cash equivalents.
The following tables set forth the Company’sour pension plan assets measured at fair value on a recurring basis at December 31, 20172019 and 2016.2018. These assets 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 quoted prices for the asset 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 in inactive markets or quoted prices for similar assets. Level 3 is based on unobservable inputs that market participants would use in pricing the asset.
| At December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| At December 31, 2019 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
Cash and cash equivalents (a) | $ | 8 | $ | 80 | $ | — | $ | 88 | $ | 1 | $ | 34 | $ | — | $ | 35 | ||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||
| U.S. treasury securities | 135 | — | — | 135 | 83 | — | — | 83 | ||||||||||||||||||||||
| Government-related securities | 12 | 238 | — | 250 | — | 171 | — | 171 | ||||||||||||||||||||||
Corporate bonds (b) | — | 1,657 | — | 1,657 | — | 1,562 | — | 1,562 | ||||||||||||||||||||||
| Mortgage-backed and asset-backed securities | — | 97 | 1 | 98 | — | 98 | — | 98 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||
| U.S. large capitalization | 175 | 3 | — | 178 | 113 | — | — | 113 | ||||||||||||||||||||||
| U.S. small capitalization | 43 | — | — | 43 | 40 | — | — | 40 | ||||||||||||||||||||||
| International equity | — | 3 | — | 3 | ||||||||||||||||||||||||||
| Other | — | 43 | — | 43 | — | 25 | — | 25 | ||||||||||||||||||||||
| Total assets in fair value hierarchy | $ | 373 | $ | 2,121 | $ | 1 | $ | 2,495 | $ | 237 | $ | 1,890 | $ | — | $ | 2,127 | ||||||||||||||
Common collective funds measured at net asset value (c) (d) | 519 | 978 | ||||||||||||||||||||||||||||
Limited partnerships measured at net asset value (c) | 32 | 23 | ||||||||||||||||||||||||||||
Mutual funds measured at net asset value (c) | 48 | |||||||||||||||||||||||||||||
| Investments, at fair value | $ | 3,046 | $ | 3,176 | ||||||||||||||||||||||||||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| At December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| At December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
Cash and cash equivalents (a) | $ | 11 | $ | 53 | $ | — | $ | 64 | $ | 4 | $ | 7 | $ | — | $ | 11 | ||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||
| U.S. treasury securities | 132 | — | — | 132 | 85 | 31 | — | 116 | ||||||||||||||||||||||
| Government-related securities | 18 | 207 | — | 225 | — | 169 | — | 169 | ||||||||||||||||||||||
Corporate bonds (b) | — | 1,895 | — | 1,895 | — | 1,529 | — | 1,529 | ||||||||||||||||||||||
| Mortgage-backed and asset-backed securities | — | 135 | 2 | 137 | — | 120 | — | 120 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||
| U.S. large capitalization | 187 | 3 | — | 190 | 150 | — | — | 150 | ||||||||||||||||||||||
| U.S. small capitalization | 64 | — | — | 64 | 35 | — | — | 35 | ||||||||||||||||||||||
| International equity | — | 3 | — | 3 | ||||||||||||||||||||||||||
| Other | — | (18 | ) | — | (18 | ) | 1 | 18 | — | 19 | ||||||||||||||||||||
| Total assets in fair value hierarchy | $ | 412 | $ | 2,278 | $ | 2 | $ | 2,692 | $ | 275 | $ | 1,874 | $ | — | $ | 2,149 | ||||||||||||||
Common collective funds measured at net asset value (c) (d) | 521 | 688 | ||||||||||||||||||||||||||||
Limited partnerships measured at net asset value (c) | 31 | 63 | ||||||||||||||||||||||||||||
Mutual funds measured at net asset value (c) | 32 | |||||||||||||||||||||||||||||
| Investments, at fair value | $ | 3,244 | $ | 2,932 | ||||||||||||||||||||||||||
(a) Assets categorized as Level 2 reflect investments in money market funds.
(b) Securities of diverse sectors and industries, substantially all investment grade.
(c) In accordance with FASB guidance investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy.
(d) Underlying investments consist mainly of U.S. large capitalization and international equity securities.
Money market investments are carried at amortized cost which approximates fair value due to the short-term maturity of these investments. Investments in equity securities are reported at fair value based on quoted market prices on national security exchanges. The fair value of investments in common collective funds and mutual funds are determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by the number of outstanding units. The fair value of U.S. treasury securities is determined based on quoted market prices in active markets. The fair value of government related securities and corporate bonds is determined based on quoted market prices on national security exchanges, when available, or using valuation models which incorporate certain other observable inputs including recent trading activity for comparable securities and broker quoted prices. The fair value of mortgage-backed and asset-backed securities is based upon valuation models which incorporate available dealer quotes, projected cash flows and market information. The fair value of limited partnerships has been estimated using the NAV of the ownership interest. The NAV is determined using quarterly financial statements issued by the partnership which determine the value based on the fair value of the underlying investments.
Mortgage-backed Securities | ||||||
| At January 1, 2016 | $ | 2 | ||||
| Contributions and distributions, net | — | |||||
| At December 31, 2016 | 2 | |||||
| Contributions and distributions, net | (1 | ) | ||||
| At December 31, 2017 | $ | 1 | ||||
Future Benefit Payments
Estimated future benefit payments are as follows:
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025-2029 | ||||||||||||||||||
| Pension | $ | 357 | $ | 304 | $ | 305 | $ | 307 | $ | 304 | $ | 1,487 | |||||||||||
| Postretirement | $ | 48 | $ | 45 | $ | 42 | $ | 40 | $ | 37 | $ | 144 | |||||||||||
| Retiree Medicare drug subsidy | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 4 | $ | 20 | |||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023-2027 | ||||||||||||||||||
| Pension | $ | 448 | $ | 266 | $ | 263 | $ | 261 | $ | 258 | $ | 1,229 | |||||||||||
| Postretirement | $ | 54 | $ | 52 | $ | 49 | $ | 46 | $ | 43 | $ | 172 | |||||||||||
| Retiree Medicare drug subsidy | $ | (5 | ) | $ | (5 | ) | $ | (5 | ) | $ | (5 | ) | $ | (5 | ) | $ | (22 | ) | |||||
In 2018, the Company expects2020, we expect to make contributions of approximately $53$70 million to itsour non-qualified pension plans to satisfy the benefit payments due under these plans. Also in 2018, the Company expects2020, we expect to contribute approximately $49$43 million to itsour other postretirement benefit plans to satisfy the Company’sour portion of benefit payments due under these plans.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Multiemployer Pension and Postretirement Benefit Plans
contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. In addition, if the Company chooseswe choose to stop participating in some of its multiemployer plans itwe may be required to pay those plans a withdrawal liability based on the underfunded status of the plan.
The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006. Plans in the red zone are in critical status; those in the yellow zone are in endangered status; and those in the green zone are neither critical nor endangered.
The table below presents information concerning the Company’sour participation in multiemployer defined benefit pension plans.
| Employer Identification Number/Pension Plan Number | Pension Protection Act | Company Contributions | Expiration Date of Collective Bargaining Agreement | Employer Identification Number/Pension Plan Number | Pension Protection Act | Company Contributions | Expiration Date of Collective Bargaining Agreement | |||||||||||||||||||||||||||||||
Zone Status (a) | Zone Status (a) | |||||||||||||||||||||||||||||||||||||
| Pension Plan | 2017 | 2016 | 2017 | 2016 | 2015 | 2019 | 2018 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||
AFTRA Retirement Plan (b) | 13-6414972-001 | Green | $ | 6 | $ | 6 | $ | 5 | (c) | 13-6414972-001 | Green | $ | 12 | $ | 11 | $ | 12 | (c) | ||||||||||||||||||||
| Directors Guild of America - Producer | 95-2892780-001 | Green | 8 | 6 | 6 | 6/30/2020 | 95-2892780-001 | Green | 19 | 15 | 15 | 6/30/2020 | ||||||||||||||||||||||||||
| Producer-Writers Guild of America | 95-2216351-001 | Green | 15 | 12 | 11 | 5/1/2020 | 95-2216351-001 | Green | 26 | 25 | 22 | 5/1/2020 | ||||||||||||||||||||||||||
| Screen Actors Guild - Producers | 95-2110997-001 | Green | 22 | 11 | 9 | 6/30/2020 | 95-2110997-001 | Green | 43 | 36 | 29 | 6/30/2020 | ||||||||||||||||||||||||||
| Motion Picture Industry | 95-1810805-001 | Green | 14 | 11 | 10 | (d) | 95-1810805-001 | Green | 43 | 42 | 40 | (e) | ||||||||||||||||||||||||||
I.A.T.S.E. Local No. 33 Pension Trust Fund (e) | 95-6377503-001 | Green | 10 | 9 | 8 | 12/31/2019 | ||||||||||||||||||||||||||||||||
I.A.T.S.E. Local No. 33 Pension Trust Fund (f) | 95-6377503-001 | Green | 5 | 10 | 9 | 12/31/2019 | ||||||||||||||||||||||||||||||||
| Other Plans | 5 | 5 | 1 | 16 | 12 | 10 | ||||||||||||||||||||||||||||||||
| Total contributions | $ | 80 | $ | 60 | $ | 50 | Total contributions | $ | 164 | $ | 151 | $ | 137 | |||||||||||||||||||||||||
(a) The Zone status for each individual plan listed was certified by each plan’s actuary as of the beginning of the plan years for 20172019 and 2016.2018. The plan year is the twelve months ending December 31 for each plan listed above except AFTRA Retirement Plan which has a plan year ending November 30.
(b) The Company was listed in AFTRA Retirement Plan’s Form 5500 as providing more than 5% of total contributions for the plan year ended November 30, 2016.2018.
(c) The expiration dates range from June 30, 20182020 through December 31, 2020.June 30, 2021.
(d) The Company was listed in Directors Guild of America - Producer Pension Plan’s Form 5500 as providing more than 5% of total contributions for the plan year ended December 2018.
(e) The expiration dates range from May 15, 20182021 through June 30, 2020.March 2, 2022.
As a result of the above noted zone status there were no funding improvements or rehabilitation plans implemented, as defined by ERISA, nor any surcharges imposed for any of the individual plans listed.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
We recognize the net periodic cost for multiemployer pension and postretirement benefit plans based on the required contributions to the plans.
Defined Contribution Plans
16) REDEEMABLE NONCONTROLLING INTEREST
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 2015, respectively.is classified as “Redeemable noncontrolling interest” in the Consolidated Balance Sheets. The activity reflected within redeemable noncontrolling interest for the years ended December 31, 2019, 2018 and 2017 is presented below.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Beginning balance | $ | 239 | $ | 249 | $ | 200 | |||||
| Net earnings | 14 | 18 | 17 | ||||||||
| Distributions | (16 | ) | (15 | ) | (16 | ) | |||||
| Translation adjustment | 8 | (14 | ) | 21 | |||||||
| Redemption value adjustment | 9 | 1 | 27 | ||||||||
| Ending balance | $ | 254 | $ | 239 | $ | 249 | |||||
17) SEGMENT AND REVENUE INFORMATION
The following tables set forth our financial performance 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.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Revenues: | |||||||||||
| Advertising | $ | 6,008 | $ | 5,751 | $ | 5,696 | |||||
| Affiliate | 2,550 | 2,082 | 1,674 | ||||||||
| Content licensing | 3,157 | 3,006 | 2,880 | ||||||||
| Other | 209 | 222 | 226 | ||||||||
| TV Entertainment | 11,924 | 11,061 | 10,476 | ||||||||
| Advertising | 5,129 | 5,130 | 4,947 | ||||||||
| Affiliate | 6,052 | 6,294 | 6,479 | ||||||||
| Content licensing | 1,268 | 1,259 | 1,053 | ||||||||
| Cable Networks | 12,449 | 12,683 | 12,479 | ||||||||
| Theatrical | 547 | 744 | 716 | ||||||||
| Home Entertainment | 623 | 617 | 789 | ||||||||
| Licensing | 1,709 | 1,493 | 1,468 | ||||||||
| Other | 111 | 102 | 102 | ||||||||
| Filmed Entertainment | 2,990 | 2,956 | 3,075 | ||||||||
| Publishing | 814 | 825 | 830 | ||||||||
| Corporate/Eliminations | (365 | ) | (275 | ) | (325 | ) | |||||
| Total Revenues | $ | 27,812 | $ | 27,250 | $ | 26,535 | |||||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Intercompany Revenues: | |||||||||||
| TV Entertainment | $ | 226 | $ | 164 | $ | 189 | |||||
| Cable Networks | 53 | 47 | 70 | ||||||||
| Filmed Entertainment | 117 | 95 | 89 | ||||||||
| Total Intercompany Revenues | $ | 396 | $ | 306 | $ | 348 | |||||
We present operating income (loss) excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters, programming charges and gain on sale of assets, 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. We began presenting Adjusted OIBDA as our segment profit measure in the fourth quarter of 2019 in order to align with the primary method used by our management beginning after the Merger to evaluate segment performance and to make decisions regarding the allocation of resources to our segments. We believe the presentation of Adjusted OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by our management and enhances their ability to understand our operating performance. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Adjusted OIBDA: | |||||||||||
| TV Entertainment | $ | 2,443 | $ | 2,466 | $ | 2,301 | |||||
| Cable Networks | 3,515 | 4,341 | 4,442 | ||||||||
| Filmed Entertainment | 80 | (33 | ) | (187 | ) | ||||||
| Publishing | 143 | 153 | 146 | ||||||||
| Corporate/Eliminations | (449 | ) | (433 | ) | (442 | ) | |||||
| Stock-based compensation | (201 | ) | (205 | ) | (220 | ) | |||||
| Depreciation and amortization | (443 | ) | (433 | ) | (443 | ) | |||||
| Restructuring and other corporate matters | (775 | ) | (490 | ) | (258 | ) | |||||
| Programming charges | (589 | ) | (162 | ) | (144 | ) | |||||
| Gain on sale of assets | 549 | — | 146 | ||||||||
| Operating income | 4,273 | 5,204 | 5,341 | ||||||||
| Interest expense | (962 | ) | (1,030 | ) | (1,088 | ) | |||||
| Interest income | 66 | 79 | 87 | ||||||||
| Gain (loss) on marketable securities | 113 | (23 | ) | — | |||||||
| Gain (loss) on early extinguishment of debt | — | 18 | (38 | ) | |||||||
| Gain on sale of EPIX | — | — | 285 | ||||||||
| Pension settlement charge | — | — | (352 | ) | |||||||
| Other items, net | (145 | ) | (124 | ) | (115 | ) | |||||
Earnings from continuing operations before income taxes and equity in earnings (loss) of investee companies | 3,345 | 4,124 | 4,120 | ||||||||
| Benefit (provision) for income taxes | 9 | (617 | ) | (804 | ) | ||||||
| Equity in earnings (loss) of investee companies, net of tax | (53 | ) | (47 | ) | 4 | ||||||
| Net earnings from continuing operations | 3,301 | 3,460 | 3,320 | ||||||||
| Net earnings (loss) from discontinued operations, net of tax | 38 | 32 | (947 | ) | |||||||
| Net earnings (ViacomCBS and noncontrolling interests) | 3,339 | 3,492 | 2,373 | ||||||||
| Net earnings attributable to noncontrolling interests | (31 | ) | (37 | ) | (52 | ) | |||||
| Net earnings attributable to ViacomCBS | $ | 3,308 | $ | 3,455 | $ | 2,321 | |||||
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Depreciation and Amortization: | |||||||||||
| TV Entertainment | $ | 150 | $ | 160 | $ | 163 | |||||
| Cable Networks | 219 | 194 | 193 | ||||||||
| Filmed Entertainment | 37 | 38 | 42 | ||||||||
| Publishing | 5 | 6 | 6 | ||||||||
| Corporate | 32 | 35 | 39 | ||||||||
| Total Depreciation and Amortization | $ | 443 | $ | 433 | $ | 443 | |||||
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Capital Expenditures: | |||||||||||
| TV Entertainment | $ | 113 | $ | 112 | $ | 134 | |||||
| Cable Networks | 166 | 156 | 156 | ||||||||
| Filmed Entertainment | 43 | 52 | 27 | ||||||||
| Publishing | 8 | 7 | 5 | ||||||||
| Corporate | 23 | 25 | 34 | ||||||||
| Total Capital Expenditures | $ | 353 | $ | 352 | $ | 356 | |||||
| At December 31, | 2019 | 2018 | |||||
| Assets: | |||||||
TV Entertainment (a) | $ | 19,689 | $ | 17,378 | |||
Cable Networks (b) | 22,109 | 20,334 | |||||
| Filmed Entertainment | 5,477 | 5,393 | |||||
| Publishing | 1,262 | 1,054 | |||||
| Corporate/Eliminations | 967 | 326 | |||||
| Discontinued Operations | 15 | 12 | |||||
| Total Assets | $ | 49,519 | $ | 44,497 | |||
(a) Includes assets held for sale of $33 million at December 31, 2018.
(b) Includes assets held for sale of $23 million at December 31, 2019 and 2018.
The following table presents our revenues disaggregated into categories based on the nature of such revenues.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Revenues by Type: | |||||||||||
| Advertising | $ | 11,074 | $ | 10,841 | $ | 10,582 | |||||
| Affiliate | 8,602 | 8,376 | 8,153 | ||||||||
| Content licensing | 6,483 | 6,163 | 5,947 | ||||||||
| Theatrical | 547 | 744 | 716 | ||||||||
| Publishing | 814 | 825 | 830 | ||||||||
| Other | 292 | 301 | 307 | ||||||||
| Total Revenues | $ | 27,812 | $ | 27,250 | $ | 26,535 | |||||
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
Revenues: (a) | |||||||||||
| United States | $ | 22,160 | $ | 21,160 | $ | 20,652 | |||||
| International | 5,652 | 6,090 | 5,883 | ||||||||
| Total Revenues | $ | 27,812 | $ | 27,250 | $ | 26,535 | |||||
(a) Revenue classifications are based on customers’ locations.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| At December 31, | 2019 | 2018 | |||||
Long-lived Assets: (a) | |||||||
| United States | $ | 12,417 | $ | 9,322 | |||
| International | 498 | 300 | |||||
| Total Long-lived Assets | $ | 12,915 | $ | 9,622 | |||
(a) Reflects total assets less current assets, investments, goodwill, intangible assets, noncurrent receivables and noncurrent deferred tax assets.
Transactions within the Company between the United States and international regions were not significant.
18) DISCONTINUED OPERATIONS
On November 16, 2017, we completed the split-off of CBS Radio through an exchange offer, in which we accepted 17.9 million shares of CBS Class B Common Stock from CBS stockholders in exchange for the 101.4 million shares of CBS Radio common stock that we owned. Immediately following the exchange offer, each share of CBS Radio common stock was converted into one share of Entercom Communications Corp. (“Entercom”) Class A common stock upon completion of the merger of CBS Radio and Entercom. CBS Radio has been presented as a discontinued operation in the consolidated financial statements for all periods presented.
The following table sets forth details of net earnings (loss) from discontinued operations for the year ended December 31, 2017. Net earnings from discontinued operations for the years ended December 31, 2019 and 2018 were not material to our consolidated financial statements.
| Year Ended December 31, 2017 | CBS Radio | Other | Total | ||||||||||
| Revenues | $ | 1,018 | $ | — | $ | 1,018 | |||||||
| Costs and expenses: | |||||||||||||
| Operating | 364 | — | 364 | ||||||||||
| Selling, general and administrative | 444 | (8 | ) | 436 | |||||||||
| Market value adjustment | 980 | (a) | — | 980 | |||||||||
| Restructuring charges | 7 | — | 7 | ||||||||||
| Total costs and expenses | 1,795 | (8 | ) | 1,787 | |||||||||
| Operating income (loss) | (777 | ) | 8 | (769 | ) | ||||||||
| Interest expense | (70 | ) | — | (70 | ) | ||||||||
| Other items, net | (2 | ) | — | (2 | ) | ||||||||
| Earnings (loss) from discontinued operations | (849 | ) | 8 | (841 | ) | ||||||||
| Income tax benefit (provision) | (55 | ) | 43 | (b) | (12 | ) | |||||||
| Earnings (loss) from discontinued operations, net of tax | (904 | ) | 51 | (853 | ) | ||||||||
| Net gain (loss) on disposal | (109 | ) | 13 | (96 | ) | ||||||||
| Income tax benefit (provision) | 4 | (2 | ) | 2 | |||||||||
| Net gain (loss) on disposal, net of tax | (105 | ) | 11 | (c) | (94 | ) | |||||||
| Net earnings (loss) from discontinued operations, net of tax | $ | (1,009 | ) | $ | 62 | $ | (947 | ) | |||||
(a) During 2017, prior to the split-off, CBS Radio was measured each reporting period at the lower of its carrying amount or fair value less cost to sell. The value of the transaction with Entercom was determined based on Entercom’s stock price at the closing of the transaction and therefore, we recorded a market value adjustment of $980 million in 2017 to adjust the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom.
(b) Primarily reflects a tax benefit from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business that was accounted for as a discontinued operation.
(c) Reflects adjustments to the loss on disposal of our outdoor advertising businesses, primarily from a decrease to the guarantee liability associated with the 2013 disposal of our outdoor advertising business in Europe.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
19) COMMITMENTS AND CONTINGENCIES
Our commitments not recorded on the balance sheet primarily consist of programming and talent commitments operating lease arrangements and purchase obligations for goods and services resulting from the Company’sour normal course of business.
Other long-term contractual obligations recorded on the Company’s Consolidated Balance Sheet include program liabilities;liabilities, participations due to producers; residuals;producers, residuals, and a tax liability resulting from the enactment of the Tax Reform Act in December 2017. This tax liability reflects the estimatedremaining tax on the Company’s historical accumulated foreign earnings and profits, which is payable to the IRS over eight years.in 2024 and 2025.
At December 31, 2017,2019, commitments for programming and talent and purchase obligations not recorded on the balance sheet, and other long-term contractual obligations recorded on the balance sheet were payable as follows:
| Payments Due by Period | |||||||||||||||||||||||||||
| 2025 and | |||||||||||||||||||||||||||
| Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | |||||||||||||||||||||
| Off-Balance Sheet Arrangements | |||||||||||||||||||||||||||
| Programming and talent commitments | $ | 10,355 | $ | 3,003 | $ | 2,980 | $ | 2,370 | $ | 744 | $ | 415 | $ | 843 | |||||||||||||
| Purchase obligations | $ | 1,517 | $ | 609 | $ | 558 | $ | 186 | $ | 45 | $ | 37 | $ | 82 | |||||||||||||
| On-Balance Sheet Arrangements | |||||||||||||||||||||||||||
| Other long-term contractual obligations | $ | 2,076 | $ | — | $ | 988 | $ | 491 | $ | 232 | $ | 180 | $ | 185 | |||||||||||||
| Programming and Talent | Purchase Obligations | Other Long-Term Contractual Obligations | |||||||||||
| 2018 | $ | 2,281 | $ | 218 | $ | — | |||||||
| 2019 | 2,310 | 226 | 661 | ||||||||||
| 2020 | 1,753 | 197 | 420 | ||||||||||
| 2021 | 1,692 | 56 | 256 | ||||||||||
| 2022 | 1,584 | 22 | 169 | ||||||||||
| 2023 and thereafter | 794 | 71 | 328 | ||||||||||
| Total | $ | 10,414 | $ | 790 | $ | 1,834 | |||||||
| Leases | |||||||
| Capital | Operating | ||||||
| 2018 | $ | 19 | $ | 155 | |||
| 2019 | 14 | 129 | |||||
| 2020 | 13 | 111 | |||||
| 2021 | 11 | 104 | |||||
| 2022 | 5 | 96 | |||||
| 2023 and thereafter | — | 527 | |||||
| Total minimum payments | $ | 62 | $ | 1,122 | |||
| Less amounts representing interest | 5 | ||||||
| Present value of minimum payments | $ | 57 | |||||
Guarantees
CBS Television City. During 2019, we completed the sale of CBS Television City. We have 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 December 31, 2019 is a liability of $124 million, reflecting the present value of the estimated amount payable 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. (“Famous Players”). These lease commitments amounted to $86 million as of December 31, 2019, and are presented on the Consolidated Balance Sheets within “Other liabilities”. The amount of lease commitments varies over time depending on expiration or termination of
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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.
In the course of itsour business, the Companywe both providesprovide and receivesreceive indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Companywe 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. The Company recordsWe record a liability for itsour indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
General. On an ongoing basis, the Companywe vigorously defends itselfdefend ourselves in numerous lawsuits and proceedings and respondsrespond to various investigations and inquiries from federal, state, local and international authorities (collectively, ‘‘litigation’“litigation’’). Litigation may be brought against the Companyus without merit, is inherently uncertain and always difficult to predict. However, based on itsour understanding and evaluation of the relevant facts and circumstances, the Company believeswe believe that the below-described legal matters and other litigation to which it iswe are a party are not likely, in the aggregate, to have a material adverse effect on itsour results of operations, financial position or cash flows. Under
Litigation Relating to the Merger. On September 27, 2019, Bucks County Employees Retirement Fund (the “Bucks County Fund”), a purported holder of CBS Class B Common Stock, served us with a demand for inspection of books and records pursuant to 8 Del. C. § 220 in connection with the Merger (the “Demand”). On October 10, 2019, we offered to produce certain categories of documents properly within the scope of a books and records demand under § 220. The Bucks County Fund rejected our offer and filed litigation in the Court of Chancery of the State of Delaware on October 15, 2019, seeking to compel production of all documents requested in the Demand (the “Section 220 Complaint”). A trial on the Section 220 Complaint took place on November 22, 2019, and the Court ordered limited additional production on November 25, 2019. On December 2, 2019, we certified that we had completed production of all relevant documents. On February 20, 2020, the Bucks County Fund filed a putative derivative and class action complaint in the Court of Chancery of the State of Delaware against Shari Redstone, NAI, Sumner M. Redstone National Amusements Trust (“SMR Trust”), 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 ViacomCBS Inc. The complaint alleges breaches of fiduciary duties to CBS stockholders and waste in connection with the negotiation and approval of the Merger Agreement. The complaint seeks unspecified damages, costs and expenses as well as other relief. We believe that the claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
On January 23, 2020, the Court of Chancery of the State of Delaware consolidated 4 putative class action suits filed by purported Viacom stockholders against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the Viacom 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, in In re Viacom Inc. Stockholders Litigation. The four actions allege breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement, and seek unspecified damages, costs and expenses. On February 6, 2020, the Court appointed the California Public Employees’ Retirement System as the lead plaintiff in the consolidated action. We believe that the claims are without merit and we intend to
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Investigation-Related Matters. As announced on August 1, 2018, the CBS Board of Directors (the “CBS Board”) 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 announced the completion of its investigation, certain findings of the investigation and the CBS Board’s determination, discussed below, with respect to the termination of Mr. Moonves’ employment. We have received subpoenas from the New York County District Attorney’s Office and the New York City Commission on Human Rights regarding the subject matter of this investigation and related matters. The New York State Attorney General’s Office and the United States Securities and Exchange Commission have also requested information about these matters, including with respect to CBS’ related public disclosures. We may continue to receive additional related regulatory and investigative inquiries from these and other entities in the future. We are cooperating with these inquiries.
On August 27, 2018 and on October 1, 2018, each of Gene Samit and John Lantz, respectively, filed putative class action suits 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. 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 believe that the remaining claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Separation Agreement. On September 9, 2018, CBS entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of CBS. In October 2018, we contributed $120 million to a grantor trust pursuant to the Separation Agreement betweenAgreement. On December 17, 2018, the CompanyCBS Board announced that, following its consideration of the findings of the investigation referred to above, it had determined that there were grounds to terminate Mr. Moonves’ employment for cause under his employment agreement with CBS. Any dispute related to the CBS Board’s determination is subject to binding arbitration as set forth in the Separation Agreement. On January 16, 2019, Mr. Moonves commenced a binding arbitration proceeding with respect to this matter and Viacom Inc., the Companyrelated CBS Board investigation, which proceeding is ongoing. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. We are currently unable to determine the outcome of the arbitration and Viacom Inc. have agreed to defendthe amount, if any, that may be awarded thereunder and, indemnify the otheraccordingly, no accrual for this matter has been made in certain litigation in which the Company and/or Viacom Inc. is named.our consolidated financial statements.
Claims Related to Former Businesses: Asbestos. The Company isWe 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
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
nor a manufacturer of asbestos. The Company isWe 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 the Company’sour products is the basis of a claim. Claims against the Companyus in which a product has been identified principallymost commonly relate to exposures allegedly caused byallegations of exposure to asbestos-containing insulating material used in conjunction with turbines sold for power-generation, industrial and marine use.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. The Company doesWe do not report as pending those claims on inactive, stayed, deferred or similar dockets whichthat some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2017, the Company2019, we had pending approximately 31,66030,950 asbestos claims, as compared with approximately 33,61031,570 as of December 31, 20162018 and 36,03031,660 as of December 31, 2015.2017. During 2017, the Company2019, we received approximately 3,5303,460 new claims and closed or moved to an inactive docket approximately 5,4804,080 claims. The Company reportsWe report claims as closed when it becomeswe become aware that a dismissal order has been entered by a court or when the Company haswe 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. The Company’sOur total costs for the years 20172019 and 20162018 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $57$58 million and $48$45 million, respectively. The Company’sOur 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 Company believespredominant 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 its reservesa liability has been incurred and when the amount of the loss can be reasonably estimated. We believe that our accrual and insurance are adequate to cover itsour asbestos liabilities. This beliefOur liability estimate is based upon many factors, and assumptions, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presents the numbercomponents of asbestos claims filed againstOther items, net on the Company has remained generally flat in recent years, it is difficult to predict future asbestos liabilities, as events and circumstances may occur including, among others, the number and typesConsolidated Statements of claims and average cost to resolve such claims, which could affect the Company’s estimate of its asbestos liabilities.Operations.
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Pension and postretirement benefit costs | $ | (105 | ) | $ | (68 | ) | $ | (96 | ) | ||
| Foreign exchange losses | (17 | ) | (18 | ) | (20 | ) | |||||
| Impairment of investments | (50 | ) | (46 | ) | (18 | ) | |||||
| Gains from investments | 22 | 16 | — | ||||||||
| Other | 5 | (8 | ) | 19 | |||||||
| Other items, net | $ | (145 | ) | $ | (124 | ) | $ | (115 | ) | ||
Supplemental Cash Flow Information
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Cash paid for interest: | |||||||||||
| Continuing operations | $ | 922 | $ | 1,012 | $ | 1,056 | |||||
| Discontinued operations | — | — | 70 | ||||||||
| Total | $ | 922 | $ | 1,012 | $ | 1,126 | |||||
| Year Ended December 31, | 2019 | 2018 | 2017 | ||||||||
| Cash paid (refunded) for income taxes: | |||||||||||
| Continuing operations | $ | 598 | $ | 161 | $ | 827 | |||||
| Discontinued operations | — | (4 | ) | 26 | |||||||
| Total | $ | 598 | $ | 157 | $ | 853 | |||||
In addition, during 2017 we received shares with a total value of $1.01 billion upon the Company from time to time receives personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operationssplit-off of the Company and its predecessors.CBS Radio in a noncash disposition (see Note 18).
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Revenues: | |||||||||||
| Entertainment | $ | 9,164 | $ | 8,877 | $ | 8,438 | |||||
| Cable Networks | 2,501 | 2,160 | 2,242 | ||||||||
| Publishing | 830 | 767 | 780 | ||||||||
| Local Media | 1,668 | 1,779 | 1,592 | ||||||||
| Corporate/Eliminations | (471 | ) | (417 | ) | (381 | ) | |||||
| Total Revenues | $ | 13,692 | $ | 13,166 | $ | 12,671 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Intercompany Revenues: | |||||||||||
| Entertainment | $ | 480 | $ | 434 | $ | 384 | |||||
| Cable Networks | 1 | 1 | — | ||||||||
| Local Media | 13 | 8 | 9 | ||||||||
| Total Intercompany Revenues | $ | 494 | $ | 443 | $ | 393 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Segment Operating Income (Loss): | |||||||||||
| Entertainment | $ | 1,554 | $ | 1,519 | $ | 1,294 | |||||
| Cable Networks | 996 | 959 | 945 | ||||||||
| Publishing | 132 | 119 | 114 | ||||||||
| Local Media | 492 | 618 | 487 | ||||||||
| Corporate | (355 | ) | (354 | ) | (276 | ) | |||||
| Total Segment Operating Income | 2,819 | 2,861 | 2,564 | ||||||||
| Pension settlement charges | (352 | ) | (211 | ) | — | ||||||
| Restructuring and merger and acquisition-related costs | (63 | ) | (38 | ) | (45 | ) | |||||
| Other operating items, net | 19 | 9 | 139 | ||||||||
| Operating income | 2,423 | 2,621 | 2,658 | ||||||||
| Interest expense | (457 | ) | (411 | ) | (392 | ) | |||||
| Interest income | 64 | 32 | 24 | ||||||||
| Loss on early extinguishment of debt | (49 | ) | — | — | |||||||
| Other items, net | (2 | ) | (12 | ) | (26 | ) | |||||
Earnings from continuing operations before income taxes and equity in loss of investee companies | 1,979 | 2,230 | 2,264 | ||||||||
| Provision for income taxes | (633 | ) | (628 | ) | (676 | ) | |||||
| Equity in loss of investee companies, net of tax | (37 | ) | (50 | ) | (34 | ) | |||||
| Net earnings from continuing operations | 1,309 | 1,552 | 1,554 | ||||||||
| Net loss from discontinued operations, net of tax | (952 | ) | (291 | ) | (141 | ) | |||||
| Net earnings | $ | 357 | $ | 1,261 | $ | 1,413 | |||||
| First | Second | Third | Fourth | ||||||||||||||||
2019 (a) (b) | Quarter (c) | Quarter | Quarter | Quarter (d) | Total Year | ||||||||||||||
| Revenues | $ | 7,100 | $ | 7,143 | $ | 6,698 | $ | 6,871 | $ | 27,812 | |||||||||
| Operating income (loss) | $ | 1,804 | $ | 1,446 | $ | 1,036 | $ | (13 | ) | $ | 4,273 | ||||||||
Net earnings (loss) from continuing operations (ViacomCBS and noncontrolling interests) | $ | 1,951 | $ | 977 | $ | 642 | $ | (269 | ) | $ | 3,301 | ||||||||
Net earnings (loss) (ViacomCBS and noncontrolling interests) | $ | 1,964 | $ | 983 | $ | 646 | $ | (254 | ) | $ | 3,339 | ||||||||
Net earnings (loss) from continuing operations attributable to ViacomCBS | $ | 1,946 | $ | 971 | $ | 626 | $ | (273 | ) | $ | 3,270 | ||||||||
| Net earnings (loss) attributable to ViacomCBS | $ | 1,959 | $ | 977 | $ | 630 | $ | (258 | ) | $ | 3,308 | ||||||||
| Basic net earnings (loss) per common share: | |||||||||||||||||||
Net earnings (loss) from continuing operations attributable to ViacomCBS | $ | 3.17 | $ | 1.58 | $ | 1.02 | $ | (.44 | ) | $ | 5.32 | ||||||||
| Net earnings (loss) attributable to ViacomCBS | $ | 3.20 | $ | 1.59 | $ | 1.02 | $ | (.42 | ) | $ | 5.38 | ||||||||
| Diluted net earnings (loss) per common share: | |||||||||||||||||||
Net earnings (loss) from continuing operations attributable to ViacomCBS | $ | 3.15 | $ | 1.57 | $ | 1.01 | $ | (.44 | ) | $ | 5.30 | ||||||||
| Net earnings (loss) attributable to ViacomCBS | $ | 3.18 | $ | 1.58 | $ | 1.02 | $ | (.42 | ) | $ | 5.36 | ||||||||
| Weighted average number of common shares | |||||||||||||||||||
| outstanding: | |||||||||||||||||||
| Basic | 613 | 615 | 615 | 615 | 615 | ||||||||||||||
| Diluted | 617 | 617 | 617 | 615 | 617 | ||||||||||||||
(a) On December 4, 2019, Viacom merged with and into CBS, with CBS continuing as the surviving company. At the effective time of the Merger, the combined company changed its name to ViacomCBS Inc. The Merger has been accounted for as a transaction between entities under common control and therefore, the net assets of Viacom were combined with those of CBS at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented.
(b) Includes costs for restructuring and other corporate matters of $178 million in the first quarter, $7 million in the second quarter, $122 million in the third quarter and $468 million in the fourth quarter.
(c) The first quarter includes a gain of $549 million ($386 million, net of tax) on the sale of CBS Television City and a discrete tax benefit of $768 million resulting from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations.
(d) The fourth quarter includes programming charges of $589 million.
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Depreciation and Amortization: | |||||||||||
| Entertainment | $ | 115 | $ | 117 | $ | 126 | |||||
| Cable Networks | 23 | 23 | 23 | ||||||||
| Publishing | 6 | 6 | 6 | ||||||||
| Local Media | 45 | 44 | 48 | ||||||||
| Corporate | 34 | 35 | 32 | ||||||||
| Total Depreciation and Amortization | $ | 223 | $ | 225 | $ | 235 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Stock-based Compensation: | |||||||||||
| Entertainment | $ | 66 | $ | 61 | $ | 61 | |||||
| Cable Networks | 12 | 12 | 11 | ||||||||
| Publishing | 5 | 4 | 4 | ||||||||
| Local Media | 12 | 12 | 11 | ||||||||
| Corporate | 84 | 76 | 70 | ||||||||
| Total Stock-based Compensation | $ | 179 | $ | 165 | $ | 157 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Capital Expenditures: | |||||||||||
| Entertainment | $ | 98 | $ | 98 | $ | 99 | |||||
| Cable Networks | 20 | 19 | 18 | ||||||||
| Publishing | 5 | 9 | 10 | ||||||||
| Local Media | 32 | 37 | 28 | ||||||||
| Corporate | 30 | 33 | 16 | ||||||||
| Total Capital Expenditures | $ | 185 | $ | 196 | $ | 171 | |||||
| At December 31, | 2017 | 2016 | |||||
| Assets: | |||||||
| Entertainment | $ | 12,626 | $ | 11,262 | |||
| Cable Networks | 2,878 | 2,618 | |||||
| Publishing | 906 | 880 | |||||
| Local Media | 4,042 | 4,065 | |||||
| Corporate/Eliminations | 378 | 817 | |||||
| Discontinued operations | 13 | 4,596 | |||||
| Total Assets | $ | 20,843 | $ | 24,238 | |||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Revenues by Type: | |||||||||||
| Advertising | $ | 5,753 | $ | 6,288 | $ | 5,824 | |||||
| Content licensing and distribution | 3,952 | 3,673 | 3,903 | ||||||||
| Affiliate and subscription fees | 3,758 | 2,978 | 2,724 | ||||||||
| Other | 229 | 227 | 220 | ||||||||
| Total Revenues | $ | 13,692 | $ | 13,166 | $ | 12,671 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
Revenues: (a) | |||||||||||
| United States | $ | 11,675 | $ | 11,317 | $ | 10,667 | |||||
| International | 2,017 | 1,849 | 2,004 | ||||||||
| Total Revenues | $ | 13,692 | $ | 13,166 | $ | 12,671 | |||||
| First | Second | Third | Fourth | ||||||||||||||||||
2018 (a) (b) | Quarter | Quarter | Quarter | Quarter (c) | Total Year | ||||||||||||||||
| Revenues | $ | 6,825 | $ | 6,703 | $ | 6,630 | $ | 7,092 | $ | 27,250 | |||||||||||
| Operating income | $ | 1,190 | $ | 1,448 | $ | 1,307 | $ | 1,259 | $ | 5,204 | |||||||||||
Net earnings from continuing operations (ViacomCBS and noncontrolling interests) | $ | 726 | $ | 946 | $ | 891 | $ | 897 | $ | 3,460 | |||||||||||
Net earnings (ViacomCBS and noncontrolling interests) | $ | 736 | $ | 957 | $ | 899 | $ | 900 | $ | 3,492 | |||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 718 | $ | 943 | $ | 878 | $ | 884 | $ | 3,423 | |||||||||||
| Net earnings attributable to ViacomCBS | $ | 728 | $ | 954 | $ | 886 | $ | 887 | $ | 3,455 | |||||||||||
| Basic net earnings per common share: | |||||||||||||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 1.15 | $ | 1.53 | $ | 1.43 | $ | 1.44 | $ | 5.55 | |||||||||||
| Net earnings attributable to ViacomCBS | $ | 1.17 | $ | 1.54 | $ | 1.44 | $ | 1.44 | $ | 5.60 | |||||||||||
| Diluted net earnings per common share: | |||||||||||||||||||||
Net earnings from continuing operations attributable to ViacomCBS | $ | 1.15 | $ | 1.52 | $ | 1.42 | $ | 1.43 | $ | 5.51 | |||||||||||
| Net earnings attributable to ViacomCBS | $ | 1.16 | $ | 1.54 | $ | 1.43 | $ | 1.44 | $ | 5.56 | |||||||||||
| Weighted average number of common shares | |||||||||||||||||||||
| outstanding: | |||||||||||||||||||||
| Basic | 622 | 618 | 615 | 614 | 617 | ||||||||||||||||
| Diluted | 626 | 621 | 619 | 618 | 621 | ||||||||||||||||
(a) Revenue classifications are based on customers’ locations.
| At December 31, | 2017 | 2016 | |||||
Long-lived Assets: (a) | |||||||
| United States | $ | 13,699 | $ | 17,476 | |||
| International | 495 | 407 | |||||
| Total Long-lived Assets | $ | 14,194 | $ | 17,883 | |||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Cash paid for interest: | |||||||||||
| Continuing operations | $ | 448 | $ | 407 | $ | 349 | |||||
| Discontinued operations | 70 | 8 | — | ||||||||
| Total | $ | 518 | $ | 415 | $ | 349 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Cash paid for income taxes: | |||||||||||
| Continuing operations | $ | 365 | $ | 373 | $ | 199 | |||||
| Discontinued operations | 26 | 119 | 84 | ||||||||
| Total | $ | 391 | $ | 492 | $ | 283 | |||||
| Year Ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Noncash investing and financing activities: | |||||||||||
| Shares received in split-off of CBS Radio (Note 4) | $ | 1,007 | $ | — | $ | — | |||||
| Noncash additions to property and equipment | $ | 31 | $ | — | $ | — | |||||
| Equipment acquired under capitalized leases | $ | 5 | $ | 10 | $ | 3 | |||||
| First | Second | Third | Fourth | ||||||||||||||||
| 2017 | Quarter | Quarter | Quarter | Quarter (b) (c) | Total Year | ||||||||||||||
| Revenues: | |||||||||||||||||||
| Entertainment | $ | 2,347 | $ | 2,184 | $ | 1,815 | $ | 2,818 | $ | 9,164 | |||||||||
| Cable Networks | 543 | 571 | 840 | 547 | 2,501 | ||||||||||||||
| Publishing | 161 | 206 | 228 | 235 | 830 | ||||||||||||||
| Local Media | 409 | 412 | 397 | 450 | 1,668 | ||||||||||||||
| Corporate/Eliminations | (117 | ) | (116 | ) | (109 | ) | (129 | ) | (471 | ) | |||||||||
| Total Revenues | $ | 3,343 | $ | 3,257 | $ | 3,171 | $ | 3,921 | $ | 13,692 | |||||||||
| Segment Operating Income (Loss): | |||||||||||||||||||
| Entertainment | $ | 398 | $ | 346 | $ | 345 | $ | 465 | $ | 1,554 | |||||||||
| Cable Networks | 248 | 253 | 294 | 201 | 996 | ||||||||||||||
| Publishing | 14 | 28 | 46 | 44 | 132 | ||||||||||||||
| Local Media | 123 | 127 | 105 | 137 | 492 | ||||||||||||||
| Corporate | (79 | ) | (85 | ) | (83 | ) | (108 | ) | (355 | ) | |||||||||
| Total Segment Operating Income | 704 | 669 | 707 | 739 | 2,819 | ||||||||||||||
| Pension settlement charge | — | — | — | (352 | ) | (352 | ) | ||||||||||||
| Restructuring charges | — | — | — | (63 | ) | (63 | ) | ||||||||||||
| Other operating items, net | — | — | — | 19 | 19 | ||||||||||||||
| Total Operating Income | $ | 704 | $ | 669 | $ | 707 | $ | 343 | $ | 2,423 | |||||||||
| Net earnings from continuing operations | $ | 454 | $ | 397 | $ | 418 | $ | 40 | $ | 1,309 | |||||||||
Net earnings (loss) (a) | $ | (252 | ) | $ | 58 | $ | 592 | $ | (41 | ) | $ | 357 | |||||||
| Basic net earnings per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | 1.11 | $ | .98 | $ | 1.04 | $ | .10 | $ | 3.26 | |||||||||
| Net earnings (loss) | $ | (.61 | ) | $ | .14 | $ | 1.48 | $ | (.10 | ) | $ | .89 | |||||||
| Diluted net earnings per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | 1.09 | $ | .97 | $ | 1.03 | $ | .10 | $ | 3.22 | |||||||||
| Net earnings (loss) | $ | (.61 | ) | $ | .14 | $ | 1.46 | $ | (.10 | ) | $ | .88 | |||||||
| Weighted average number of common shares | |||||||||||||||||||
| outstanding: | |||||||||||||||||||
| Basic | 410 | 405 | 401 | 391 | 401 | ||||||||||||||
| Diluted | 416 | 410 | 406 | 395 | 407 | ||||||||||||||
| Dividends per common share | $ | .18 | $ | .18 | $ | .18 | $ | .18 | $ | .72 | |||||||||
| First | Second | Third | Fourth | ||||||||||||||||
2016 (a) | Quarter | Quarter | Quarter | Quarter (b) (c) | Total Year | ||||||||||||||
| Revenues: | |||||||||||||||||||
| Entertainment | $ | 2,587 | $ | 1,947 | $ | 1,949 | $ | 2,394 | $ | 8,877 | |||||||||
| Cable Networks | 525 | 536 | 598 | 501 | 2,160 | ||||||||||||||
| Publishing | 145 | 187 | 226 | 209 | 767 | ||||||||||||||
| Local Media | 448 | 396 | 409 | 526 | 1,779 | ||||||||||||||
| Corporate/Eliminations | (117 | ) | (90 | ) | (98 | ) | (112 | ) | (417 | ) | |||||||||
| Total Revenues | $ | 3,588 | $ | 2,976 | $ | 3,084 | $ | 3,518 | $ | 13,166 | |||||||||
| Segment Operating Income (Loss): | |||||||||||||||||||
| Entertainment | $ | 449 | $ | 351 | $ | 348 | $ | 371 | $ | 1,519 | |||||||||
| Cable Networks | 228 | 227 | 285 | 219 | 959 | ||||||||||||||
| Publishing | 13 | 26 | 44 | 36 | 119 | ||||||||||||||
| Local Media | 150 | 130 | 122 | 216 | 618 | ||||||||||||||
| Corporate | (84 | ) | (83 | ) | (78 | ) | (109 | ) | (354 | ) | |||||||||
| Total Segment Operating Income | 756 | 651 | 721 | 733 | 2,861 | ||||||||||||||
| Pension settlement charge | — | — | — | (211 | ) | (211 | ) | ||||||||||||
Restructuring and merger and acquisition-related costs | — | — | — | (38 | ) | (38 | ) | ||||||||||||
| Other operating items, net | 9 | — | — | — | 9 | ||||||||||||||
| Total Operating Income | $ | 765 | $ | 651 | $ | 721 | $ | 484 | $ | 2,621 | |||||||||
| Net earnings from continuing operations | $ | 442 | $ | 373 | $ | 466 | $ | 271 | $ | 1,552 | |||||||||
| Net earnings (loss) | $ | 473 | $ | 423 | $ | 478 | $ | (113 | ) | $ | 1,261 | ||||||||
| Basic net earnings per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | .96 | $ | .83 | $ | 1.05 | $ | .64 | $ | 3.50 | |||||||||
| Net earnings (loss) | $ | 1.03 | $ | .94 | $ | 1.08 | $ | (.27 | ) | $ | 2.84 | ||||||||
| Diluted net earnings per common share: | |||||||||||||||||||
| Net earnings from continuing operations | $ | .95 | $ | .82 | $ | 1.04 | $ | .63 | $ | 3.46 | |||||||||
| Net earnings (loss) | $ | 1.02 | $ | .93 | $ | 1.07 | $ | (.26 | ) | $ | 2.81 | ||||||||
| Weighted average number of common shares | |||||||||||||||||||
| outstanding: | |||||||||||||||||||
| Basic | 459 | 451 | 442 | 424 | 444 | ||||||||||||||
| Diluted | 464 | 455 | 446 | 429 | 448 | ||||||||||||||
| Dividends per common share | $ | .15 | $ | .15 | $ | .18 | $ | .18 | $ | .66 | |||||||||
(b) InIncludes costs for restructuring and other corporate matters of $194 million in the first quarter, $50 million in the second quarter, $70 million in the third quarter and $176 million in the fourth quarter.
(c) The fourth quarter includes programming charges of 2016,$162 million and the Company recordedreversal of a noncash impairment chargevaluation allowance of $444$140 million relating to reducecapital loss carryforwards that were utilized in connection with the carrying valuesale of CBS Radio’s goodwill and FCC licenses to their fair value. This charge has been presentedTelevision City in discontinued operations (See Note 4).2019.
| Statement of Operations | |||||||||||||||||||
| For the Year Ended December 31, 2017 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Revenues | $ | 172 | $ | 10 | $ | 13,510 | $ | — | $ | 13,692 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating | 95 | 6 | 8,337 | — | 8,438 | ||||||||||||||
| Selling, general and administrative | 87 | 286 | 1,839 | — | 2,212 | ||||||||||||||
| Depreciation and amortization | 5 | 23 | 195 | — | 223 | ||||||||||||||
| Pension settlement charge | 352 | — | — | — | 352 | ||||||||||||||
| Restructuring charges | — | 2 | 61 | — | 63 | ||||||||||||||
| Other operating items, net | — | — | (19 | ) | — | (19 | ) | ||||||||||||
| Total costs and expenses | 539 | 317 | 10,413 | — | 11,269 | ||||||||||||||
| Operating income (loss) | (367 | ) | (307 | ) | 3,097 | — | 2,423 | ||||||||||||
| Interest (expense) income, net | (509 | ) | (486 | ) | 602 | — | (393 | ) | |||||||||||
| Loss on early extinguishment of debt | (49 | ) | — | — | — | (49 | ) | ||||||||||||
| Other items, net | 1 | (42 | ) | 39 | — | (2 | ) | ||||||||||||
| Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies | (924 | ) | (835 | ) | 3,738 | — | 1,979 | ||||||||||||
| Benefit (provision) for income taxes | 266 | 240 | (1,139 | ) | — | (633 | ) | ||||||||||||
Equity in earnings (loss) of investee companies, net of tax | 1,014 | 1,374 | (37 | ) | (2,388 | ) | (37 | ) | |||||||||||
| Net earnings from continuing operations | 356 | 779 | 2,562 | (2,388 | ) | 1,309 | |||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | 1 | (5 | ) | (948 | ) | — | (952 | ) | |||||||||||
| Net earnings | $ | 357 | $ | 774 | $ | 1,614 | $ | (2,388 | ) | $ | 357 | ||||||||
| Total comprehensive income | $ | 462 | $ | 763 | $ | 1,640 | $ | (2,403 | ) | $ | 462 | ||||||||
| Statement of Operations | |||||||||||||||||||
| For the Year Ended December 31, 2016 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Revenues | $ | 181 | $ | 12 | $ | 12,973 | $ | — | $ | 13,166 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating | 67 | 6 | 7,883 | — | 7,956 | ||||||||||||||
| Selling, general and administrative | 80 | 297 | 1,747 | — | 2,124 | ||||||||||||||
| Depreciation and amortization | 5 | 23 | 197 | — | 225 | ||||||||||||||
| Pension settlement charge | 211 | — | — | — | 211 | ||||||||||||||
| Restructuring and merger and acquisition-related costs | — | 2 | 36 | — | 38 | ||||||||||||||
| Other operating items, net | — | — | (9 | ) | — | (9 | ) | ||||||||||||
| Total costs and expenses | 363 | 328 | 9,854 | — | 10,545 | ||||||||||||||
| Operating income (loss) | (182 | ) | (316 | ) | 3,119 | — | 2,621 | ||||||||||||
| Interest (expense) income, net | (502 | ) | (433 | ) | 556 | — | (379 | ) | |||||||||||
| Other items, net | (3 | ) | 19 | (28 | ) | — | (12 | ) | |||||||||||
| Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies | (687 | ) | (730 | ) | 3,647 | — | 2,230 | ||||||||||||
| Benefit (provision) for income taxes | 212 | 224 | (1,064 | ) | — | (628 | ) | ||||||||||||
Equity in earnings (loss) of investee companies, net of tax | 1,736 | 1,077 | (50 | ) | (2,813 | ) | (50 | ) | |||||||||||
| Net earnings from continuing operations | 1,261 | 571 | 2,533 | (2,813 | ) | 1,552 | |||||||||||||
| Net loss from discontinued operations, net of tax | — | (1 | ) | (290 | ) | — | (291 | ) | |||||||||||
| Net earnings | $ | 1,261 | $ | 570 | $ | 2,243 | $ | (2,813 | ) | $ | 1,261 | ||||||||
| Total comprehensive income | $ | 1,264 | $ | 595 | $ | 2,212 | $ | (2,807 | ) | $ | 1,264 | ||||||||
| Statement of Operations | |||||||||||||||||||
| For the Year Ended December 31, 2015 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Revenues | $ | 148 | $ | 11 | $ | 12,512 | $ | — | $ | 12,671 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating | 65 | 5 | 7,841 | — | 7,911 | ||||||||||||||
| Selling, general and administrative | 46 | 243 | 1,672 | — | 1,961 | ||||||||||||||
| Depreciation and amortization | 6 | 20 | 209 | — | 235 | ||||||||||||||
| Restructuring charges | — | — | 45 | — | 45 | ||||||||||||||
| Other operating items, net | (117 | ) | — | (22 | ) | — | (139 | ) | |||||||||||
| Total costs and expenses | — | 268 | 9,745 | — | 10,013 | ||||||||||||||
| Operating income (loss) | 148 | (257 | ) | 2,767 | — | 2,658 | |||||||||||||
| Interest (expense) income, net | (486 | ) | (403 | ) | 521 | — | (368 | ) | |||||||||||
| Other items, net | (3 | ) | 9 | (32 | ) | — | (26 | ) | |||||||||||
| Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies | (341 | ) | (651 | ) | 3,256 | — | 2,264 | ||||||||||||
| Benefit (provision) for income taxes | 160 | 215 | (1,051 | ) | — | (676 | ) | ||||||||||||
Equity in earnings (loss) of investee companies, net of tax | 1,593 | 1,090 | (34 | ) | (2,683 | ) | (34 | ) | |||||||||||
| Net earnings from continuing operations | 1,412 | 654 | 2,171 | (2,683 | ) | 1,554 | |||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | 1 | (1 | ) | (141 | ) | — | (141 | ) | |||||||||||
| Net earnings | $ | 1,413 | $ | 653 | $ | 2,030 | $ | (2,683 | ) | $ | 1,413 | ||||||||
| Total comprehensive income | $ | 1,378 | $ | 660 | $ | 2,030 | $ | (2,690 | ) | $ | 1,378 | ||||||||
| Balance Sheet | |||||||||||||||||||
| At December 31, 2017 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 173 | $ | — | $ | 112 | $ | — | $ | 285 | |||||||||
| Receivables, net | 29 | 2 | 3,666 | — | 3,697 | ||||||||||||||
| Programming and other inventory | 3 | 3 | 1,822 | — | 1,828 | ||||||||||||||
| Prepaid expenses and other current assets | 130 | 28 | 340 | (36 | ) | 462 | |||||||||||||
| Current assets of discontinued operations | — | — | 1 | — | 1 | ||||||||||||||
| Total current assets | 335 | 33 | 5,941 | (36 | ) | 6,273 | |||||||||||||
| Property and equipment | 49 | 217 | 2,785 | — | 3,051 | ||||||||||||||
| Less accumulated depreciation and amortization | 27 | 163 | 1,581 | — | 1,771 | ||||||||||||||
| Net property and equipment | 22 | 54 | 1,204 | — | 1,280 | ||||||||||||||
| Programming and other inventory | 3 | 4 | 2,874 | — | 2,881 | ||||||||||||||
| Goodwill | 98 | 62 | 4,731 | — | 4,891 | ||||||||||||||
| Intangible assets | — | — | 2,666 | — | 2,666 | ||||||||||||||
| Investments in consolidated subsidiaries | 45,504 | 15,225 | — | (60,729 | ) | — | |||||||||||||
| Other assets | 162 | 5 | 2,673 | — | 2,840 | ||||||||||||||
| Intercompany | — | 1,221 | 29,562 | (30,783 | ) | — | |||||||||||||
| Assets of discontinued operations | — | — | 12 | — | 12 | ||||||||||||||
| Total Assets | $ | 46,124 | $ | 16,604 | $ | 49,663 | $ | (91,548 | ) | $ | 20,843 | ||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||
| Accounts payable | $ | 1 | $ | 30 | $ | 200 | $ | — | $ | 231 | |||||||||
Participants’ share and royalties payable | — | — | 986 | — | 986 | ||||||||||||||
| Program rights | 4 | 4 | 365 | — | 373 | ||||||||||||||
| Commercial paper | 679 | — | — | — | 679 | ||||||||||||||
| Current portion of long-term debt | 2 | — | 17 | — | 19 | ||||||||||||||
| Accrued expenses and other current liabilities | 352 | 264 | 1,072 | (36 | ) | 1,652 | |||||||||||||
| Current liabilities of discontinued operations | — | 5 | 27 | — | 32 | ||||||||||||||
| Total current liabilities | 1,038 | 303 | 2,667 | (36 | ) | 3,972 | |||||||||||||
| Long-term debt | 9,378 | — | 86 | — | 9,464 | ||||||||||||||
| Other liabilities | 2,947 | 234 | 2,206 | — | 5,387 | ||||||||||||||
| Liabilities of discontinued operations | — | — | 42 | — | 42 | ||||||||||||||
| Intercompany | 30,783 | — | — | (30,783 | ) | — | |||||||||||||
| Stockholders’ Equity: | |||||||||||||||||||
| Preferred stock | — | — | 126 | (126 | ) | — | |||||||||||||
| Common stock | 1 | 123 | 590 | (713 | ) | 1 | |||||||||||||
| Additional paid-in capital | 43,797 | — | 60,894 | (60,894 | ) | 43,797 | |||||||||||||
| Retained earnings (deficit) | (18,900 | ) | 16,257 | (12,224 | ) | (4,033 | ) | (18,900 | ) | ||||||||||
| Accumulated other comprehensive income (loss) | (662 | ) | 18 | 76 | (94 | ) | (662 | ) | |||||||||||
| 24,236 | 16,398 | 49,462 | (65,860 | ) | 24,236 | ||||||||||||||
| Less treasury stock, at cost | 22,258 | 331 | 4,800 | (5,131 | ) | 22,258 | |||||||||||||
Total Stockholders’ Equity | 1,978 | 16,067 | 44,662 | (60,729 | ) | 1,978 | |||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 46,124 | $ | 16,604 | $ | 49,663 | $ | (91,548 | ) | $ | 20,843 | ||||||||
| Balance Sheet | |||||||||||||||||||
| At December 31, 2016 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 321 | $ | — | $ | 277 | $ | — | $ | 598 | |||||||||
| Receivables, net | 27 | 2 | 3,285 | — | 3,314 | ||||||||||||||
| Programming and other inventory | 3 | 3 | 1,421 | — | 1,427 | ||||||||||||||
| Prepaid expenses and other current assets | 102 | 55 | 297 | (35 | ) | 419 | |||||||||||||
| Current assets of discontinued operations | — | — | 305 | — | 305 | ||||||||||||||
| Total current assets | 453 | 60 | 5,585 | (35 | ) | 6,063 | |||||||||||||
| Property and equipment | 47 | 201 | 2,687 | — | 2,935 | ||||||||||||||
| Less accumulated depreciation and amortization | 25 | 140 | 1,529 | — | 1,694 | ||||||||||||||
| Net property and equipment | 22 | 61 | 1,158 | — | 1,241 | ||||||||||||||
| Programming and other inventory | 5 | 7 | 2,427 | — | 2,439 | ||||||||||||||
| Goodwill | 98 | 62 | 4,704 | — | 4,864 | ||||||||||||||
| Intangible assets | — | — | 2,633 | — | 2,633 | ||||||||||||||
| Investments in consolidated subsidiaries | 44,473 | 13,853 | — | (58,326 | ) | — | |||||||||||||
| Other assets | 150 | 8 | 2,549 | — | 2,707 | ||||||||||||||
| Intercompany | — | 1,785 | 26,976 | (28,761 | ) | — | |||||||||||||
| Assets of discontinued operations | — | 3 | 4,288 | — | 4,291 | ||||||||||||||
| Total Assets | $ | 45,201 | $ | 15,839 | $ | 50,320 | $ | (87,122 | ) | $ | 24,238 | ||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||
| Accounts payable | $ | 1 | $ | 3 | $ | 144 | $ | — | $ | 148 | |||||||||
| Participants’ share and royalties payable | — | — | 1,024 | — | 1,024 | ||||||||||||||
| Program rights | 4 | 4 | 282 | — | 290 | ||||||||||||||
| Commercial paper | 450 | — | — | — | 450 | ||||||||||||||
| Current portion of long-term debt | 6 | — | 17 | — | 23 | ||||||||||||||
| Accrued expenses and other current liabilities | 421 | 284 | 948 | (35 | ) | 1,618 | |||||||||||||
| Current liabilities of discontinued operations | — | — | 155 | — | 155 | ||||||||||||||
| Total current liabilities | 882 | 291 | 2,570 | (35 | ) | 3,708 | |||||||||||||
| Long-term debt | 8,798 | — | 104 | — | 8,902 | ||||||||||||||
| Other liabilities | 3,071 | 244 | 2,173 | — | 5,488 | ||||||||||||||
| Liabilities of discontinued operations | — | — | 2,451 | — | 2,451 | ||||||||||||||
| Intercompany | 28,761 | — | — | (28,761 | ) | — | |||||||||||||
Stockholders’ Equity: | |||||||||||||||||||
| Preferred stock | — | — | 126 | (126 | ) | — | |||||||||||||
| Common stock | 1 | 123 | 590 | (713 | ) | 1 | |||||||||||||
| Additional paid-in capital | 43,913 | — | 60,894 | (60,894 | ) | 43,913 | |||||||||||||
| Retained earnings (deficit) | (19,257 | ) | 15,483 | (13,838 | ) | (1,645 | ) | (19,257 | ) | ||||||||||
| Accumulated other comprehensive income (loss) | (767 | ) | 29 | 50 | (79 | ) | (767 | ) | |||||||||||
| 23,890 | 15,635 | 47,822 | (63,457 | ) | 23,890 | ||||||||||||||
| Less treasury stock, at cost | 20,201 | 331 | 4,800 | (5,131 | ) | 20,201 | |||||||||||||
| Total Stockholders’ Equity | 3,689 | 15,304 | 43,022 | (58,326 | ) | 3,689 | |||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 45,201 | $ | 15,839 | $ | 50,320 | $ | (87,122 | ) | $ | 24,238 | ||||||||
| Statement of Cash Flows | |||||||||||||||||||
| For the Year Ended December 31, 2017 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Net cash flow (used for) provided by operating activities | $ | (1,491 | ) | $ | (203 | ) | $ | 2,581 | $ | — | $ | 887 | |||||||
| Investing Activities: | |||||||||||||||||||
Acquisitions (including acquired television library), net of cash acquired | — | — | (270 | ) | — | (270 | ) | ||||||||||||
| Capital expenditures | — | (30 | ) | (155 | ) | — | (185 | ) | |||||||||||
| Investments in and advances to investee companies | — | — | (110 | ) | — | (110 | ) | ||||||||||||
| Proceeds from sale of investments | — | — | 10 | — | 10 | ||||||||||||||
| Proceeds from dispositions | — | — | 11 | — | 11 | ||||||||||||||
| Other investing activities | 22 | (1 | ) | — | — | 21 | |||||||||||||
| Net cash flow provided by (used for) investing activities from continuing operations | 22 | (31 | ) | (514 | ) | — | (523 | ) | |||||||||||
| Net cash flow provided by (used for) investing activities from discontinued operations | 1 | (5 | ) | (20 | ) | — | (24 | ) | |||||||||||
| Net cash flow provided by (used for) investing activities | 23 | (36 | ) | (534 | ) | — | (547 | ) | |||||||||||
| Financing Activities: | |||||||||||||||||||
| Proceeds from short-term debt borrowings, net | 229 | — | — | — | 229 | ||||||||||||||
| Proceeds from issuance of senior notes | 1,773 | — | — | — | 1,773 | ||||||||||||||
| Repayment of senior notes | (1,244 | ) | — | — | — | (1,244 | ) | ||||||||||||
| Proceeds from debt borrowings of CBS Radio | — | — | 40 | — | 40 | ||||||||||||||
| Repayment of debt borrowings of CBS Radio | — | — | (43 | ) | — | (43 | ) | ||||||||||||
| Payment of capital lease obligations | — | — | (18 | ) | — | (18 | ) | ||||||||||||
| Dividends | (296 | ) | — | — | — | (296 | ) | ||||||||||||
| Purchase of Company common stock | (1,111 | ) | — | — | — | (1,111 | ) | ||||||||||||
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (89 | ) | — | — | — | (89 | ) | ||||||||||||
| Proceeds from exercise of stock options | 91 | — | — | — | 91 | ||||||||||||||
| Other financing activities | (1 | ) | — | (8 | ) | — | (9 | ) | |||||||||||
| Increase (decrease) in intercompany payables | 1,968 | 239 | (2,207 | ) | — | — | |||||||||||||
| Net cash flow provided by (used for) financing activities | 1,320 | 239 | (2,236 | ) | — | (677 | ) | ||||||||||||
| Net decrease in cash and cash equivalents | (148 | ) | — | (189 | ) | — | (337 | ) | |||||||||||
| Cash and cash equivalents at beginning of year (includes $24 of discontinued operations cash) | 321 | — | 301 | — | 622 | ||||||||||||||
| Cash and cash equivalents at end of year | $ | 173 | $ | — | $ | 112 | $ | — | $ | 285 | |||||||||
| Statement of Cash Flows | |||||||||||||||||||
| For the Year Ended December 31, 2016 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Net cash flow (used for) provided by operating activities | $ | (846 | ) | $ | (157 | ) | $ | 2,688 | $ | — | $ | 1,685 | |||||||
| Investing Activities: | |||||||||||||||||||
| Acquisitions | — | — | (92 | ) | — | (92 | ) | ||||||||||||
| Capital expenditures | — | (33 | ) | (163 | ) | — | (196 | ) | |||||||||||
| Investments in and advances to investee companies | — | — | (81 | ) | — | (81 | ) | ||||||||||||
| Proceeds from dispositions | (4 | ) | — | 24 | — | 20 | |||||||||||||
| Other investing activities | 15 | — | — | — | 15 | ||||||||||||||
| Net cash flow provided by (used for) investing activities from continuing operations | 11 | (33 | ) | (312 | ) | — | (334 | ) | |||||||||||
| Net cash flow used for investing activities from discontinued operations | — | (1 | ) | (5 | ) | — | (6 | ) | |||||||||||
| Net cash flow provided by (used for) investing activities | 11 | (34 | ) | (317 | ) | — | (340 | ) | |||||||||||
| Financing Activities: | |||||||||||||||||||
| Proceeds from short-term debt borrowings, net | 450 | — | — | — | 450 | ||||||||||||||
| Proceeds from issuance of senior notes | 684 | — | — | — | 684 | ||||||||||||||
| Repayment of senior debentures | (199 | ) | — | — | — | (199 | ) | ||||||||||||
| Proceeds from debt borrowings of CBS Radio | — | — | 1,452 | — | 1,452 | ||||||||||||||
| Repayment of debt borrowings of CBS Radio | — | — | (110 | ) | — | (110 | ) | ||||||||||||
| Payment of capital lease obligations | — | — | (18 | ) | — | (18 | ) | ||||||||||||
| Dividends | (288 | ) | — | — | — | (288 | ) | ||||||||||||
| Purchase of Company common stock | (2,997 | ) | — | — | — | (2,997 | ) | ||||||||||||
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (58 | ) | — | — | — | (58 | ) | ||||||||||||
| Proceeds from exercise of stock options | 21 | — | — | — | 21 | ||||||||||||||
| Excess tax benefit from stock-based compensation | 17 | — | — | — | 17 | ||||||||||||||
| Increase (decrease) in intercompany payables | 3,259 | 190 | (3,449 | ) | — | — | |||||||||||||
| Net cash flow provided by (used for) financing activities | 889 | 190 | (2,125 | ) | — | (1,046 | ) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 54 | (1 | ) | 246 | — | 299 | |||||||||||||
| Cash and cash equivalents at beginning of year (includes $6 of discontinued operations cash) | 267 | 1 | 55 | — | 323 | ||||||||||||||
| Cash and cash equivalents at end of year (includes $24 of discontinued operations cash) | $ | 321 | $ | — | $ | 301 | $ | — | $ | 622 | |||||||||
| Statement of Cash Flows | |||||||||||||||||||
| For the Year Ended December 31, 2015 | |||||||||||||||||||
| CBS Corp. | CBS Operations Inc. | Non- Guarantor Affiliates | Eliminations | CBS Corp. Consolidated | |||||||||||||||
| Net cash flow (used for) provided by operating activities | $ | (634 | ) | $ | (201 | ) | $ | 2,229 | $ | — | $ | 1,394 | |||||||
| Investing Activities: | |||||||||||||||||||
| Acquisitions | — | — | (12 | ) | — | (12 | ) | ||||||||||||
| Capital expenditures | — | (16 | ) | (155 | ) | — | (171 | ) | |||||||||||
| Investments in and advances to investee companies | — | — | (98 | ) | — | (98 | ) | ||||||||||||
| Proceeds from sale of investments | 79 | — | 1 | — | 80 | ||||||||||||||
| Proceeds from dispositions | 318 | — | 65 | — | 383 | ||||||||||||||
| Other investing activities | (3 | ) | — | — | — | (3 | ) | ||||||||||||
| Net cash flow provided by (used for) investing activities from continuing operations | 394 | (16 | ) | (199 | ) | — | 179 | ||||||||||||
| Net cash flow used for investing activities from discontinued operations | (3 | ) | — | (22 | ) | — | (25 | ) | |||||||||||
| Net cash flow provided by (used for) investing activities | 391 | (16 | ) | (221 | ) | — | 154 | ||||||||||||
| Financing Activities: | |||||||||||||||||||
| Repayments of short-term debt borrowings, net | (616 | ) | — | — | — | (616 | ) | ||||||||||||
| Proceeds from issuance of senior notes | 1,959 | — | — | — | 1,959 | ||||||||||||||
| Payment of capital lease obligations | — | — | (17 | ) | — | (17 | ) | ||||||||||||
| Dividends | (300 | ) | — | — | — | (300 | ) | ||||||||||||
| Purchase of Company common stock | (2,813 | ) | — | — | — | (2,813 | ) | ||||||||||||
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (96 | ) | — | — | — | (96 | ) | ||||||||||||
| Proceeds from exercise of stock options | 142 | — | — | — | 142 | ||||||||||||||
| Excess tax benefit from stock-based compensation | 88 | — | — | — | 88 | ||||||||||||||
| Increase (decrease) in intercompany payables | 2,083 | 217 | (2,300 | ) | — | — | |||||||||||||
| Net cash flow provided by (used for) financing activities | 447 | 217 | (2,317 | ) | — | (1,653 | ) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 204 | — | (309 | ) | — | (105 | ) | ||||||||||||
Cash and cash equivalents at beginning of year (includes $6 of discontinued operations cash) | 63 | 1 | 364 | — | 428 | ||||||||||||||
Cash and cash equivalents at end of year (includes $6 of discontinued operations cash) | $ | 267 | $ | 1 | $ | 55 | $ | — | $ | 323 | |||||||||
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Management’s report on internal control over financial reporting and the report of the Company’sour independent registered public accounting firm thereon are set forth in Item 8, on pages II- 46II-49 and II - 47,II-50, of this report.
| Item 9B. | Other Information. |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance. |
The information required by this item with respect to the Company’s directors (i) is contained in Part I of this Form 10-K under the CBS Corporationcaption “Our Board of Directors” and (ii) will be contained in the ViacomCBS Inc. Proxy Statement for the Company’s 20182020 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings “CBS Corporation’s“ViacomCBS Board of Directors,”Directors” and “Item 1—Election1-Election of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.
The information required by this item with respect to the Company’s executive officers (i) is (i) contained in the Proxy Statement under the headings “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” and (ii) included in Part I of this Form 10-K under the caption “Executive Officers of“Information About Our Executive Officers” and (ii) will be contained in the Company,Proxy Statement under the heading “Corporate Governance,” which information is incorporated herein by reference.
| Item 11. | Executive Compensation. |
The information required by this item iswill be contained in the Proxy Statement under the headings “CBS Corporation’s“ViacomCBS’ Board of Directors,” “Director Compensation,” “Executive Compensation,” “Compensation Discussion and Analysis” and “Compensation Committee Report,” which information is incorporated herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item iswill be contained in the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item iswill be contained in the Proxy Statement under the headings “Related Person Transactions” and “CBS Corporation’s“ViacomCBS’ Board of Directors,” which information is incorporated herein by reference.
| Item 14. | Principal Accounting Fees and Services. |
The information required by this item iswill be contained in the Proxy Statement under the heading “Fees for Services Provided by the Independent Registered Public Accounting Firm,” which information is incorporated herein by reference.
PART IV
| Item 15. | Exhibits, Financial Statement Schedules. |
(a)
1. Financial Statements.
The financial statements of the CompanyViacomCBS filed as part of this report on Form 10-K are listed on the Index on page II-45.II-50.
2. Financial Statement Schedules.
The financial statement schedule required to be filed by Item 8 of this Form 10-K is listed on the Index on page II-45.II-50
3. Exhibits.
The exhibits listed in Item 15(b) of this Part IV are filed or incorporated by reference as part of this Form 10-K. The Index to Exhibits begins on page E-1.
| (b) | Exhibits. |
The exhibits listed in Item 15(b) of this Part IV are filed or incorporated by reference as part of this Form 10-K. The Index to Exhibits begins on page E-1.
| Item 16. | Form 10-K Summary. |
None.
VIACOMCBS INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Tabular dollars in millions)
| Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||||||||||||
| Description | Balance at Beginning of Period | Balance Acquired through Acquisitions | Charged to Expenses and Other Accounts | Deductions | Balance at End of Period | |||||||||||||||||||||||||
| Allowance for doubtful accounts: | ||||||||||||||||||||||||||||||
| Year ended December 31, 2019 | $ | 86 | $ | — | $ | 26 | $ | 26 | $ | 86 | ||||||||||||||||||||
| Year ended December 31, 2018 | $ | 101 | $ | — | $ | 26 | $ | 41 | $ | 86 | ||||||||||||||||||||
| Year ended December 31, 2017 | $ | 105 | $ | — | $ | 31 | $ | 35 | $ | 101 | ||||||||||||||||||||
| Valuation allowance on deferred tax assets: | ||||||||||||||||||||||||||||||
| Year ended December 31, 2019 | $ | 841 | $ | — | $ | 76 | $ | 366 | $ | 551 | ||||||||||||||||||||
| Year ended December 31, 2018 | $ | 1,120 | $ | — | $ | 37 | $ | 316 | $ | 841 | ||||||||||||||||||||
| Year ended December 31, 2017 | $ | 1,108 | $ | 218 | $ | 157 | $ | 363 | $ | 1,120 | ||||||||||||||||||||
| Reserves for inventory obsolescence: | ||||||||||||||||||||||||||||||
| Year ended December 31, 2019 | $ | 56 | $ | — | $ | 11 | $ | 6 | $ | 61 | ||||||||||||||||||||
| Year ended December 31, 2018 | $ | 67 | $ | — | $ | 5 | $ | 16 | $ | 56 | ||||||||||||||||||||
| Year ended December 31, 2017 | $ | 59 | $ | — | $ | 26 | $ | 18 | $ | 67 | ||||||||||||||||||||
| Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||||||||||||||||||
| Description | Balance at Beginning of Period | Balance Acquired through Acquisitions | Charged to Costs and Expenses | Charged to Other Accounts | Deductions | Balance at End of Period | ||||||||||||||||||||||||||||||
| Allowance for doubtful accounts: | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, 2017 | $ | 60 | $ | 1 | $ | 5 | $ | — | $ | 17 | $ | 49 | ||||||||||||||||||||||||
| Year ended December 31, 2016 | $ | 59 | $ | 1 | $ | 12 | $ | — | $ | 12 | $ | 60 | ||||||||||||||||||||||||
| Year ended December 31, 2015 | $ | 47 | $ | — | $ | 9 | $ | 15 | (a) | $ | 12 | $ | 59 | |||||||||||||||||||||||
| Valuation allowance on deferred tax assets: | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, 2017 | $ | 928 | $ | 218 | $ | 143 | $ | — | $ | 315 | $ | 974 | ||||||||||||||||||||||||
| Year ended December 31, 2016 | $ | 914 | $ | — | $ | 41 | $ | — | $ | 27 | $ | 928 | ||||||||||||||||||||||||
| Year ended December 31, 2015 | $ | 574 | $ | — | $ | 394 | (b) | $ | — | $ | 54 | $ | 914 | |||||||||||||||||||||||
| Reserves for inventory obsolescence: | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, 2017 | $ | 19 | $ | 1 | $ | 6 | $ | — | $ | 7 | $ | 19 | ||||||||||||||||||||||||
| Year ended December 31, 2016 | $ | 23 | $ | 1 | $ | 2 | $ | — | $ | 7 | $ | 19 | ||||||||||||||||||||||||
| Year ended December 31, 2015 | $ | 30 | $ | — | $ | 10 | $ | — | $ | 17 | $ | 23 | ||||||||||||||||||||||||
INDEX TO EXHIBITS
ITEM 15(b)
Effective December 31, 2005, Former Viacom was renamed CBS Corporation. Effective December 4, 2019, Viacom Inc. merged with and into CBS Corporation with CBS Corporation continuing as the surviving company and the combined company changed its name to “ViacomCBS Inc.”
| Exhibit No. | Description of Document | ||
| (2) | Plan of acquisition, reorganization, arrangement, liquidation or succession | ||
| (a) | Agreement and Plan of Merger, dated as of | ||
| (b) | Amendment No. | ||
| (3) | Articles of Incorporation and Bylaws | ||
| (a) | Amended and Restated Certificate of Incorporation of | ||
| (b) | Amended and Restated Bylaws of ViacomCBS Inc., effective as of December 4, 2019 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of CBS Corporation filed December 4, 2019) (File No. 001-09553). | ||
| (4) | Instruments defining the rights of security holders, including indentures | ||
| (a) | |||
| (b) | Amended and Restated Senior Indenture dated as of November 3, 2008 (“2008 Indenture”) among CBS Corporation, CBS Operations Inc., and The Bank of New York Mellon, as senior trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S‑3 of CBS Corporation filed November 3, 2008 (Registration No. 333‑154962) (File No. 001‑09553). | ||
First Supplemental Indenture to 2008 Indenture dated as of April 5, 2010 among CBS Corporation, CBS Operations Inc., and Deutsche Bank Trust Company Americas, as senior trustee (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8‑K of CBS Corporation filed April 5, 2010 (File No. 001‑09553). | |||
| (d) | Indenture, dated as of April 12, 2006, between Viacom Inc. and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Viacom Inc. filed April 17, 2006) (File No. 001-32686). | ||
| (e) | Twenty-First Supplemental Indenture, dated as of December 4, 2019, by and among CBS Corporation, Viacom Inc. and The Bank of New York Mellon, a New York banking corporation, as trustee (in such capacity, the “Trustee”), to the Indenture, dated as of April 12, 2006, between Viacom Inc. and the Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of ViacomCBS Inc. filed December 4, 2019) (File No. 001-09553). | ||
| The other instruments defining the rights of holders of the long‑term debt securities of | |||
| (10) | Material Contracts | ||
| (a) | CBS Corporation 2009 Long‑Term Incentive Plan (as amended and restated | ||
| (b) | Forms of Certificate and Terms and Conditions for equity awards for: | ||
| (i) | Stock Options (incorporated by reference to Exhibit 10(c)(ii) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2011) (File No. 001‑09553).* | ||
| (ii) | Performance‑Based Restricted Share Units with Time Vesting and Performance Vesting (incorporated by reference to Exhibit 10(c)(v) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2011) (File No. 001‑09553).* | ||
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
| Exhibit No. | Description of Document | ||
| (c) | CBS Corporation Senior Executive Short‑Term Incentive Plan (as amended and restated as of December 31, 2005) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2005) (File No. 001‑09553) (as amended by the First Amendment to the CBS Corporation Senior Executive Short‑Term Incentive Plan effective January 1, 2009) (incorporated by reference to Exhibit 10(d) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2008) (File No. 001‑09553).* | ||
| (d) | CBS Retirement Excess Pension Plan (as amended and restated as of December 31, 2005) (incorporated by reference to Exhibit 10(o) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2005) (File No. 001‑09553) (as Part A was amended by Amendment No. 1 as of January 1, 2009) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2010) (File No. 001‑09553) (as amended by Part B, effective as of January 1, 2009, as amended and restated as of January 1, 2012) (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2012) (File No. 001‑09553).* | ||
| (e) | CBS Excess 401(k) Plan for Designated Senior Executives (as amended and restated as of December 31, 2005) (incorporated by reference to Exhibit 10(p) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2005) (File No. 001‑09553) (as amended by Part B as of January 1, 2009) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2008) (File No. 001‑09553) (as Part B was amended by Amendment No. 1 as of January 1, 2009) (incorporated by reference to Exhibit 10(b) to the Quarterly Report on Form 10‑Q of CBS Corporation for the quarter ended March 31, 2010) (File No. 001‑09553) (as Part B was amended by Amendment No. 2 as of January 1, 2009) (incorporated by reference to Exhibit 10(h) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2010 (File No. 001‑09553) (as Part A was amended by Amendment No. 1 as of January 1, 2014) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2013) (File No. 001‑09553) (as Part B was amended by Amendment No. 3 as of January 1, 2014) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2013) (File No. 001‑09553) (as Part A was amended by Amendment No. 2 as of February 1, 2015) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2014) (File No. 001-09553), (as Part B was amended by Amendment No. 4 as of February 1, 2015) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2014) (File No. 001-09553) (as Part A was amended by Amendment No. 3 as of January 1, 2015) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2014) (File No. 001-09553) (as Part B was amended by Amendment No. 5 as of January 1, 2015) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2014) (File No. 001-09553) (as Part A was amended by Amendment No. 4 as of October 2, 2017) | ||
| (f) | CBS Bonus Deferral Plan for Designated Senior Executives (as amended and restated as of December 31, 2005) (incorporated by reference to Exhibit 10(q) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2005) (File No. 001‑09553) (as amended by Part B as of January 1, 2009) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2008) (File No. 001‑09553) (as Part B was amended by Amendment No. 1 as of January 1, 2009) (incorporated by reference to Exhibit 10(c) to the Quarterly Report on Form 10‑Q of CBS Corporation for the quarter ended March 31, 2010) (File No. 001‑09553) (as Part B was amended by Amendment No. 2 as of January 1, 2009) (incorporated by reference to Exhibit 10(i) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2010) (File No. 001‑09553) (as Part A was amended by Amendment No. 1 as of January 1, 2014) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2013) (File No. 001‑09553) (as Part B was amended by Amendment No. 3 as of January 1, 2014) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2013) (File No. 001‑09553) (as | ||
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
| Exhibit No. | Description of Document | ||
Part A was amended by Amendment No. 2 as of January 1, 2015) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2014) (File No. 001-09553) (as Part B was amended by Amendment No. 4 as of January 1, 2015) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2014) (File No. 001-09553) (as Part A was amended by Amendment No. 3 as of October 2, 2017) | |||
| (g) | Viacom Inc. 2016 Long-Term Management Incentive Plan (incorporated by reference to Exhibit A to the Definitive Proxy Statement of Viacom Inc. filed January 23, 2015) (File No. 001-32686).* | ||
| (h) | Forms of Terms and Conditions to the Certificates for equity awards for: | ||
| (i) | Stock Options (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Viacom Inc. for the quarter ended June 30, 2016) (File No. 001-32686).* | ||
| (ii) | Restricted Share Units (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Viacom Inc. for the quarter ended June 30, 2016) (File No. 001-32686).* | ||
| (iii) | Performance Share Units (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Viacom Inc. for the quarter ended December 31, 2017) (File No. 001-32686).* | ||
| (iv) | Performance Share Units (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Viacom Inc. for the quarter ended December 31, 2018) (File No. 001-32686).* | ||
| (i) | Viacom Excess Pension Plan, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 2008) (File No. 001-32686), and Amendment, effective as of March 31, 2009, to Viacom Excess Pension Plan, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.13 to the Transition Report on Form 10-K of Viacom Inc. for the nine-month transition period ended September 30, 2010) (File No. 001-32686).* | ||
| (j) | Viacom Excess 401(k) Plan for Designated Senior Executives, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 2008) (File No. 001-32686), and Amendments, effective as of April 1, 2009 and December 31, 2009, to Viacom Excess 401(k) Plan for Designated Senior Executives, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.15 to the Transition Report on Form 10-K of Viacom Inc. for the nine-month transition period ended September 30, 2010) (File No. 001-32686).* | ||
| (k) | Viacom Bonus Deferral Plan for Designated Senior Executives, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 2008) (File No. 001-32686), and Amendment, effective as of December 31, 2009, to Viacom Bonus Deferral Plan for Designated Senior Executives, as amended and restated January 1, 2009 (incorporated by reference to Exhibit 10.17 to the Transition Report on Form 10-K of Viacom Inc. for the nine-month transition period ended September 30, 2010) (File No. 001-32686).* | ||
| (l) | Summary of CBS Corporation Compensation for Outside Directors (as of January | ||
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10 to the Current Report on Form 8‑K of CBS Corporation filed September 18, 2009) (File No. 001‑09553).* | |||
CBS Corporation Deferred Compensation Plan for Outside Directors (as amended and restated as of January 29, 2015) (incorporated by reference to Exhibit 10(k) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2014) (File No. 001-09553).* | |||
CBS Corporation 2005 RSU Plan for Outside Directors (as amended and restated through January 29, 2015) (incorporated by reference to Exhibit 10(m) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2014) (File No. 001-09553).* | |||
CBS Corporation 2015 Equity Plan for Outside Directors (effective May 21, 2015) (incorporated by reference to Exhibit 10(a) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended June 30, 2015) (File No. 001-09553).* | |||
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
| Exhibit No. | Description of Document | ||
| (r) | CBS Corporation Senior Executive Retention Plan, including the form of Letter to Participants (incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-4 of CBS Corporation filed October 17, 2019 (Registration No. 333-234238) (File No. 001-09553).* | ||
Viacom Inc. Executive Retention Plan for Section 16 Officers (incorporated by reference to Exhibit 10.15 to CBS Corporation’s Registration Statement No. 333-234238 on Form S-4 filed October 17, 2019) (File No. 333-234238).* | |||
| (t) | Employment Agreement, dated as of August 13, 2019, between Viacom Inc. and Robert M. Bakish (incorporated by reference to Exhibit 10.4 to CBS Corporation’s Registration Statement No. 333-234238 on Form S-4 filed October 17, 2019) (File No. 333-234238).* | ||
| (u) | Letter Agreement, dated | ||
| (v) | Employment Agreement dated October 18, 2018 between CBS Corporation and | ||
| (w) | Employment Agreement, dated | ||
| (x) | Employment Agreement, dated as of August 13, 2019, between Viacom Inc. and Christa A. D’Alimonte (incorporated by reference to Exhibit 10.9 to CBS Corporation’s Registration Statement No. 333-234238 on Form S-4 filed October 17, 2019) (File No. 333-234238).* | ||
| (y) | Letter Agreement, dated as of August 13, 2019, between Viacom Inc. and Christa A. D’Alimonte (incorporated by reference to Exhibit 10.10 to CBS Corporation’s Registration Statement No. 333-234238 on Form S-4 filed October 17, 2019) (File No. 333-234238).* | ||
| (z) | Employment Agreement dated as of January 1, 2019 between CBS Corporation and Richard M. Jones (incorporated by reference to Exhibit 10(r) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, | ||
Employment Agreement, dated as of November 19, 2019, between CBS Corporation and Richard M. Jones (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of CBS Corporation filed November 22, 2019) (File No. 001-09553).* | |||
| (bb) | Employment Agreement, dated as of December 2, 2019, between Viacom Inc. and Nancy Phillips (filed herewith).* | ||
| (cc) | Letter Agreement, dated as of December 2, 2019, between Viacom Inc. and Nancy Phillips (filed herewith).* | ||
| (dd) | Employment Agreement dated as of July 1, 2017 between CBS Corporation and Joseph R. Ianniello (incorporated by reference to Exhibit 10(a) | ||
Letter Agreement dated as of April 23, 2019 between CBS Corporation and Joseph R. Ianniello (incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of CBS Corporation filed April 26, 2019) (File No. 001-09553).* | |||
| (ff) | Letter Agreement, dated as of August 13, 2019, between CBS Corporation and Joseph R. Ianniello (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of CBS Corporation filed October 17, 2019 (Registration No. 333-234238) (File No. 001-09553)).* | ||
| (gg) | Employment Agreement, dated as of December 4, 2019, between ViacomCBS Inc. and Joseph R. Ianniello (filed herewith).* | ||
| (hh) | Letter Agreement, dated as of January 31, 2020, between ViacomCBS Inc. and Joseph R. Ianniello (filed herewith).* | ||
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
| Exhibit No. | Description of Document | ||
| (ii) | Employment Agreement, dated as of August 13, 2019, between CBS Corporation and Laura Franco (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-4 of CBS Corporation filed October 17, 2019) (Registration No. 333-234238) (File No. 001-09553).* | ||
| (jj) | Employment Agreement dated as of December 10, 2019 between CBS Corporation and Jonathan H. Anschell (filed herewith).* | ||
| (kk) | Employment Agreement dated as of June 1, 2017 between CBS Corporation and Lawrence P. Tu (incorporated by reference to Exhibit 10(b) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended September 30, 2017) (File No. 001-09553), as amended by Letter Agreement dated April 25, 2018 (incorporated by reference to Exhibit 10(a) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended March 31, 2018) (File No. 001-09553).* | ||
Separation Agreement dated February 22, 2019 between CBS Corporation | |||
| (mm) | Plans assumed by Former Viacom after the merger with former CBS Corporation in May 2000, consisting of the following: | ||
| (i) | CBS Supplemental Executive Retirement Plan (as amended as of April 1, 1999) (incorporated by reference to Exhibit 10(h) to the Quarterly Report on Form 10‑Q of CBS for the quarter ended September 30, 1999) (File No. 001‑00977) (as amended by Part B, effective as of January 1, 2009, as amended and restated as of January 1, 2012) (incorporated by reference to Exhibit 10(t)(i) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2012) (File No. 001‑09553).* | ||
| (ii) | CBS Bonus Supplemental Executive Retirement Plan (as amended as of April 1, 1999) (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10‑Q of CBS for the quarter ended September 30, 1999) (File No. 001‑00977) (as amended by Part B, effective as of January 1, 2009, as amended and restated as of January 1, 2012) (incorporated by reference to Exhibit 10(t)(ii) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2012) (File No. 001‑09553).* | ||
| (iii) | CBS Supplemental Employee Investment Fund (as amended as of January 1, 1998) (incorporated by reference to Exhibit 10(j) to the Quarterly Report on Form 10‑Q of CBS for the quarter ended September 30, 1999) (File No. 001‑00977).* | ||
| (oo) | Amended and Restated $3.5 Billion Credit Agreement, dated as of January 23, 2020, among ViacomCBS Inc.; the Subsidiary Borrowers party thereto; the Lenders named therein; JPMorgan Chase Bank, N.A., as Administrative Agent; Citibank, N.A., Bank of America, N.A. and Wells Fargo Bank, National Association, as Syndication Agents; and Deutsche Bank Securities Inc., Goldman Sachs Bank USA, Mizuho Bank, Ltd. and Morgan Stanley MUFG Loan Partners, LLC, as Documentation Agents (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of ViacomCBS Inc. filed January 23, 2020) (File No. 001-09553). | ||
| (pp) | Settlement and Release Agreement effective as of September 9, 2018 (incorporated by reference to Exhibit 10(a) to the Current Report on Form 8-K of CBS Corporation filed September 10, 2018) (File No. 001-09553). | ||
| (qq) | Amendment No. 1 to the Settlement and Release Agreement, dated as of August 13, 2019, by and among the parties listed therein (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of CBS Corporation filed August 19, 2019) (File No. 001-09553). | ||
| (rr) | Support Agreement, dated as of August 13, 2019, by and among the parties listed therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of CBS Corporation filed August 19, 2019) (File No. 001-09553). | ||
| (ss) | Governance Agreement, dated as of August 13, 2019, by and among the parties listed therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of CBS Corporation filed August 19, 2019) (File No. 001-09553). | ||
*Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(b).
| Exhibit No. | Description of Document | ||
| (21) | |||
| (23) | Consents of Experts and Counsel | ||
| (a) | |||
| (24) | |||
| (31) | Rule 13a‑14(a)/15d‑14(a) Certifications | ||
| (a) | Certification of the Chief Executive Officer of | ||
| (b) | Certification of the Chief Financial Officer of | ||
| (32) | Section 1350 Certifications | ||
| (a) | Certification of the Chief Executive Officer of | ||
| (b) | Certification of the Chief Financial Officer of | ||
| (101) | Interactive Data File | ||
101. INS XBRL Instance 101. SCH XBRL Taxonomy Extension Schema. 101. CAL XBRL Taxonomy Extension Calculation Linkbase. 101. DEF XBRL Taxonomy Extension Definition Linkbase. 101. LAB XBRL Taxonomy Extension Label Linkbase. 101. PRE XBRL Taxonomy Extension Presentation Linkbase. | |||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CBS CorporationViacomCBS Inc. has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| By: | /s/ | ||
Chief Executive Officer | |||
Date: February 16, 201820, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of CBS CorporationViacomCBS Inc. and in the capacities and on the dates indicated:
| Signature | Title | Date | |||
| /s/ | Executive (Principal Executive Officer) | February | |||
| /s/ | Executive Vice President, Chief (Principal Financial Officer) | February | |||
| /s/ | Executive Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) | February | |||
| * | Director | February | |||
| * | Director | February | |||
| * | Director | February | |||
| * | Director | February | |||
| Signature | Title | Date | |||
| * | Director | February | |||
| Robert N. Klieger | |||||
| * | Director | February | |||
| * | Director | February | |||
| * | Director | February | |||
| * | Chair | February 20, 2020 | |||
| Shari E. Redstone | |||||
| * | Director | February | |||
| * | Director | February 20, 2020 | |||
| Nicole Seligman | |||||
| * | Director | February 20, 2020 | |||
| Frederick O. Terrell | |||||
| *By: | /s/ | February | |||
Attorney-in-Fact for Directors | |||||